Lightning makes no sound… until it strikes!

by Kamesh Raghavendra, Chief Product Officer, The Hive

Last week marked the fourth major product release from The Hive’s portfolio company, Lightning Labs, which delivers a Layer-2 network overlay on top of blockchains (like Bitcoin, Litecoin, etc.) for real-time gross settlement, P2P payments, and instantaneously settled swaps. Lightning is a strong reflection of The Hive’s investment thesis on the blockchain as a platform for disrupting the economics of trade and service delivery — of course with a special interest in our core areas of focus: financial services, retail/commerce, industrial Internet, enterprise automation, and security. This is in close alignment with Lightning Labs’ point-of-view of seeing blockchain’s evolution in the form of layers of value-creating services (crudely analogous to the evolution of the Internet) built on the blockchain’s core property of enforcing secure consensus.

This release largely addresses the scalability limitations of large blockchain networks by delivering gross settlement of transactions outside of the blockchain (“off the chain”), and periodically bringing net settlement on the chain independent of the transaction lifecycle. The workload of transaction settlement is borne by a network of transaction channels connecting the counter-parties through a path of trust-less intermediaries for a much lower transaction cost (than “on-the-chain” settlement). The funds transacted on the overlay network are liquid and can be relayed for newer transactions. The cost of the periodic net settlement is negligible as it is amortized across a large volume of gross settlements. For those who are skeptical of this line of thought, I would recommend this Lightning blockchain scalability FAQ by Andreas Antonopoulos.

In short, Lightning enables the intermediaries to fulfill many core banking, clearing house and asset-liability management services at scale without having to bear the burden of trust, audit and probing regulation (sans for fringe scenarios like coordinated distributed denial of service attacks by the intermediaries that will be addressed in subsequent releases). The initial deployments of Lightning will most likely be driven by exchanges and merchants dealing with cryptocurrencies.

We see an opportunity for Lightning to redefine the railings of global trade & commerce in the 3–5 year horizon. The product’s abilities to contract and swap assets and liabilities across enterprise supply-chains offer a very power alternative to the current system with layers of opaque asset-liability management driven by enterprises with services from financial institutions (like credit, advisory and capital) and oversight from regulators. The new rails of tokenized assets and liabilities will flow across industries with enterprises serving as nimble service providers with no assets or liabilities directly under their management. We have already seen parts of this economic model implemented by shared economy leaders like Uber and AirBnB, who have far less assets and liabilities than their traditional counterparts.

Lightning Labs has the opportunity to build the rails for the assets involved (like securitizing the car or the home respectfully) to flow through a chain of swaps terminating in equity or fixed income tokens that return yields to end investors. The service providers (like Uber, its drivers or AirBnB, its BnB caretakers etc.) compete on the yields created on the flows for market share in a far more transparent, elastic and open marketplace. This model of service marketplace over decentralized management of assets and liabilities has the potential to radically disrupt asset/liability heavy industries like industrial operations, banking, insurance, retail and property management, wealth management, and other financial services.

We deeply appreciate our partnership with Elizabeth, Laolu and the Lightning Labs team which has evolved through the horizons of technology, product, and business. We eagerly look forward to nurturing and supporting a rich ecosystem of entrepreneurs, enterprise partners, and applications around Lightning Labs to realize its deep potential.