The Lightning Network Is Beneficial For Small-Scale Bitcoin Miners Pre-Halving

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Momentum around Bitcoin (BTC) continues to build as the Halving Event quickly approaches, and the Lightning Network is playing an important role in supporting small-scale miners. Bitcoin miners, in particular, have been paying close attention to how this year’s halving may impact operations.

For instance, as mining rewards decrease due to the halving, miner efficiency has become more important. As a result, large-scale miners have been seeking energy-efficient ways to carry out operations. 

The halving will also impact small-scale miners. Jesse Shrader, Co-Founder and CEO of Amboss, told Cryptonews that Bitcoin mining pools, particularly, will receive fewer Bitcoins due to the halving. Shrader added that rising transaction fees will create additional challenges. 

“In order to provide miner payouts, third-party mining pools will have to pay increasing transaction fees,” said Shrader. “This means that all miners participating in pools will likely have to reach at least .1 BTC before receiving a payout.”

The Lightning Network Helps Small-Scale Miners

Shrader believes miners supporting the Lightning Network (LN) can combat the abovementioned challenges.

The LN is a layer-2 solution for the Bitcoin blockchain. It leverages payment channels, enabling peer-to-peer payments between two parties outside of the expensive main Bitcoin blockchain.

Once established, LN channels allow transacting parties to send an unlimited number of nearly instant transactions, which are also much less expensive than transactions made on the Bitcoin blockchain.

“Mining pools will need to use LN for payouts as this allows for a reusable payment infrastructure, rather than having mining pools pay multiple, separate transactions for payouts,” said Shrader.

4/7 The #LightningNetwork saw an adoption spike, with 13.5% of Bitcoin payments made on it in March.

This shows users prefer a faster and more efficient way to spend BTC. pic.twitter.com/3UvNPTijkP

— CoinGate (@CoinGatecom) April 11, 2024

While LN was launched in 2018 and is primarily used by hobbyists, Shrader noted that businesses increasingly leverage the network. 

“Amboss is a discoverability platform for The Lightning Network that helps establish the needed peer-to-peer channels,” he said. “We have also been doing data analytics on LN and have noticed that the customer base has shifted more towards businesses.”

Small-Scale Miners Add Support For Lighting Network Pre-Halving

Indeed, it appears logical for small-scale mining pools to use LN for payouts. 

“NiceHash, for example, has already been using LN for this,” said Shrader. 

What’s better than getting paid out every 4 hours in #Bitcoin? Getting your mining payouts on the #LightningNetwork!

NiceHash launches the world’s first automated mining Lightning payouts! As if you needed another reason to mine with us… #innovation#cryptomining… pic.twitter.com/jrWUKt73N3

— NiceHash (@NiceHashMining) March 1, 2024

According to a NiceHash blog post published on March 1, NiceHash began supporting manual LN withdrawals in 2020. 

The post explains that NiceHash miners can receive mining payouts directly to an external Lightning Network Address. This enables instant mining payouts every 4 hours without Bitcoin blockchain transaction fees. 

As stated on the NiceHash website, miners who do not use the Lightning Network (LN) are subject to a transaction fee of 0.0001 BTC or higher, depending on the current Bitcoin blockchain conditions.

This is particularly important to consider as the Bitcoin Halving Event approaches, which will increase Bitcoin transaction fees.

More Small-Scale Miners Implement LN 

Kristian Csepcsar, CMO at Braiins – a leading mining pool in the Bitcoin industry – told Cryptonews that The Lighting Network was also just implemented into the Braiins Pool platform. 

Introducing Lightning payouts

We are excited to be the first mining pool using the Lightning Network.

Our miners can now instantly receive rewards with no minimums or fees. pic.twitter.com/h1GSvxj78D

— Braiins (@BraiinsMining) February 21, 2024

“As of today, the Braiins Pool platform supports LN,” said Csepsar. “Braiins Pool is the longest running mining pool since 2010 with over 1.3 million BTC mined.”

Support for LN on Braiins is an important development, as Csepsar noted that many small miners, hobby miners, or miners using home heating divides and mini miners will benefit. 

“All of these use cases produce very tiny amounts of rewards, so it is difficult to payout these miners on-chain,” he said. “For these reasons, we have launched LN payouts, so that even a home miner using a mining device for heat production for a few hours a day can pay out a few thousands sats every day at no cost.” 

Csepsar added, “It is recommended for miners not to reuse one payout on-chain address for their numerous transactions, but most miners do not follow this recommendation.”

He believes that LN solves this issue while significantly improving users’ privacy.

Lighting Network Gains Momentum

Jay Beddict, VP of Research at Foundry, told Cryptonews that LN would be compelling for small-scale miners after the upcoming halving event. 

“It may be prudent for interested miners to open Lightning channels pre-halving, as fees may become highly volatile in the run-up to and following the halving,” said Beddict. “But even so, many small miners do not earn enough daily to meet minimal withdrawal thresholds on pools. Lightning offers a way to minimize custodial risk without having to earn more to meet on-chain thresholds.”

Given this, Beddict shared that Foundry – which is best known for operating the Bitcoin mining pool “Foundry USA Pool” –  is comfortable with LN’s operation and usage. 

Alex Busarov, Founder and CEO at Heatbit, also told Cryptonews that Heatbit would soon be integrating LN to handle its miner payouts. Heatbit provides Bitcoin-mining home devices that enable users to heat their spaces through mining, instead of using traditional heating methods.

“The Lightning Network is particularly beneficial for our home-based users who might earn smaller mining rewards,” said Beddict. “This way we reduce transaction fees and speed up the transfer process, making it feasible to pay out even the smallest rewards promptly.”

Challenges May Hamper Lightning Network’s Adoption

While it’s notable that the Lightning Network is being used by more small-scale miners, challenges remain. Austin Mitchell, Co-founder and CEO at energy company Synota, told Cryptonews that the biggest challenge with using The Lightning Network is adoption. 

“The Lightning Network is really only useful if miners have counterparties to pay on the network,” said Mitchell. 

Fortunately, the Lightning Network appears to be growing. According to a recent report from Arcane Research, more than 80 million users now have access to LN, a huge increase compared to LN’s 100,000 users in 2022. 

Additionally, Mitchell explained that Synota intends to drive LN adoption by enabling energy suppliers, hosting and infrastructure services companies, and brokers to receive payments via LN. 

“Synota is solving the payee adoption problem by connecting with different payment rails to automate the movement of funds based off the enforcement of contracts in a non-custodial manner,” he said. “One of those payment rails Synota connects to is the Lightning Network, which allows Bitcoin miners to pay for their energy in Bitcoin.”

Although this may help with LN growth, Beddict explained that operating on LN properly still requires maintaining a complex hot wallet infrastructure.

“This may create complexity beyond that of simply receiving payouts on-chain,” Beddict noted.

Yet Csepcsar remains optimistic, noting that help from experts has allowed Braiins to implement LN payouts successfully.

“We are very early in Bitcoin and with LN even more,” he said. “The network can be a challenging new tech with obstacles like balancing the channels, etc. That’s why we have brought experts on board to make this happen.”

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