How the Lightning Network Will Revolutionize Payments
This article will discuss what it will take for crypto payments to go mainstream and discuss the role that the Lightning network will play in this innovation.
Before crypto went mainstream into the public consciousness in 2017, it was a relatively obscure concept, composed of a small community of like-minded individuals, but mainly on the fringe.
For a long period of time (2008–2017), crypto remained a “speculative” asset that was traded and extremely volatile. Misinformation about Bitcoin and other cryptocurrencies ran rampant.
There still is, but there are many use cases being examined and developed as we speak including, DeFi, NFT’s, Web3, and the metaverse.
But the bigger questions is what will be the catalyst that will catapult crypto into the mainstream, and cause everyday people (tech or non-tech alike) to use it, as we saw with social networks, social media, and the iPhone?
There are several potential areas that can help highlight the answer this question.
Recent studies have shown that the greatest barrier to crypto adoption are:
- Regulation — a clear regulatory framework around which to innovate, with clear, reasonable, and understandable guidelines that will help entrepreneurs develop and create as well as safeguard consumers. Currently, the Executive Order and bi-partisan work by Senators Cynthia Lummis and Kristen Gillibrand is currently underway with the Responsible Financial Innovation Act.
- Education — the other barrier to mass adoption is education. Currently, the steps to onboard people into crypto, stable coins, NFTs, DeFi, Web3, and wallets is tedious, confusing, cumbersome, and outright dangerous (with frequent scams and bad actors). Education is essential as well as the creation of a financial infrastructure that is safe, fast, cost effective, efficient, and effective, and easy to use.
With those two barriers in mind, the next three areas that have the potential to be catalysts to onboard billions of people lie in:
- Crypto wallets — the next wave of wallet innovation where users can easily setup, fund, transfer, and conduct payments will be key.
- Web3 mobile phones — Solana and Polygon are experimenting with new Web3 mobile phones, but much remains to be seen in this area.
- Payments — This will either be in the form of infrastructure, hardware, or software applications. Companies such as PayPal, Venmo, Block, and Strike are working on this aspect
The problem with payments is that they are slow, tedious, expensive, and inefficient. For example, a simple credit card transaction with a Visa or Mastercard takes 3 days to settle, charges 3%, and holds huge counterparty risk.
The Lightning network is a set of nodes designed to allow fast, easy, efficient, safe transfer of Bitcoin, which is meant to be seamless, easy, fast, efficient, frictionless, and borderless.
From this standpoint, Bitcoin could be a backend settlement layer.
Essentially, a transaction on the Lightning network would have three legs.
- First leg would be a purchaser making a payment in their native currency, USD, GBP, EUR, AUD for example.
- In the second leg, the currency would then be converted to BTC based on the exchange rate, and the Lightning network would then send BTC to the opposite party.
- The final leg of the transaction would convert BTC back to the opposite party’s native currency.
A transaction as described above takes seconds, cost pennies, and be instantly finalized. The need for the Visa or Mastercard network (3%, 3 days) would be eliminated. This is how powerful the Lightning network has the potential to be.
At the recent Bloomberg Crypto Summit in New York City, Jack Mallers was interviewed on the potential of of making Bitcoin more accessible for the masses. His crypto payments startup, Strike, aims to make this into a reality, recently partnering with Shopify, CVS, Walmart and other merchants to accept payments in Bitcoin.
About: Dr. Christopher Loo is a physician who became financially free at the age of 29, and retired early at the age of 38, as a result of making strategic investments after the 2008 financial crisis. A graduate of the MD-PhD program offered jointly through the Baylor College of Medicine and Department of Bioengineering at Rice University, he is the author of “How I Quit My Lucrative Career and Achieved Financial Freedom Using Real Estate”, and is the host of the Financial Freedom for Physicians Podcast. He is a regular contributor to KevinMD and has spoken about the importance of financial literacy for Passive Income MD, the White Coat Investor, Board Vitals, SEAK Non-Clinical Careers, SoMe Docs, Doximity, Medpage Today, FinCon, and other high-profile financial brands geared towards high-income professionals. He is passionate about the role that crypto, fintech, and innovation will play in enabling financial freedom, economic inclusion, access and opportunity for the entire world in the upcoming decades.