Kraken drops Lightning Network in Germany for ‘regulatory issues’

Kraken has ended a privacy and cost-saving feature for some of its customers. Since April 2022, the crypto exchange had supported withdrawals into Bitcoin’s most popular ‘layer 2,’ the Lightning Network. However, as of September 10, Kraken has discontinued support for Lightning withdrawals in Germany.

In its list of acceptable address types for BTC withdrawals, Kraken has removed the ‘lnbc’ prefix from its list of supported assets for German customers. That confirms Kraken’s denial of Lightning withdrawals, yet Kraken never published a dedicated statement in plain English about disabling its Lightning Network support in Germany.

In response to a single customer inquiry, a support agent at Kraken attributed the removal to “regulatory issues,” offering a consolation, “as soon as we are able to bring back the service, we will.”

The Lightning Network is a mesh network of users who maintain ‘bar tab’-like ledgers of off-blockchain BTC transactions. It can process approximately 5,200 BTC and boasts faster, cheaper transaction times.

Importantly, by moving transactions off Bitcoin’s blockchain, many German customers used the Lightning Network for its privacy features.

Aside from Germany, Kraken is also wrestling with legal issues in its home country. The SEC is suing Kraken for operating an allegedly unregistered securities exchange. That lawsuit is quickly advancing toward jury trial in California.

A spokesperson for Kraken provided the following clarification regarding the incident. “After investigation of the issue, we found that Kraken Support incorrectly cited regulatory changes as the reason for halting Lightning support in the German market. The change of service for German clients wanting to use Lightning is the result of technical changes. While we always strive to provide the best and most innovative services to our clients, we unfortunately sometimes have to make tough decisions to ensure we can offer a reliable and secure platform for as many clients in Germany as possible.”

Update 21:41 UTC, Sept 14: Added quote from Kraken spokesperson.

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