Binance’s Engagement with Bitcoin Lightning Network: A Deep Dive
Binance, the world’s premier cryptocurrency exchange, boasts a significant Bitcoin trading volume. They integrated the Bitcoin Lightning Network a couple of months ago. However, recent data shows that Binance’s activity on this second layer of Bitcoin doesn’t match that of some competitors.
Understanding the Lightning Network
The Lightning Network (LN) acts as a Layer-2 mechanism, enhancing Bitcoin transaction scalability. In this system, two participants create a bilateral channel by depositing BTC into a shared wallet, often called a multi-sig wallet. Transactions within this channel get confirmed faster and attract fewer network fees. Later, participants can reconcile the balances to Bitcoin’s primary layer.
Binance’s Activity on the Lightning Network
Interestingly, Binance set up its first Lightning Network channel about 62 days ago. But the latest data indicates no new channel creation in the last month. The total capacity of Binance’s Node, standing at 34 BTC, hasn’t changed since late July. This capacity represents the Bitcoin amount across their six channels, available for user transactions.
How Other Exchanges Fare
For comparison, Bitfinex, another crypto exchange, leads in Lightning Network adoption. They manage two Bitcoin LN nodes with capacities of 404 BTC across 929 channels and 480 BTC across 915 channels. They established their most recent channels just a few hours before this report. Similarly, Kraken, another major player in the crypto world, operates a single node with a capacity of 324 BTC across 1,509 channels. They created their newest channel just two hours before this analysis.
Binance’s Market Dominance vs. LN Usage
Even though Binance dominates the Bitcoin trading scene with over $837 million in BTC pairs traded in the last day, their use of the Lightning Network seems limited. This limited use surprises many, especially given the crypto community’s eagerness for Binance to integrate this second layer.
Update on Binance’s LN Integration
An important update: New information reveals that Binance’s Lightning Network integration works, but retail users can’t establish direct channels with Binance. They must use intermediary nodes for their transactions. This detail emerged after highlighting that Kraken allows direct channel openings, but Binance doesn’t provide this feature to its general users.