By Landon Manning
Binance, by far the world’s largest cryptocurrency exchange in trading volume, has integrated Bitcoin’s Lightning Network protocol, enabling more efficient deposits and withdrawals and signaling support for Bitcoin’s answer to the efficiency and scale of payments networks like Visa or Mastercard.
The adoption was announced via a blog post from Binance that described, in fairly barebones language, the terms for this new functionality. Binance confirmed that it was working on Lightning Network integration after rumors to that effect in late June 2023.
Essentially, the Lightning Network enables near-instant bitcoin payments by allowing users to accumulate microtransactions in Lightning channels, and only settling their final balance on Bitcoin’s underlying blockchain when these channels are closed. And while the Lightning Network has been enabling more efficient bitcoin payments for years, it wasn’t until Binance truly suffered from relatively-burdensome main-chain transactions that it opted to evolve.
As Bitcoin’s new Ordinals protocol allowed users to “inscribe” arbitrary data to their bitcoin — creating a form of nun-fungible token (NFT) on the world’s most secure and robust blockchain — demand for Bitcoin block space and the subsequent transaction fees spiked. This spike forced Binance to temporarily suspend bitcoin withdrawals, resulting in significant concern from users.
Legal professionals were quick to decry this pause as a black mark against Binance and the Bitcoin economy itself. But the silver lining could be the wider proliferation of the Lightning Network as an antidote to further blockchain clogging. As Bitcoin transactions were becoming more expensive, the Lightning Network has been able to maintain cheap transaction fees. And even though the staying power of Ordinals is an open question, the fact remains that the Lightning Network is a promising solution to enable Bitcoin payments, regardless of similar congestion in the future.
And Binance is not alone in having embraced this solution, as it joined an ever-growing list of major exchanges operating this transformational protocol.
Regardless of how the future plays out for Bitcoin tokenization, its drawbacks are already being accounted for with the Lightning Network’s parallel growth. And now with support from what is far and away the world’s largest cryptocurrency exchange, it seems like the whole community is ready and able to implement these experimental solutions to great effect.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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