Bitcoin Vs Stablecoins For Payments/Remittance

In the world of cryptocurrency, payment solutions have long been debated, with Bitcoin and stablecoins often being at the forefront. However, each has its strengths and weaknesses, which we'll delve into below.

What is the Lightning Network?

The Lightning Network is an innovative solution aimed at solving Bitcoin's scalability issues. Built on the concept of payment channels, it allows for nearly unlimited transactions between two parties. When a channel is opened, the transacting parties can seamlessly send Bitcoin back and forth. Importantly, these transactions aren't recorded on the main Bitcoin blockchain until the channel is closed. At that point, all the channel's individual transactions are bundled into one and added to the blockchain.

Lightning Network Statistics (as of 15th Oct 2023):

Number of Nodes: 14,895 (a decrease of 8.28% in the past 30 days)

Number of Channels: 64,042 (a decrease of 6.93% in the past 30 days)

Network Capacity: 5,254.63 BTC or approximately $141,247,135.71

Source: https://bitcoinvisuals.com/ln-capacity

The graph above represents the Lightning Network's capacity over time, depicted in two different metrics: the number of Bitcoins (shown by the orange line) and the value in USD (shown by the blue line). Here's a breakdown of the graph spanning from January 15, 2018 to October 19, 2023:

• We can see a general upward trend from 2018 to 2023, indicating an increase in the number of Bitcoins committed to the Lightning Network over time, especially noticeable around mid-2021 to 2022, but the general trajectory is upwards.
• The blue line's trajectory is quite interesting. While it does move upwards like the orange line, it has more pronounced peaks and troughs. This can be attributed to Bitcoin's volatile price.
• The capacity in USD can increase even if the Bitcoin capacity remains the same or decreases, if the price of Bitcoin itself shoots up. Conversely, even if more Bitcoins are added to the network, the USD value might drop if Bitcoin's price drops significantly.

Median Base Fee: 0.465024 sat, equivalent to $0.000125001

Problems with BTC lightning for payments and remittances:

Low Liquidity: With a network capacity of $141M against Bitcoin's market cap of $540B, it's evident that the majority prefer holding Bitcoin as an investment rather than using it for transactions.

Rising Costs: The cost to open a channel to a node is on the rise, primarily because of increased Bitcoin transaction fees.

Network Congestion: The Bitcoin network faces congestion, with sometimes around 400,000 transactions pending. This is aggravated by the introduction of ordinals on Bitcoin, which enable the creation of unique tokens like NFTs and BRC-20 tokens.

Lack of Support in Africa: Many African exchanges don’t yet support lightning, but they already offer stablecoins.

Bitcoin's Volatility: Bitcoin's notorious price volatility poses risks for channel owners on the Lightning Network. This volatility can lead to significant losses while facilitating transfers.

Stablecoins Hold the Edge: The market cap of USDC, a popular stablecoin, stands at $25B. Stablecoins, not expected to appreciate over time, are more attractive for transactions and remittances.

Comparing Speeds of Various Networks:

Credit Card Networks: Average processing capability is around 6,000 TPS, but Visa claims a potential of 24,000 TPS.

The Lightning Network: Can theoretically handle up to 1,000,000 TPS.

Bitcoin Blockchain: Processes around 7 TPS.

Ethereum: Has a TPS of about 30.

Solana: Boasts up to 65,000 TPS. Notably, Visa has entered a partnership with Solana for USDC payments.

Conclusion:

When considering remittances and payment applications, the merits of stablecoins are hard to ignore. The challenges surrounding the Lightning Network, including Bitcoin's inherent volatility and the subsequent risks for channel owners, make stablecoins the more practical choice for such applications. With high liquidity, widespread adoption, and significant partnerships like Visa's alliance with Solana and MoneyGram's collaboration with Circle USDC on the Stellar blockchain, it's clear that stablecoins hold a distinct advantage in the realm of remittances and payments over BTC Lightning.

Want to read about how stablecoins are changing the landscape of remittances? Coinchange’s research team has put together an extensive research report on Stablecoin Landscape and the Remittance Use Case, in collaboration with Circle, The Hedera Network, Myna, UnoCoin, Glo Dollar, Brale and Ethereum Enterprise Alliance.