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Bitcoin: Lightning Will Change How You Think About BTC
The vote wasn’t close. In early June, 62 of the 84 members of El Salvador’s Legislative Assembly – a whopping 74% – voted to make bitcoin official legal tender. “History!” tweeted Nayib Bukele, the bitcoin-happy president of El Salvador. He’s not wrong. The nation’s stunning embrace of crypto, regardless of what happens next, is arguably the most influential event in bitcoin’s history.
Look closer. This didn’t happen because El Salvador farmers are hoping their Blockfolio balances will go “to the moon.” This wasn’t fueled by dreams of a BTC index fund. This wasn’t about price speculation. In a nation with a 70% cash economy, villagers and farmers are actually using bitcoin, sending small amounts of satoshis (or “sats”) to buy fruits and vegetables, embracing the original peer-to-peer vision of bitcoin that would make the actual Satoshi smile.
For this, we can thank the Strike app, from Jack Mallers, which makes it fast and cheap and easy to send and receive tiny amounts of bitcoin. Now look even closer. Strike, in turn, is powered by the Lightning Network, which crypto-geeks know as the “layer 2” protocol that basically settles transactions “off-chain,” through a growing network of user-hosted channels and nodes, that exponentially cuts down the time and fees to send bitcoin.
Mallers always knew he’d use Lightning to fuel Strike. “It was painfully obvious,” Mallers tells me, calling Lightning’s layer 2 solution “one of the more impressive advancements in money as a technology in human history.”
Lightning is the engine that’s driving this burst of bitcoin adoption. And you could make a good case that the Lightning Network is the most important project for the most important asset in all of blockchain. Yet the team at Lightning Labs, led by CEO and co-founder Elizabeth Stark (which is building the most widely used Lightning implementation) is almost oddly off the radar. Lightning even somehow feels … underrated? After early spurts of publicity in 2017 and 2018 (such as Leigh Cuen’s Bitcoin’s Warrior Queen profile for CoinDesk, or the Lightning Torch experiment of 2019), Stark has generally avoided the press, burying herself in the work.
This could be the perfect moment for Lightning to re-enter center stage. The recent discourse of Bitcoin, as measured by headlines or crypto twitter, feels like a never-ending torrent of price, price, price, Elon Musk, price, China, price, price, Elon Musk. The Lightning Network, in a sense, is the antidote to all that speculation frenzy. Lightning is about bitcoin being used, not just gobbled up by investors, and not just as digital gold. “The idea that it’s merely a digital rock fails to tap into the very nature of what bitcoin can do,” says Stark. “Bitcoin is programmable money, and Lightning can help scale it to billions of people across the world.”
And now it’s actually starting to happen. Stark and her team have a message for the globe: Lightning is no longer just about “potential.” It’s no longer just the future. Lightning is here. And it’s working.
I first heard about the Lightning Network in a Bitcoin meetup in Chiang Mai, Thailand, in the spring of 2018, when a couple of bitcoin developers gave a wonky and nearly indecipherable presentation that showed a visualization of the network itself – it looked halfway like a stunning Jackson Pollock painting and halfway like pure gibberish. Their speech was filled with talk of channels and nodes. This was the future of bitcoin?
Much has changed. “Lightning is a reality now,” says Desiree Dickerson, Lightning Labs’ vice president of operations, whose low-key genius-background includes a smattering of endocrinology, biophysics, genetics and helping the government launch the Affordable Care Act (which made her disenchanted with the government). “People say it’s two years out. It’s really not. There are applications where you don’t have to think about nodes … I use Lightning every single day.”
Lightning is fast. Very fast. According to Dickerson, Lightning currently has a maximum throughput of 25 million transactions per second (compared with on-chain’s throughput of seven transactions per second), and it expects that to increase as the network grows; she says that Lightning Network settlement is instant, instead of taking 10 to 60 minutes on-chain.
That changes what it means to use bitcoin. For much of the bull run, the idea of bitcoin embracing its role as a “store of value” seemed almost a fait accompli. Lightning’s response? Not so fast. “Lightning is going to transform the way people interact with and use bitcoin,” says Dickerson. “It’s not just, ‘Yay, the number went up, I made a 100x gain on my investment.’ It’s going to be like, ‘Oh shit, you can actually transact and use this?’”
Let’s start with the operation itself. Given its importance to the blockchain space, I had assumed that the headcount of Lightning Labs numbered in the hundreds, with platoons of developers cranking out code. There are just 21 employees total. “People are always shocked by that,” Dickerson says. The team is almost entirely remote, scattered across cities that range from San Francisco to D.C. to New York.
Lightning has one modest overarching goal: Get 1 billion people using bitcoin within the next decade. (An estimated 46 million Americans own bitcoin, but very few actually transact with it.) How to spur adoption? From a U.S. perspective, the most obvious approach is to inject Lightning into the typical crypto onramps – Coinbase, Robin Hood, Cash App. The Cash App would seem like a slam dunk, given that it’s helmed by bitcoin bull (and Lightning Labs investor) Jack Dorsey, who, over two years ago, predicted that Lightning integration with the Cash App was a question of “when, not if.” There have been few (if any) updates on a potential integration since then, and on our call, Stark demurred from elaborating. But more recently, Dorsey suggested that it’s a “only a matter of time” until Lightning is integrated into Twitter itself.
Then there’s the more creative, less obvious path to adoption. This is the one that happens in the background. Lightning is focused on building tools for developers, betting that they will, in turn, create engaging apps that people will want to use. “You can be extremely high impact when you’re building out tools for developers,” Stark says. “In terms of Lightning Labs’ mission, we are building this internet-native digital payment transaction layer. We’re building the infrastructure to make that possible.”
Strike is the poster child of this strategy. It took less than 90 seconds for me to set up Strike on my phone, including downloading it from the App Store and linking it to my checking account. It was the easiest crypto on-ramp I’ve ever seen. “There’s a fiat on-ramp directly to Lightning. That’s huge,” says Ryan Gentry, a former Intel engineer who heads up Lightning’s business development. “That really changes the game.”
Here’s why all of this matters. In one of Stark’s favorite analogies (she loves analogies), many years ago, if you were lucky enough to live in a wealthy nation, or perhaps near a university or a large city, you had easy access to libraries and books. “But if you were living in a small town in El Salvador, you could not access these books,” she says. “The internet democratized that, and made it so anyone can access information.” Stark doesn’t care about the price of bitcoin; she cares about the tech’s ability to unlock the doors of “libraries” – financial inclusion – for the rest of humanity.
For years, bitcoin advocates have argued that the cryptocurrency could help “bank the unbanked” and bring financial inclusion to an estimated 1.7 billion people. But to invoke a trusty “Seinfeld” reference, they often yada-yada-yadaed over how we actually get there. Lightning could be the yada yada. “What is the end result of this internet-native value layer? It opens up opportunities for far more people who wouldn’t have had them otherwise,” Stark says.
In a Lightning Clubhouse chat on May 19, Alex Gladstein, chief strategy officer of the Human Rights Foundation, notes that 1.2 billion people in the world live in places that have double- or triple-digit inflation and that the problem is more sweeping than just the usual go-to example of Venezuela. “You’ve got Nigeria with 15% official inflation, and that’s 210 million people,” Gladstein says. He ticks off more stats: Turkey (100 million people, 15% inflation), Argentina (45 million people, 50% inflation), Pakistan (200 million people, 10% inflation). In a penetrating piece for Bitcoin Magazine, Gladstein makes the case that bitcoin, fueled by Lightning, is actively being used in these countries to help people live better lives.
One of his examples is Kal Kassa, from Ethiopia, whom I speak with as well. Kassa runs a marketing firm, and he uses Lightning to pay people for graphic design, programming, translations and helping run his content management system. “The moment they send that invoice and I send the Lightning, it takes less than a second. They’re amazed,” Kassa tells me. He enjoys using Lightning and helping people learn the tech, just for the hell of it. A 17-year-old kid in Ethiopia, for example, doesn’t have a laptop, and so he can’t really help Kassa in any meaningful way. “What he does is he’ll send me a joke,” Kassa says. “And if I haven’t heard the joke before, I’ll send him 500 sats.”
Then there’s the flip side to this coin. In the U.S. and other parts of the economically advantaged world, we often talk about spending bitcoin. Gentry considers this to be a “predominantly Western perspective,” and that in developing economies, he sees more interest in earning bitcoin. “And the easiest way to earn bitcoin is through the Lightning wallet,” Gentry says.
Take gamers. People hooked on certain games don’t just waste away their time; now they’re “stacking sats” with Lightning. Dickerson, who has been into gaming for years (she loves Zelda), sees this as one of the most promising use cases, and also a way to fix an overlooked inequity. “User-generated content is extremely valuable for game publishers,” Dickerson says. “Why aren’t they [users] getting paid?” Now instead of just racking up high scores or winning a pot of imaginary gold, when gamers slay dragons, they can haul in a stack of sats. At the “MintGox” E-Sports Arena at the Bitcoin 2021 conference, the gaming tournament was powered by Lightning. Or in games from Zebedee, for example, you can choose to enter a “Deathmatch” or “Survival Mode,” and the financial stakes are real. “In ‘Survival Mode,’ your sats are your life,” explains Zebedee. “When you score, you get extra life. When you die, you lose some life. If you run out of sats, you get kicked from the server.”
More Lightning use cases: The app Fold lets you load up an account with a credit card or bank account, and then you earn sats (via Lightning) as a rewards program. I tried it. It’s super easy, and then they “gamify” the app by letting you spin a wheel every day to win some sats. I spun and won 873 sats, which sounds way more exciting than the actual value of about 30 cents. Stak lets you perform online micro-tasks (such translation or image labeling) to earn sats; the site claims to have 19,000 active workers. OpenNode helps merchants use Lightning to accept bitcoin payments, and they were ubiquitous at Bitcoin 2021.
“One consistent theme of the conference was the maturity of the Lightning Network,” CNBC reporter MacKenzie Sigalos discovered. “Virtually every booth at the conference was accepting Lightning transactions.” BlueWallet makes an easy Lightning wallet. More crypto exchanges such as OKEx, Kraken and Bitfinex are integrating Lightning. The full list goes on for a while. (Gentry says there are more than 150 companies building on Lightning.)
Many of these use cases help people in poorer nations “earn sats.” I notice that Gentry and Dickerson like to use the phrase “earn sats” instead of “earn bitcoin,” and the wording seems intentional. Gentry explains that the typical Lightning wallet would approximate what you would keep in your fiat wallet, and it’s rare you would see somebody hold more than 1 million sats, or $500.
Focusing on sats, not BTC, is also a tacit nod to Lightning’s global appeal. “There are countries where sats are equal to the lowest denomination,” Gentry says. The Iranian rial, for instance, is worth around $.000024 USD, and so the value of 1 satoshi (at the time of publication) is around 13 Iranian rial. Or the value of 1 satoshi is 7 Vietnamese dong. “I talk to people every day whose assumptions about bitcoin and money are very, very different from ours,” Gentry says.
All of this integration takes time. Gentry says that while the goal is to get bitcoin into the hands of 1 billion people within a decade, “it could easily happen much faster than that.”
One reason the timeline is tricky to predict – besides the inherent uncertainty of bitcoin – is Lightning’s strategy of focusing on developers. “So much of what we’re doing is building the infrastructure to allow start-ups – the Zebedees, the Strikes, the Blue Wallets – to go out and get the users,” Gentry says. “It’s not really up to us to define those timelines. All we can do is build the protocol, the nodes, and help build the network.”
And that network itself takes time to grow. “What I see at Lightning, I see a telecommunication network, or something on the scale of telephone wires or fiber lines,” Gentry says. The Lightning team runs only a handful of its 10,000 nodes; everything else is organic and beyond their control. “Because this is true, organic, real, decentralized growth, this is going to take a while,” he says. “But because this is a true network … it’s not something that can go away. It’s only going to grow and become more entrenched.”
This might be true, but for all the work they’ve accomplished, the actual guts of the Lightning Network can still seem a bit opaque, especially for newbies. The in-house products that Lightning has built, such as Pool and Loop, will likely perplex a casual reader. Take the Lightning newsletter and the “get started with LND [Lightning Network Daemon]” section. It includes these bullets:
There is zero chance that my parents, say, would have any idea what this means. Stark et al. know it’s an issue. “The end user shouldn’t have to know about channels,” agrees Stark, who has long said that sending bitcoin over Lightning, eventually, should be as dead-simple as sending a photo over a text. She likens the current state of bitcoin to the early days of the internet. While Stark is not the first to make that analogy, she’s been remarkably consistent, tweeting way back in 2014, a full two years before launching Lightning: “#Bitcoin as protocol has huge potential: it’s like the TCP layer, but no one has built the HTTP layer yet.” Lightning’s role is to breathe life into that user-friendly HTTP layer, making it so that sending bitcoin just works.
“My vision of the future is that there’s no distinction between bitcoin and Lightning,” says Dickerson. “Lightning is a network for transferring bitcoin. So it is bitcoin.” Another way to think about it, Stark says, is that the Lightning hot wallet will function as a checking account, with bitcoin in cold storage for your long-term HODLing.
What will Lightning unlock in the future? “There are so many use cases we haven’t even thought of yet,” Stark says. But they have thought of plenty, and a big one is micropayments.
“I get viscerally angry whenever I hit a paywall on the web, or asking me to subscribe to a newsletter,” Gentry says. “This is a solved problem. I can set up a Lightning node and pay you 10 cents. You don’t need my credit card information. You don’t need my email address. All you need is a couple of sats from me.”
Payments are only part of the story. The Lightning Network does more than just provide a way to zap sats from one user to another – the very network itself could be harnessed for other purposes. Dickerson is excited about a new project called Impervious AI, in beta, which builds a “layer 3” network that can be used to set up decentralized virtual private networks (VPNs), messaging platforms, or even streaming videos or DJs or podcasts. “I can be in China, or I can be in Iran, and this allows us to speak freely without censorship,” explains Chase Perkins, Impervious’ founder and CEO.
Most people think of the “peer to peer” network of bitcoin as being 1-to-1, but Perkins says that what “blows people’s minds” is that peer-to-peer can also mean 1-to-50 or 1-to-10,000. This is possible with Lightning. “People tend to think that peer-to-peer is not scalable. It is,” he says. The monetary routes of Lightning can be piggybacked to create decentralized versions of Telegram, Signal or VPNs.
This is a similar approach employed by Sphinx, a chat app that uses the payment rails of Lightning to send text messages that are free from censorship or corporate oversight. “Text messages are not routed through the regular internet,” explains Gentry. “It’s data flowing through pipes of money.” And instead of simply pressing Send to fire off a message, users can just click to send 1,000 sats. “When people hear this they’re like, ‘Oh, this is what bitcoin can be? I had no idea.”
It’s possible the average user doesn’t really care about privacy, censorship resistance or freedom from centralized corporations. But this could be changing. A 2019 survey from Cisco found that 84% of respondents cared about data privacy, and 80% were willing to spend more time and money to protect their data. Apple now features “privacy” as a hot new feature, as if it were a new Johnny Ive design.
Or if online privacy still feels too abstract, take the recent example of a very different Apple, Apple Daily, Hong Kong’s pro-democracy newspaper, which was effectively shut down by China. In an internet powered by Lightning, Impervious AI would make a publication like this, well, impervious to that kind of political pressure. As Gladstein tweeted after the crackdown, “This is why Bitcoin is important for free speech and democracy.”
Ultimately, it’s possible that Lightning could help unshackle the internet from its ad-driven, corporate-sponsored Frankenstein of a framework. “Right now on the internet, we have an advertising-based model that tracks users, and takes a lot of information,” Stark says. “It’s not healthy, and it doesn’t have to be that way.”
Lightning could help enable Self-Sovereign Identity, or SSID. As I explored in a deep dive last year, SSID on the internet, more or less, means that you could log into websites or pay online merchants without having to spill your personal details like your address, date of birth, or credit card information. But how would that actually work? When I spoke with the experts last year, virtually everyone agreed that SSID was crucial, but there was a lack of clarity on how, exactly, it would actually come about. Enter Lightning.
“Lightning has the potential to serve as the de facto payment method to access services and resources on the web,” Lightning’s co-founder and chief technology officer, Olaoluwa Osuntokun, said in a post on the project’s blog. “In this new web, rather than a user being tracked across the web with invisible pixels to serve invasive ads, or users needing to give away their emails subjecting themselves to a lifetime of spam and tracking, what if a user were able to pay for a service and in the process obtain a ticket/receipt which can be used for future authentication and access?”
In this new framework, as Gentry explains it, a technology called LSATs, or “Lightning Service Authentication Tokens,” would be a new standard protocol for authentication and paid APIs that “strongly decouple authentication and payment logic from application logic.” In English? A user would use the Lightning Network to buy an LSAT token, and then spend that token when logging into a given website. No credit card info needs to be shared. It’s sort of like at an amusement park when you buy, well, tokens to use when you play Skee-Ball. Gentry says this should not require any dramatic change in user behavior, as “instead of a password manager and a credit card, you’ll need an LSAT manager inside your LN wallet.” This might all sound a little far-fetched, but then so did, at one point, the idea of El Salvador using Lightning to accept bitcoin.
Then there’s the role of Bitcoin the Network. Stark says that with the herd mentality of what she calls the NGU crowd, or those who only care about the bitcoin price or the “Number Going Up,” people get fixated on “bitcoin the asset. But Bitcoin, the monetary network, is extremely powerful. They both go hand in hand.”
Stark likes to reference Metcalfe’s Law, which states that “the value of a telecommunications network is proportional to the square of the number of connected users of the system,” and which means that as each new user joins the network, the network’s value increases exponentially. “Lightning supercharges the network effect,” Stark says. “It brings in so many more people and enables them to transact.“ (A thoughtful essay by Lyn Alden drives home the point.)
In the world Stark envisions, bitcoin is not only an asset but also the network, and it can be the rails on which you send some other cryptocurrency. “It doesn’t always need to be the unit of account,” Stark says. “It’s a transport layer…It’s basically the way you can send money.” This also happens to address one of the oft-cited concerns about bitcoin’s utility as anything other than a store of value: if it’s so damn valuable, why would you spend it?
Or maybe Lightning will be used not just by humans, but by computers. Crypto junkies will be familiar with the talking point that bitcoin banks the unbanked. But Stark pushes the concept further with the idea of unbanked computers, and the potential of machine-to-machine transactions. “100% of all machines are unbanked, but they can hold value and they can transact,” she says. Why couldn’t the OS of a Tesla, when it’s time to top off its energy, simply zap some sats to the charging station? (A prototype of this already exists.)
And finally, perhaps the most exciting aspect of Lightning is that it has almost nothing to do with the price of Bitcoin. One of Stark’s mantras is to think not about the “Number Going Up,” but the “Number of People Going Up.” Global adoption is her endgame, not laser eyes.
We first spoke on May 18, about a week after the price of bitcoin tumbled from $60k. Stark seemed almost relieved. “I love bear markets,” she says. “It’s a great time to build. It’s less distracting.” She tries to tune out the noise, the price action, and even the antics of hyper-tweeting billionaires. She’s wary of Elon Musk.
“This is a technology to empower people…to improve the internet, to make it a better place…It’s not some billionaire’s playground,” she said shortly after Musk’s tweets rattled the price. “Elon can buy a bitcoin. Elon can tweet about it. Elon can sell bitcoin. That is all fine. It is open to all. Nobody needs permission to take part in that, and that is part of why this technology is so powerful,” she says. “But I do think this obsession on one individual is also problematic.”
After all, says Stark, Bitcoin’s lack of a top-down leader is a feature, not a bug. “The fact that Satoshi disappeared is one of the best things to ever happen to bitcoin,” she says. “We are all Satoshi.” She pauses. “Except for Craig Wright.” She laughs.
Stark keeps the ultimate goal in mind. “I’m not spending my life so that billionaires can manipulate things, or so that rich people can get richer,” she says. “I’m spending my life so that a billion people will have access to this technology, which will drastically improve their lives and improve their world.”
She would soon sharpen this argument into what might be her defining ethos: “Bitcoin for billions, not billionaires.”