On the heels of Bitpay and Square this week, Robinhood has become the latest big player to announce its integration of Bitcoin’s Lightning Network, which enables faster transactions involving the cryptocurrency.
The so-called second-layer application appears to be the what’s next for the largest cryptocurrency as it takes center stage at the annual Bitcoin conference.
“Every exchange, if they're going to be competitive, needs to add lightning,” Microstrategy CEO Michael Saylor said Thursday in a fireside chat with ARK Invest founder Cathie Wood.
Scalability is a problem all major cryptocurrencies and their underlying blockchains must overcome to progress beyond anything more than speculative trading assets. Each crypto’s scaling strategy has a different twist but Bitcoin’s hinges on getting more people to use the Lightning network.
The Lightning Network is one of the few second-layer applications built on top of Bitcoin. Its primary purpose is to allow off-chain transactions to enhance transaction speed while lowering energy usage and cost. The application is one of the only existing routes currently offered to allow the cryptocurrency to scale as a payments network.
Crypto payments processor Bitpay announced Wednesday it would integrate Bitcoin’s Lightning Network for faster and cheaper transactions. Jack Dorsey’s Block (formerly Square) followed suit Thursday morning, adding Lightning Network support in addition to a payment feature that lets the BTC hungry “auto-invest” their paychecks into the asset on their mobile payments app, Cash App.
“In the last few months, I think Bitcoin and other crypto assets have gone from being a passive asset class, to something more,” Aparna Chennapragada, Robinhood’s chief product officer, said on stage early Thursday afternoon in a keynote address, announcing the trading apps own support of the Lightning Network.
Chennapragada said now that Robinhood has officially rolled out its long awaited crypto wallet functionality to two million users, the retail-focused broker wants to focus on new investing opportunities for customers that are powered by crypto.
Speaking to Yahoo Finance, Chennapragada laid out Robinhood’s crypto strategy in three acts.
“The first was 24/7 customer support, the second has been adding crypto wallets and the third is starting to power very kind of broad use cases — the Lightning Network is one of them,” Chennapragada said. “We want to be the cheapest place to trade crypto. Now you can send and receive it.”
Running parallel to Chennapragada's announcement is the company's strategy to expand to retail investors outside of the U.S.
“As we add things like the Lightning Network, we want to be able to go into new markets with the crypto first,” Chennapragada added. “That is imminent.”
Shares of Robinhood ($HOOD) were down 2.96% at $12.15 apiece on Thursday afternoon after the announcement. Its stock is down around 32% since the start of the year.
While Bitcoin’s Lightning Networks has steadily grown in usage and network size, El Salvador’s move to make Bitcoin legal tender as well as Twitter’s decision to integrate the technology through its platform spiked the network’s growth last year.
According to a Lightning Network dashboard by Bitcoin analyst Willy Woo, the Lightning Network more than tripled last year, but it can only hold $161 million in BTC, a 6% increase in capacity over the last 30 days.
As of Wednesday, Bitcoin developer firm, Lightning Labs, raised $70 million after building a new protocol, Taro, which will enable users to send and receive stablecoins on the Lightning Network.
Created in the wake of the financial crisis, Bitcoin was promoted early on as an alternative payments network separated from the monetary order of governments. It's less used for payments and more often dubbed as a "digital gold” store of value.
Up more than 14% in the last month but off by 5% from its 2022 high of $47,454, bitcoin has traded like a risk-on asset this year that’s fared losses better than the NASDAQ, with its 60-day correlation to the S&P 500 (>.5) close to its peak, according to Coin Metrics.
“Bitcoin is the first global private digital-rules based monetary system in the history of the world,” Wood said. “It is a very big idea.”
David Hollerith covers cryptocurrency for Yahoo Finance. Follow him @dshollers.