Insights, news and analysis for the professional investor |
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Bitcoin (BTC) - $23,146.38 |
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Prices as of 8/5/22 @ 3:11 p.m. UTC |
Welcome to Crypto Long & Short! Some of the wonderful managing editors at CoinDesk are letting me take time off for most of this week, so we've handed off this weekend's Crypto Long & Short to my (far more capable, but far less volatile) colleague Frederick Munawa. We apologize for the whiplash. As a tech reporter focused on Bitcoin, Frederick knows all about what is happening in the original blockchain. So when he saw this tweet, he thought it would be appropriate to drop some knowledge about "Bitcoin apps." Ergo, this week he is going to discuss developments with Bitcoin's most promising scaling system, the Lightning Network. Hope you enjoy! – George Kaloudis, from a cabin in the woods somewhere |
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While market analysts have been panicking about crypto winter, Bitcoin developers have been quietly building more apps. According to a report by Arcane Research, the Lightning Network in particular has developed a diverse ecosystem of over 100 apps across at least 20 categories. Lightning strikes Earlier this year, Lightning's user base shot through the roof when Block (SQ) integrated Lightning into its popular Cash App, which has over 70 million users. Just a few months before that, in September 2021, Bitcoin marketplace Paxful had integrated Lightning into its wallet and El Salvador's government had launched the Lighting-compatible Chivo bitcoin (BTC) wallet. Paxful has a user base of roughly 7 million and Chivo is used by 3 million to 4 million Salvadorans (although Chivo usage has noticeably dropped since the wallet's launch). Arcane Research suggests these three events catapulted the Lightning user base from a modest 100,000 users to over 80 million potential users in a matter of months. It's important to note that many of these potential users only have access to Lightning but don't necessarily use it. Nevertheless, payment volume subsequently increased by 410% between the first quarter of 2021 and the first quarter of 2022. |
A graph showing the number of users with access to Lightning payments between August 2021 and March 2022 (Arcane Research) Read more: Block's Cash App Is Finally Integrating the Lightning Network As of this writing, the Lightning Network's capacity – the total amount of bitcoin in the network – has reached an all-time high of 4,351 BTC, equivalent to almost $100 million. The list of exchanges that have integrated Lightning is steadily growing, with Kraken, Okcoin and OKEx being the most recent additions. According to Bitcoin Visuals, the number of nodes at the end of July 2021 was around 13,391. That figure has increased by roughly 27% to almost 17,000 nodes. (The actual node count will always be higher as there is a significant number of private nodes that are not included in public data.) These increases in capacity, exchange integration and node count all point toward increased user adoption. Battle of the layers A recent tweet sparked a conversation about the number of apps being developed on top of Bitcoin and Lightning and how that compares with developer work on other chains. |
How does Bitcoin compare with Ethereum and how does Lightning compare with Ethereum's largest layer 2 scaling system Polygon? A previous CoinDesk article analyzed numbers from venture firm Electric Capital's 2021 developer report. The report estimates that Bitcoin has less than 700 monthly active developers while Ethereum has over 4,000. This is a huge difference, especially considering Bitcoin currently has a market capitalization of around $440 billion while Ethereum's market capitalization sits at about $196 billion. The difference in public ownership of the two cryptocurrencies is even greater. Crypto.com, a popular cryptocurrency exchange, puts the number of bitcoin owners at approximately 176 million and the number of ether (ETH) owners at roughly 23 million. Read more: What's the Healthiest Chart in Crypto? The Developer Count Similar disparities can be seen at the layer 2 level. Polygon claims to have 8,000 monthly active developer teams and 19,000 decentralized applications (dapps) running on its mainnet and testnet (Polygon's live and testing environments, respectively). These numbers dwarf the 100 or so apps in the Lightning ecosystem. Based on these metrics, one might erroneously conclude that Ethereum and Polygon are healthier ecosystems than Bitcoin and Lightning. However, a closer look reveals that a direct comparison may not be possible. First, the Bitcoin blockchain was designed to make bitcoin (the cryptocurrency) its primary product. In fact, the Bitcoin and Lightning ecosystems are almost exclusively focused on money and payments. Ethereum, on the other hand, was primarily designed to facilitate dapp creation. Therefore, it only makes sense to have more developers building apps on Ethereum than on Bitcoin. Second, both Ethereum and Polygon are token-focused platforms. Initial coin offerings (ICO), decentralized finance (DeFi) and non-fungible tokens (NFT) are all products of the token economy. Arcane Research suggests that token economies tend to attract more investors and developers. However, Arcane also highlighted the recent increase in Lightning-focused funding. It will be interesting to see whether investor capital shifts towards Bitcoin and Lightning given the recent implosion of prominent DeFi platforms. 100 flashes of Lightning Arcane Research created an infographic showing a vast collection of apps that have been built in the Lightning ecosystem. |
An infographic showing over 100 Lightning applications across multiple categories (Arcane Research) Here are some highlights from that collection:
Lightning-enabled bitcoin wallets
Phoenix is a self-custody Lightning-enabled bitcoin wallet available to both Android and iOS users. ACINQ, the company behind Phoenix, is a French Bitcoin scaling firm that has been around since 2014. The company also created the popular Eclair Mobile wallet, which is one of the first mobile Lightning wallets ever developed. ACINQ has since discontinued Eclair Mobile and recommends Phoenix as a replacement. Other notable wallets include BlueWallet, Breez and Electrum.
Node management software
Terminal helps Lightning node operators manage their nodes. Lightning infrastructure firm Lightning Labs, creators of Terminal, recently unveiled Autoloop – an enhancement that automates Terminal's liquidity management functionality. Liquidity on the Lightning Network refers to how easily bitcoin moves between network participants. To maximize liquidity, node operators will optimize their nodes differently based on each operator's primary use case (e.g., sending vs. receiving payments). Autoloop automates this optimization process. |
Node-as-a-Service Voltage, Greenlight and Bitnoder provide managed node operations. If a person or company wants to run a Bitcoin or Lightning node (or both), they can simply outsource that entire function to one of these firms for a fee. Blockdaemon also provides node-as-a-service solutions but is not Bitcoin-exclusive. Read more: What Are Bitcoin Nodes and Why Do We Need Them?
Podcasts and streaming
Fountain and Lightning.video pay content creators for their work. Fountain is a Lightning-powered podcasting platform that pays both hosts and listeners for performing value-adding activities. Hosts get rewarded by listeners for creating quality podcasts while listeners get paid by hosts for listening to and sharing podcast episodes. Lightning.video, for example, allows users to create video content behind "micro paywalls" – restricted access that can be unlocked by micropayments as low as a few satoshis (one satoshi = one hundred millionth of a bitcoin).
Gaming
THNDR Games is a mobile app that offers bitcoin rewards to gamers. The app is available on both Android and iOS and features four games: - Bitcoin Bay
- Bitcoin Bounce
- Turbo 84
- Bitcoin Snake
Desiree Dickerson, CEO of THNDR Games, describes her mission as "gamifying the world with bitcoin." Read more: Lightning Payments Come to Mobile Games, Fueling Bitcoin Adoption
Newcomers: Lightning-enabled browser extensions
Developers are adding new apps to the Lightning ecosystem regularly. For instance, Alby is a recently launched browser extension that enables in-browser Lightning payments. It's like Bitcoin's version of MetaMask – a widely used, browser-based Ethereum wallet. |
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BlockRock and Coinbase have partnered to offer crypto directly to institutional investors. - WHY IT MATTERS: BlackRock (BLK), the world's biggest asset manager, formed a partnership with Coinbase (COIN), the publicly traded crypto exchange, to offer crypto for institutional investors. BlackRock Global Head of Strategic Ecosystem Partnerships Joseph Chalom said, "Our institutional clients are increasingly interested in gaining exposure to digital asset markets and are focused on how to efficiently manage the operational lifecycle of these assets." The partnership will broaden access to crypto among institutional investors. Read more here.
Michael Saylor stepped down as MicroStrategy CEO. - WHY IT MATTERS: Saylor, one of the most vocal voices backing bitcoin, handed the chief executive officer role at MicroStrategy to Phong Le, who had been the company's president. In an Aug. 2 statement, Saylor said, "As executive chairman I will be able to focus more on our bitcoin acquisition strategy and related bitcoin advocacy initiatives…" MicroStrategy (MSTR) stock was up nearly 15% on Aug, 3, a day after Saylor announced the move. Read more here.
A study published by the European Central Bank (ECB) said BTC and stablecoins are the worst of all options for cutting the cost and time associated with cross-border payments. - WHY IT MATTERS: "The Holy Grail of cross-border payments is a solution allowing cross-border payments to be immediate, cheap, universal and settled in a secure settlement medium," said the study. The report stated a bitcoin-based system wouldn't work because of its "inherently inefficient" proof-of-work consensus mechanism, the "widespread" use for criminal purposes and the volatility of the asset. Read more here.
Bitcoin's difficulty ribbon is compressing suggesting bitcoin's decline may be flattening. - WHY IT MATTERS: The bitcoin mining difficult ribbon, comprising short and long-duration simple moving averages on the mining difficulty, has compressed for the first time in over a year. Data provided by analytics firm Glassnode shows that previous bear markets have ended with the ribbon compression. Markus Thielen, chief investment officer at British Virgin Islands-based IDEG Asset Management, said, "The bitcoin ribbon data set has historically proven to be an optimal entry point indicator and I believe this time it will show its predictive power again." Read more here.
Riot Blockchain mined 28% less bitcoin in July. - WHY IT MATTERS: One of the world's largest bitcoin miners said it produced 318 bitcoins in July, 28% fewer than in July of last year, as it shut down operations to accommodate the high energy demand during a heat wave in Texas. CEO Jason Les said on Aug. 3, "As energy demand in ERCOT (Electric Reliability Council of Texas) reached all-time highs this past month, the company voluntarily curtailed its energy consumption in order to ensure that more power would be available in Texas." While mining less bitcoin, Riot Blockchain's lower energy consumption helped the miner generate $9.5 million in power credits. Read more here.
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