Streaming Money
The fundamental value of near-instant, low-fee and scalable payments
Introduction
This article was inspired by Andreas Antonopoulos’s talk in Amsterdam from 2016 on Bitcoin’s Lightning Network (video). I’ve found the talk very exciting and wanted to share my thoughts on it, especially the implications of technologies like State channels, Raiden/Lightning Network or any other protocol that is offering near-instant, low-fee payments.
The aim of this article is not to explain in detail how they work under the hood, but to rather point out the implications they have on payments and how they are changing money as we know it.
Near-instant, low-fee, scalable payments
I am going to explain as simple as possible what Payment channels, Raiden and Lightning Networks are. So bear with me for a moment.
Payment channels are an off-chain solution that essentially is a bi-directional discussion between users or user and software. The messages that are being sent take the form of transactions such as: “I am paying you $2 in exchange for 1 beer”. The messages are signed by both of the participants so that if a dispute between the parties occurs or someone is trying to cheat on the other, the blockchain is used to resolve the conflict and could even penalize the malicious party.
Raiden and Lightning Network are technologies that are based on Payment channels and are layered on top of their base blockchain as a second layer solution. Respectively Raiden for Ethereum and Lightning Network for Bitcoin. Those networks provide the ability for parties to be able to transact with each other as they were using Payment Channels, however instead of creating channels every time, they join a network of already established payment channels. As a result, two participants can make payments to each other as long as there is a “path” between them in the network. The networks work similar to routing packets on the internet.
Since the payments through these networks are happening mainly off-chain (meaning that there are a minimum amount of transactions that are being broadcasted to the blockchain) they are avoiding the consensus bottleneck of the blockchain, providing massive scalability of transaction throughput, orders of magnitude higher. In fact, we can process those transactions as-fast-as we can compute and transmit Elliptic curve signatures and that is in the milliseconds range! Not to mention that the value that is being transmitted does not matter. It could be one wei/satoshi (a very small fraction of a cent).
Pheww…. Enough of the technical stuff…
Sometimes when we are deeply focused on the tech, we can miss out on the big picture that is being formed.
Let’s talk about streaming and how it changed the world.
Streaming audio/video content
During the late 1990s and 2000s regular users got access to increased network bandwidth, in addition to that the standard protocols and formats like TCP/IP, HTTP and HTML were formed. All of this factors contributed to the emergence of audio and video streaming over the internet. In the coming years, the streaming platforms were gaining traction. Almost 20 years later we can see the effects of streaming audio and video — we no longer use cassettes, DVDs and recently — mp3s. It is more convenient content to be streamed rather than bought and stored. There is no doubt that this technology changed the media industry. There are numerous statistics claiming that people are switching to Netflix instead of cable TV. The vast majority of the younger generation prefers streaming platforms rather than cable pay-TV and this comes in no surprise.
Anyway, I am not here to tell you that Netflix is going to beat cable providers in terms of subscribers and revenue.
The Container is the key
As Andreas claims in his talk — “When you change the medium, the message changes”. The reason why streaming audio and video changed the industry so much is because we are perceiving audio/video content in regards to the containers that are used to deliver the audio/video. Let me give you a practical example:
We’ve consumed mainly 1 to 2-hour movies back in the 90s, because the container that was used for delivering video (DVDs) is imposing restrictions. No one was creating 7-second videos on DVDs back in the days. Now, however, we are creating video content at a large scale and the length of the videos have changed from 2 hour movies to 15 minute clips, to 7 second vines, to 3 second Instagram stories and to add on top of that, the content that is being created is not required to have some significant production value as it was the case with the DVDs. Everyone can create video content and millions of people can consume it afterward.
What makes a good container?
Why did the internet beat the old containers of audio/video?
If we take a look at the internet, the single most important thing to recognise is that the internet was able to deliver all of our previously used protocols of communication and added value on top of them. We had communication network for audio — telephone, we had communication network for photos — fax, for letters — telex etc. The internet converged all of these networks into a single one, providing optimal solution.
If we take it further — the smartphone did the same thing — it merged many products into one, so it became the best container for many applications.
It seems that good containers are containers that impose minimal restrictions and at the same time are converging several containers into one.
The Containers of Money
So what about the current containers of money? Currently, we perceive money, not as a liquid and flowing, but rather as bulky and cumbersome. There are restrictions imposed from the containers — it takes several business days to make international bank payments, money is ‘working’ when the banks are working, it costs a certain amount of money to make international bank wire. All of this restrictions are changing the way we perceive money, just like it did with the DVDs and MP3s.
We receive our salaries, invoices, subscription fees etc. on a monthly basis, sometimes on a yearly basis. Why don’t we receive them on a daily or a minute-by-minute basis? The answer is simple — it is not possible and economically feasible with the current containers of money.
Currently, there are several networks for money. We have payment networks to pay each other — small, payment networks between governments that are big, networks between consumers and business for commerce, payment networks for small and big amounts. All of these networks are designed to provide solutions to a certain type of problems (just like communication networks before the internet). Not only that we are having fragmented solutions for money, but the current ones are imposing restrictions (slow payments — sometimes in the range of days, high transaction fees and having working hours) just like the old communication networks — in order to send documents you need fax, in order to transmit audio you need telephone, in order to send letters you need teleprinter etc.
So what happens when a new type of container for money is invented. A container that is able to converge the currently used into one and in addition to that — not imposing any significant restrictions.
Layer 2 solutions that offer near-instant and low-fee payments like Raiden and Lightning Network are able to deliver extremely fast settlement time, high availability and extremely low transaction fees. Okаy, so far these solutions can converge currently used payment networks, but what about adding additional value on top of them?
Streaming money
These extremely complex networks that I mentioned can process transactions in milliseconds with negligible fees. When we are processing transactions at those speeds we are opening new dimension of time for payments that will seem continuous, just like a flow. Just think about it — if we are executing payments 5 times a second and it is economically feasible to do so, we are practically streaming money. Since the talk in 2016, the Lightning Network have gone live and currently there are more than 4300 nodes, with network capacity of 450+ BTC (~$1.7M ) and an average fee of 1 satoshi which at the current rate of BTC is $0.000039463 per transaction!
If we think about what the implications of streaming audio/video were and how they managed to create entirely new platforms, tech giants and were able to change our lives, what will happen when we start to stream money? Obviously, streaming money will have a bigger impact than streaming audio/video.
About the Author:
Daniel Ivanov is a Blockchain Developer at LimeChain. He is interested and passionate about Blockchain technology since late 2016. At LimeChain he is part of the development team and has been focusing on developing different Blockchain products including but not limited to event tracking solutions for the Supply Chain industry, as well as payment solutions for dApps.
