Waypoints on the Road to Lightning’s Mass Adoption
How fast does Lightning move?
Two and a half years ago, we wrote that Lightning is the future of bitcoin. A year and a half ago, we listed a number of UX challenges that Lightning needed to overcome on the road to wider adoption. In just the last year, Lightning has made a couple of giant leaps in usability, first with MPP and Wumbo to turn Lightning’s discrete payment channels into a borderless ocean of liquidity, and then Breez added on-the-fly, zero-conf channels to massively boost our users’ inbound capacity.
Lightning Pool, a liquidity market on the network, promises even more efficient allocation of sats on the network. The result will be faster payments, rationalized fees, and a better network overall.
Fulgur Ventures has researched the Lightning ecosystem and come up with some very impressive stats. Our community now counts >400 shops, 47 gaming operations, 43 payment platforms, 8 social networks, 34 merchant & tipping services, 21 rewards schemes, 49 financial service and LiFi providers, 43 node managers, 77 infrastructural companies, and a partridge in a pear tree!
From prophecy to thriving reality in two and a half years. Just let that sink in for a second.
While it’s important to take stock and acknowledge the progress we’ve made, it’s equally important to think about the future and the challenges that remain. Standing still isn’t really an option. Until mass adoption is a reality, we still have work to do.
So how can we expand Lightning’s utility? What problems can it yet solve? Where is Lightning going, and how can we help it along?
Leveraging Lightning’s Strengths
In a recent, extremely insightful post, Max Webster shared his thoughts about how to extend Lightning’s reach. With so much untapped potential, the technology is ripe for extension into a number of areas. It’s important, however, not to over-extend it. Lightning is cheap, fast, P2P bitcoin, so it’s unlikely to disrupt toaster technology. Whatever Lightning is to become tomorrow depends on its core strengths today. So let’s recall what Lightning is and where it really excels.
A truly P2P network
When in doubt, disintermediate. Eliminating middlemen almost always increases efficiency, minimizes trust, increases resilience, prevents censorship, and levels the playing field for all parties involved.
On Lightning everyone who runs a node is a peer, whether it’s an exchange with a massive server farm and thousands of channels, a retail chain centrally managing their locations’ Lightning POS apps, or just a kid with a non-custodial wallet on her phone. There is no hierarchy. There are no gates to keep. We all hold our own money. Code is law. Trust is obsolete.
But the virtue of the P2P structure goes beyond our commitment to equality and autonomy. A trust-minimized P2P network is vital for a number of upcoming applications and beneficial for others. Giving each user a network node makes everyone a potential producer, consumer, merchant, and bank. Lower cost and better resistance to censorship gives Lightning an edge over monetization models based on fiat.
A payment network
Lightning isn’t the first P2P network. Tor, Gnutella, and BitTorrent are all successful, and they all work on a P2P basis. But Lightning is the first that was built with a P2P payment network as its foundation. Facilitating “scalable off-chain instant payments” has always been Lightning’s purpose.
Since payments are woven into the soul of Lightning, they are also an advantage Lightning has over other networks. Being able to send and receive money between peers without borders, without delay, and (almost) without charge is kind of miraculous.
Whenever a P2P interaction involves an exchange of value, Lightning is probably the right way to execute it.
Bitcoin backing
Lightning is 100% bitcoin. That’s now common knowledge. Fully appreciating it, though, is another matter.
Bitcoin is the only borderless, open, neutral, and naturally censorship-resistant currency. Bitcoin also brings a vast and vibrant community of developers and enthusiasts; a brand with worldwide recognition; a solid system that’s been working, growing, and thriving for over a decade; and nearly over $300 billion in market cap. It’s the magic internet money.
Lightning is the fast and cheap version of bitcoin. But in order to preserve Lightning’s edge over fiat, it must not dilute Bitcoin’s virtues. Lightning starts from Bitcoin’s core properties and improves upon them in any case where users are spending it.
That’s what Lightning is: a cheap, fast, private, P2P bitcoin payment network. Yes, it’s a currency, but it’s a currency connecting people, their devices, and their activities in a very particular way. This unique combination of cash and connectivity is new, and it has great disruptive potential. Here are some use cases in which Lightning has plenty of potential left to explore and exploit.
Retail payments when everyone is a merchant
Like Ed Sheeran, Lightning is rapidly turning from an unassuming niche oddity into a feature of our everyday reality. Given that one of Lightning’s first real-world uses was to buy pizza, its expansion in this direction comes as no surprise. Lightning was designed for high volumes of microtransactions, which means retail.
Feedback from our users has revealed two important trends relating to incoming retail merchants. First, tools like a POS mode are valuable and useful, though not yet perfect. Merchants appreciate the practicality and how it helps them to onboard themselves in minutes. Second, incoming merchants are not just stereotypical early adopters, like people with sophisticated opinions about the relative advantages of hemp milk versus oat milk in a vegan latte (oat is obviously superior). Lightning is attracting the Etsy crowd who sell crafts out of their lofts, freelancers charging for gigs they perform at home, and street vendors selling candy and paan in Hafeezpet. Lightning is for everyone, and retailers of all kinds are starting to use it.
What explains the growing appeal of Lightning in a world full of payment apps, credit cards, and banks? Let me give you four reasons why retail is waking up to the benefits of cheap, fast, disintermediated P2P payments:
- A quarter of the world is unbanked. Among the poorest, the rate is about 50%, and even in the USA nearly 20% are underbanked. With Lightning, billions of people can start selling and generating economic value without a bank account.
- Lightning is far cheaper than incumbent payment technologies. Credit cards charge 1.3%-3.4% of each transaction. PayPal charges 2.9% plus $0.30 per transaction. The median base fee for a Lightning transaction is $0.000188454 (1.0 sats). PayPal’s fixed fee alone is 1600x more expensive.
- As even central bankers are losing track of how fast they’re printing money, retailers are becoming more sensitive to fiat currency risk. They’re increasingly turning to bitcoin as an obvious hedge, and Lightning is the fastest, cheapest, and easiest way for merchants to accept bitcoin. Solutions ranging from pay-to-play custodial POS providers and full-scale bitcoin POS nodes to simple, mobile, non-custodial Lightning POS apps are already out there.
- Once upon a time — like, a few months ago — living on Lightning for a day used to be a fun challenge for a small subculture. It’s rapidly turning from fringe subculture into mainstream culture. People are now trading tips about how to buy flights, steaks, coffee, backpacks, and all kinds of everyday goods and services with bitcoin. The demand for Lightning purchases is there, and smart merchants are starting to meet it.
The Lightning community doesn’t need to push merchants to start accepting Lightning. They’re onboarding themselves. We just need to keep up.
Monetizing content in real time
In the days of physical media, people would buy a CD or DVD, and it would sit on a shelf unused most of the time. With on-demand subscription services, people are paying flat-rate subscriptions for media products that they use at different rates. A Netflix or Spotify account might be in active use more than a CD or DVD used to be, but most accounts are still inactive most of the time.
The current on-demand model is inefficient. Someone who just wants a little milk in her morning coffee doesn’t subscribe to a cow 24/7, and we pay for the electricity we use, not for the privilege of having outlets just sitting in the wall. However, transaction fees and the one-size-fits-all monetization schemes of big streaming services like Netflix, YouTube, and Spotify prohibit paying for only small, individual segments of content.
By contrast, Lightning is P2P and so cheap that nothing stands in the way of a micropayment for a five-minute video, a three-minute song, or a 10-second segment of a podcast.
Lightning also benefits content producers by allowing them to monetize their own content on their own terms. For example, the critically minded podcasters at the No Agenda Show are pitching it as a way to pay podcasters by the minute (video presentation here). That’s an excellent idea, and it can extend to any kind of content. Authors can charge by the article or minute, musicians can charge by the song or second, videographers can charge by the view and resolution, gaming studios can charge by the perk and level. Being cheap and fast also makes Lightning extraordinarily flexible.
Lightning’s P2P architecture does more, though, than facilitate even smaller micropayments. It also removes barriers. Censorship is one barrier, and any centralized content or payment aggregator is in a position to restrict access. The aggregators might censor the content of their own volition, or they might react to external pressure.
Of perhaps greater concern to artists, young game developers, and indie content producers, though, is the fact that Lightning lets them keep more of the income they’ve earned. Each one of them is simultaneously a creative spirit and — thanks to their nodes — an independent merchant, point of sale, and bank. Instead of earning a fraction of a cent per stream, they earn whatever they charge the consumers directly minus the dust of routing fees.
Private, P2P messaging with payments
The road to censorship is paved with surveillance. Monitoring messages and payments is not just something China does, or something that America’s “secret courts” let the FBI do. Installing backdoors for surveillance is something even cuddly Europeans do … just months after they had said they wouldn’t. And considering that the two most popular messaging apps are both owned by Facebook, we should all be concerned about the consequences of messaging technology for privacy and surveillance.
Sure, Signal is open-source, uses end-to-end encryption, and even encrypts meta-data. While not perfect, it’s probably the most private messaging app available. Other open-source, privacy-friendly, and — even P2P — messaging platforms, like Matrix, exist. They are less vulnerable than the big centralized providers. But these valuable apps lack something important: they don’t support payments.
At the other end of the spectrum is WeChat. WeChat supports payments, and that functionality has helped to make WeChat China’s leading messaging app, but WeChat is a locus of censorship. Indeed, as one respected VPN provider put it, “The best and only way to be absolutely sure you’re safe from WeChat’s surveillance is to never register for it in the first place.”
The goal is to match WeChat’s functionality while providing the kind of privacy and resilience that only an open-source, P2P app can deliver. That’s where Lightning comes in. Lightning’s onion routing over a P2P network makes intercepting messages and reconstructing communication patterns substantially harder. And the payments are just as hard to intercept and read as the messages are.
It combines the payment functionality of WeChat — improved with bitcoin, of course — with the open-source privacy of Signal and the P2P network structure of Matrix. Lightning is the best of all messaging worlds.
As Joost Jager put it, “the privacy and censorship resistance that Lightning provides for payments should apply equally to speech. Using Lightning for chat will accelerate the adoption of bitcoin as a medium of exchange.” It’s almost like he intercepted the words right out of my mouth.
Reifying in-game economies
The gaming market is becoming so huge that gamers paying for games with bitcoin is not even a big story anymore. Bitrefill has facilitated Steam purchases for years. Instead, the in-game economies and incentives are becoming lively, dynamic, and important in their own right.
One impetus of the innovation is coming from the Lightning side. Several games, like Litenite and Bitcoin Bounce, pay bitcoin out via Lightning for accomplishments in the games. In other words, payments from developers to gamers are a major component of the game design.
Another impetus is coming from the incumbent game developers. Roblox is a mining game with a pseudo-bitcoin-mining simulator. But Roblox also pays players in “robux,” the in-game currency, for tasks like designing mines with the level editor and selling merchandise. The move to paying gamers in satoshis for the tasks they complete in the bitcoin simulator is too obvious not to be imminent.
And Roblox is just the thin edge of the wedge. Nearly all games have some tradeable resources embedded in the design, so it is merely a matter of time before those resources become convertible to bitcoin in order to attract the world’s 100 million bitcoin users — a population of early adopters with disposable income twice the size of Korea.
The third impetus is coming from people seeking refuge from censorship and economic mismanagement. In-game gold farming is an important source of income for many people in developing countries who are simultaneously fighting poverty and inflation. How many? During a power outage in Venezuela last year, there was a dragon-bones crisis in Runescape. Sats and virtual bones are already real currencies in Venezuela, more real than the bolivar or the Petro.
As with real-time streaming, Lightning’s speed and low fees are required to make the in-game micropayments economical for all parties involved. Lightning is a natural fit for gaming.
Decentralizing finance with LiFi
At its most basic, De(centralized) Fi(nance) refers to borrowers connecting directly with lenders via smart contract over a crypto blockchain. The debt is usually collateralized to protect lenders from default, and the lenders usually charge rent for borrowing their money, which is just another way to say “interest.”
Of course, this is exactly how banks work, with two momentous differences:
- Banks lend their customers’ money, not their own.
- Banks lend more money than they actually possess, which is a license for private institutions to print money and leads to bank crashes, economic depressions, and harrowing stories of hardship to tell your grandkids about one day.
Crypto-based DeFi is designed to avoid such nonsense. Bitcoin is decentralized cryptographic money, so decentralizing finance with bitcoin is a natural extension. The question is how to do it most efficiently.
Efficiency usually boils down to fast and cheap. And what makes bitcoin fast and cheap?
Lightning.
The present is catching up with this future very rapidly. Lightning Labs just released Lightning Pool, which is a really cool, decentralized market for liquidity. It lets Lightning nodes rent as much liquidity as they need for as long as they need without having to commit their own capital to who-knows-how-many channels. And people with spare sats can lend them to others at a profit.
Remember when we talked about HODLing on Lightning? Lightning Pool is a way to invest that bitcoin on the network, helping the network and the nest egg to grow together.
And decentralized, collateralized lending over Lightning is really just the beginning. DLCs, which are just smart contracts that enable bets settled by a third party, are set to make their debut on Lightning. Since short selling and more complex derivatives are also basically just bets, they too can be executed over Lightning. And they are.
Decentralized Finance over Lightning — LiFi — is a natural progression from Lightning’s core functions. After all, financial transactions — from a crowd-sourced lending project to the most arcane derivative — are just payments with extra steps. Lightning cuts out the middlemen — banks, brokers, and other grifters — and lets the counterparties of each transaction find each other and transact cheaply, quickly, and on a level footing as peers.
Becoming the world’s money, one market at a time
Lightning has already turned bitcoin into the “peer-to-peer electronic cash” it was designed to be. But even though fiat is obsolete, bitcoin’s mass adoption through Lightning remains a distant goal. The monetary revolution will not take place overnight. Payment dinosaurs will disappear from one transaction, one store, one market after another until bills and coins are only of interest to museums and numismatists. Lightning’s race will be won over a thousand legs.
We in the Lightning community can foster Lightning’s success by focusing our efforts on the markets where it is most likely to succeed. Finding those markets requires neither tea leaves nor astrology. Lightning is a bitcoin-based, P2P payment network. Wherever disintermediation, low transaction costs, instantaneous settlement, and censorship resistance are advantages, Lightning will thrive. We’ve listed a few such areas above, but the list is illustrative, not exclusive. There are sure to be many more markets ripe for Lightning.
