In the first post of this series, we claimed that Bitcoin is chosen as money when the benefits of using it outweigh the costs. In other words, when it's better to use Sats over Benjamins.
In the second post, we identified Bitcoin's unique properties that benefit traditional commerce, like buying a cup of coffee.
And we noted that plug and play merchant services lowered the cost of buying coffee, and other everyday type things, with bitcoin.
But we discovered that most people still only want to buy everyday type things with bitcoin when the price is high and they're ready to cash in on sick gains anyway. During other times, most people prefer to spend Benjamins over Sats.
So, what's it going to take to flip the Sats-Benjamin scale?
Now's the fun part when we look past the bore of the present and into the excitement of the future of the everchanging Bitcoin Universe.
The Bitcoin Universe
One of our 1st lessons was that Bitcoin is a network of computers that follow a set of rules to maintain a transparent ledger. But the Bitcoin Universe is much bigger. It includes all of the software and hardware that runs on top of Bitcoin.
Lucas Nuzzi visualizes a snapshot of the Bitcoin Universe in his piece, A Look at Innovation in Bitcoin’s Technology Stack. As jaw dropping as it is, Lucas calls out that it wasn't complete at the time of writing and like any universe, it's never exactly the same at two different points in time.
There are some enchanting celestial bodies in this Universe. We hope to explore many over time. But for now, we're going to focus on the galaxy that means the most for Bitcoin commerce: The Lightning Network.
The Lightning Network
What is the Lightning Network?
You can get the full Wiki rundown on how it works but in simple terms, it's a network of person to person payment channels. Bitcoin can be sent within channels instantly, at a low cost, and privately. Lightning only touches the Bitcoin blockchain when participants open and close these channels.
Lightning's unique properties are a clutch complement to Bitcoin, generally and instant, low cost payments also untap Bitcoin's divisibility property. A single bitcoin could always technically be divided into 100 million sats but the fees associated with sat-sized transactions were cost prohibitive.
Bitcoin + Lightning Unique Properties
The Lightning Sats-Benjamins Analysis Today
How do the benefits of using Bitcoin for traditional commerce stack up with the addition of Lightning?
Well, most people aren't worried about their privacy when buying a cup of coffee and divisibility doesn't help either. But instant, low cost payments are a welcomed addition compared to waiting 10 minutes and paying an unpredictable, potentially meaningful fee for a regular Bitcoin transaction.
And how does the addition of Lightning impact the costs of using Bitcoin for traditional commerce?
Remember that sweet plug and play software that made it easy for merchants to accept bitcoin with minimal capital risk and effort? How about all the network effect progress we made by a bunch of consumers owning bitcoin?
Well, if you want to take advantage of Lightning's instant, low cost payments, you have to moonwalk that progress back. Bitcoin merchant and wallet software does not automatically work with Lightning.
Without Lightning software in the hands of merchants and customers, the costs of using Bitcoin + Lightning actually increase.
What would Bitcoin commerce look like if consumers and merchants were suddenly Lightning-ready?
Bitcoin Beach, a heroic effort to integrate Lightning into local economies of El Salvador, gives us a glimpse. It all started when Michael Peterson received a gracious Bitcoin donation to give the power of the big ₿ to the town of El Zonte.
With 10 plus years of local community experience under his belt, Michael immediately saw the potential. Gang extortion and a lack of banking services in the country make fiat bad for business and increase the value of Bitcoin’s portable property. Also, by rewarding community work with bitcoin, the program helps focus youth attention on stacking sats rather than a life of crime.
Bitcoin Beach brought down the network effect and effort costs of using Bitcoin the hard way -- by putting a Lightning wallet the hands of individuals and teaching them how to use it. As a result, they've managed to create a circular economy for food, household items, and even haircuts, all on the Lightning Network.
Michael tells me that over 500 people in El Zonte, Punta Mango, and El Espino have Lightning wallets. About 3 bitcoins are distributed throughout the community each month and an estimated 3 to 6 bitcoins are circulating the local economies at any given time.
With Bitcoin Beach running point, Lightning has a chance of becoming the go-to payment method in these towns and beyond.
To learn more about how Bitcoin Beach accomplished this feat and their future ambitions, check out Colin Harper's piece, On The Coast Of El Salvador, Bitcoin Is Becoming The Standard
What about the rest of us who don't have a Michael Peterson in our town? Fortunately, some companies are working to bring Lightning's traditional commerce benefits to the masses.
Sats Back, Baby
- Privacy: Gift cards are not tied to customer personal info and no personal info is needed to spend bitcoin (remember, pseudonymous?)
- Cost savings: Bitrefill, Fold, and their merchant partners avoid credit card fees and chargebacks with bitcoin purchased gift cards (permissionless & immutable, yo!). Being the good stewards they are, they throw some of those savings back to customers.
It turns out, these companies save even more when customers buy gift cards with Lightning. So, what do the savvy Bitrefill and Fold peeps do to reward Lightning payments? They throw even more savings back to customers.
With Bitrefill, customers save an extra 2% when they pay with Lightning.
Lightning transactions are simply less expensive for Bitrefill and for our customers that use Bitcoin frequently.
The Quest for the Killer App
How does Lightning go prime time?
First, people have to want to use it. Fortunately, there's a primordial soup of mega-smart people grinding to discover new Lightning-enabled opportunities.
Whereas Bitcoin development is criticized for moving slowly in the interest of security, the relatively low consequences of breaking things on Lightning gives developers the freedom to be a bit, dare I say...reckless. This means we should expect wild experimentation on Lightning. Given the network's unique properties, it's likely only a matter of time before the primordial soup gives birth to life.
Micropayments have been well incubated as a concept and may be ready for life on Lightning. Micropayment possibilities have permeated the dreams of hungry minds for years and Lightning's instant, low cost, divisible transactions make them practical for the first time. Once it's basically free to transact in tiny amounts of money, entirely new types of things can be bought and sold.
Way back in May 2018 when Lightning was starting to get real, Satoshi's Place launched to the enthusiastic arms of the community. The concept is simple -- pay sats to draw on a shared canvas -- but it showed the potential of creating social experience with Lightning microtransactions. And who isn't nostalgic for writing "for a good time call (201) 374-0642" on the bathroom stall?
Paid.co is going after this opportunity with their marketplace for selling just about anything through Lightning. What's being sold for tiny amounts of money on Paid.co?
They tell me Lightning's low friction attracts some creators to sell small physical items, like stickers, that wouldn't be worth the cost of business on traditional ecommerce marketplaces.
The concept gets really interesting when considering the new types of commerce that are enabled by Lightning micropayments. According to Paid.co, the selling of digital files like printable templates and art works are most popular but also varies to less expected services, like unlocking of PDF and ZIP files.
Microlancer leans into the marketplace for services idea. Stack sats for anything from downloading an app to opening a channel with someone's node. The services center around the Lightning community for now but you can imagine the possibilities if and when Lightning is adopted by a broader audience.
I certainly have some ideas ;)
Kriptode is a playground of Lightning consumer applications. Several share the previously impractical theme of paying for engagement, such as social likes, survey responses, and answers to questions. In the spirit of due diligence, I'm testing their services to boost the Tweet ♡ for this blog post.
What? You thought 50+ people really liked this post? Nah.
You can also pay or get paid for one-off access to wifi hotspots and paywalled digital content. And of course, what would a Lightning playground be without playing games for sats? Lightning video gaming is a category with enough activity to warrant its own post. Stay tuned for that one, folks.
Sparkshot users pay sats to display pixels of digital artwork. It's a new way for artists to make money from their art and turn otherwise static work into a group effort that evolves over time. By throwing down a few hundred sats, I unlock pixels for the community, pay the artist directly for their work, and feel a sense of artistic contribution.
Random thought: How many Sparkshot sats do I have to spend to add "artist" to my Tinder profile?
For example, now that I've been hustling on this Bitcoin Audible piece for the past couple weeks, I'm incentivized to shill you on it so I can see what other Bitcoin memes lay below that dark surface.
These are just a few of the apps out there attracting users to Lightning through microtransactions. In many ways they look like toys but according to a16z's Chris Dixon, that's often how big things start.
While many eyes are on microtransactions, we haven't even begun to consider the less obvious Lightning-enabled consumer apps. And many major dudes will tell you, the biggest breakthroughs often come where you least expect them.
Once people want to use Lightning, they need software to store and transact their sats. Strong efforts are in motion to create the gold-standard of Lightning wallets.
Lightning's technical setup poses new challenges to wallet builders. Some wallets require users to run a node or get inbound liquidity which are sadly, complete deal-breakers for average Joe. Others offer easier experiences at the sacrifice of taking control of users' bitcoin (shout out to capital risk).
After testing a few wallets, I can only vouch for one hitting the sweet spot of these tradeoffs.
Breez is a mobile wallet that's accessible to anyone, node runner or otherwise. They figure out the inbound liquidity thing for you, it's non-custodial (users maintain control of their bitcoin), and to top things off, their customer service people are super responsive and patient with Lightning newbs 🙋♂️
There's another wallet that deserves an honorable mention and not in the every kid gets a trophy kinda way.
LN Strike promises the Bitcoin Lightning goods without the all-too-well-known costs of using it. Users and merchants can execute instant, low cost, permissionless, immutable, borderless transactions over the Lightning Network with FIAT, thus giving dueces ✌️ to the major Bitcoin pains of opportunity cost, capital risk, and effort.
Check LN Strike founder, Jack Mallers, demoing the app in its official debut announcement.
LN Strike is still in beta and yet to be released into the wild but if it, or something like it, is adopted by users and merchants, expect the costs of using Bitcoin Lightning to get thunderstruck bigly.
The Lightning wallet party doesn't stop there. Square Crypto (Yeah, that Square. You know, the $40 billion company) has spent the better part of 2020 creating an SDK meant to make it as easy as possible for Bitcoin developers to add Lightning functionality.
So, what about that cup of coffee?
The Lightning Sats-Benjamins Analysis of Tomorrow
Real talk. Buying a cup of coffee will never take full advantage of Bitcoin + Lightning's unique properties. But given the potential state of Lightning's benefits and costs on the horizon, the case for paying in Sats looks strong.
The thing is though, once we reach that horizon, I doubt you'll be thinking about that tasty sat-backed coffee. You'll be too fixated on the mind-bending new things made possible by Lightning.
We've only scratched the surface of those possibilities. Next, we'll dive into Lightning's potential to disrupt the interweb as we know it.
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