Lightning is insane
Bitcoin is doing great. It is an open network where innovation occurs at the edge. It is a programmable currency that is native to the internet. It will never be a finished product.
Lightning on bitcoin is doing things that people just beginning to understand bitcoin will have them rolling their eyes and murmuring “here we go again” when they realise they’ve just set up a rampant bitcoiner into talking about the Lightning network. Poor poor people, if only they’d waited a few more years, they could’ve been using Lightning without even realising and all without ever having endured a quasi-comprehensive history of the world and its systems.
The lightning network is an instant payment network built on top of bitcoin. It works by creating channels with other users and then filling those channels with some bitcoin (normally sats, the smallest division of bitcoin, currently). This allows the parties within the channel to send and receive thousands of payments instantly. It is primarily intended to be used for small-scale transactions. Think buying your morning coffee, or paying a few pence to unlock some content behind a paywall. It is lightweight and has low hardware requirements, meaning it is cheap to make and run — it’s popular to use an off-the-shelf raspberry pi with some custom firmware, which we’ve been using and experimenting with.
Lightning is the first instance of being able to stream money in real-time and is highly programmable.
If you think of the early internet, it had long download times and took up a lot of resources as the ‘clunk’, ‘clunk’, ‘clunk’ as each line of the webpage slowly loaded. Now, you can stream 4k video games with thousands of players concurrently — steaming basic Netflix just ain’t impressive anymore. Moreover, with Lightning, users are self-reliant, maintain custody of their bitcoin and continue to use the network in a decentralised, trustless, manner. It also offers exceptionally low fees (think the real-world cost of sending an email) and huge scalability with user numbers.
As a permissionless open-source network built-in common programming languages, there is a lot being built on lightning. Here are some of our favourites and most compelling ones that we’ve come across, with a little imagination about where this could go thrown in to get you excited about the potential. Remember, we’re still in the small-scale, messing about, testing the waters, learning something new, phase of lightning adoption (i.e. the loons are only just getting into it). However, the size and scale of lightning network nodes, funds and channels are growing exponentially, and, during the summer, bitcoin’s Taproot merge was agreed upon and will go live in early November — the purpose of Taproot is to improve privacy and smart contract support — so a lot of things being built are about to get easier to develop and deploy after Taproot activation. It feels like we are close to some sort of inflection point. There is also a country using lightning already — does that count?
- Messaging systems
One of bitcoin’s earliest uses was a decentralised messaging tool. It is encrypted and transactions can have messages attached. When the value and transaction costs of bitcoin were essentially zero (minus your CPU costs if mining back then, which you likely were), bitcoin was used as a secure communication system. Very similarly, Lightning, with fees so low, decentralised nodes and easy interfaces with mobile and desktop devices, messaging and voice calling was one of the first applications developers began to play with. As well as this, as it’s lightning, all these messaging apps have the ability to send/receive payments in chats as standard.
Due to the low computational cost and requirements of running Lightning, it is easy to suggest some mobile phones will soon have a lightning node as part of the operating system — they easily can now if you’re technically capable and so inclined. Potentially, the dependency on Facebook — or even mobile providers — for instant messaging and communication could be shattered and replaced with something a whole lot more secure with fewer privacy concerns where users own their part of the network — which lives in their phone!
Alternatively, it is simple to have a personal node running either through a dedicated piece of kit (our raspberry pies) or through a browser. Nodes can easily have remote access from other devices, think like having your own personal cloud server with remote access, so you’re covered when you’re out and about.
Several years ago there was an iOS game called Takara, it was a geo-location-based game, where players went on treasure hunts for virtual drops of bitcoin that had been left by other players in the real world. Users dropping the bitcoin treasure could require the answer to a question or riddle; there was normally some sort of message attached even if there was no requirement other than being within a few meters of the drop. This led to a great encounter I had in Amsterdam, where some kind player had left some bitcoin in a hostel with the note, “Check behind ‘The Moon is a Harsh Mistress’ on the bookshelf.” — or something along those lines, his extra present didn’t help with remembering what happened next.
That was back in 2016 and was one of the first bitcoin games that weren’t some sort of gambling (SatoshiDice anyone?) that I can remember. Nowadays bitcoin payments are starting to creep into more ‘traditional’ games. Zebedee (founded by the developer of Takara), has created developer toolkits for integrating payments directly into games. You could be paid out in sats depending on your final score, bullets and damage taken can have an actual cost, viewers can pay to have power-ups dropped into the game.
The gaming industry has undergone a huge exploration of revenue models in the last several years. Free-to-play games have exploded and become some of the most popular games out today — Fortnite, Call of Duty Warzone, Apex Legends, the thousands of mobile games your aunty is addicted to. These new models depend on smaller and more frequent purchases in the game instead of a flat fee when buying a game new and then maybe having some additional content released later on as an expansion pack. Things like new skins, faster progression and various game passes are the current revenue model to generate income. Lightning could help with that.
That’s well and fine, but not all that interesting to me personally as these already exist, have done so for years and haven’t needed a blockchain (you have needed to have faith that the developer will continue supporting the game etc but that’s largely semantics), instead of through user-created marketplaces and informal trading systems. I’m more excited about the potential of in-game payments having an effect in the virtual world. Having a baked-in payment system that can be programmatically coded into the game will be something completely new. Using a small-scale, low-cap payment system all sorts of things could happen. One hope is to democratise the play-to-earn model, making it within reach of more casual players as opposed to only the elite tournament players. Something Zebedee already provides with ‘Infuse’, where CS.GO players can stake some sats, play and get payouts depending on their scores. Advertisers are getting onboard with logos dotted around maps whose revenue contributes to the honeypot for payouts
E-sports as an entertainment industry is rapidly growing with eye-watering prizes and viewing numbers becoming more common. So, when watching a tournament, or in a game, there could be powerups that are only unlocked when a programmed threshold is met, votes, payments, number of viewers or who knows what (it doesn’t have to be payment related, lightning can be used to record a current state, so who other metrics could be used). Imagine the scenes of wild gamers as a tournament-saving power-up is bestowed to a player in the final few seconds just as it seems all hope is lost, reversing the flow of the game, the input of thousands of participating audience members, at home and in the crowd, able to have a tangible impact on their entertainment. Spine-tingling “AguERRROOOOOOOOOO” moments taking place with and because of the audience’s direct participation.
There are a few examples already live (and you really should check out Zebedee, even if games aren’t your thing) but out of anything on this list, gaming is one of the sectors whose impacts will likely be wildly different to anything that can be predicted as there is a huge audience with high engagement and a very competitive landscape for that attention. The gaming industry value of $175 billion has already surpassed the combined value of the MLB, MBA, NFL, film and music industries (that really is true! — the combined value of $95 billion) and with e-sports ad streaming continuing to become more mainstream and part of the popular culture this industry still has space to grow. If you’re a believer in the whole metaverse idea then this will be where some of the core ideas and principles are sounded out.
Who knows what game developers will be able to come up with, this is a space I think will have some the most rampant innovation at the small scale end of the market — think indie developers and proof-of-concept games — and I’m quite happy to sit back and watch it play out, throwing out some sats here and there on new ideas — as I’m sure it will produce some incredible new concepts for the gaming industry — which is why I’m a bit hesitant to start speculating too much on this topic.
I haven’t really touched on NFTs and in-game customisation and if you cannot see how they will play into virtual worlds then, how do you find yourself here? — please email email@example.com with an answer.
3. Oracles and Discreet Log Contracts
Woah, woah there. Hold up. We were just on messaging and gaming, easy stuff. What on earth is an….miscreant load contact? You’ve lost me.
An oracle is a data set, it could be anything such as; a weather report, how many steps you take, indices of global/local asset values or something altogether different. Oracles made up of on-chain data, or data that is created and stored within bitcoin are great (ie exchange in/out-flows and wallet balances) — they are impossible to tamper with! Getting data from the real-world into bitcoin in a trustless manner has always been an issue as you are placing faith and trust in the entity uploading that data, so the whole trustlessness nature of bitcoin falls down. This is where the Discreet Log Contracts help.
Discreet Log Contracts are a form of smart contract that two parties can enter into which redistribute their funds to each other based on preset conditions, all without revealing any details of those conditions to the blockchain. These pre-set conditions are dependent on an oracle providing a signed message to the contract at some point in the future, but prior to the contract expiring.
The discreet part refers to how the contract appears on the network publicly. That is, it looks indistinguishable from any other multi-signature transaction. The oracle has no knowledge of the discreet log contract, the people using them or for what purpose, so there is very little incentive to skew the data. Previously the oracle was an integral part of the multi-signature process and could change the outcome of contracts if they were inclined to.
At the moment the scope of this is limited to hobbyists and this is still very infant, not in any sort of production use, and is in the stage of going from proof-of-concept to small test-cases such as “what will the weather be in London on date x” , “Outcome of the 2022 Champions League’’ and “will the price of 1000 sats be more that £0.50 on the final Friday of the month at 5pm GMT”, and such. You can check some out here.
However, a clear use would be a BTC/£ forward contract that would alleviate the risks of taking on bitcoin volatility for businesses when there are bills to be paid. There is a detailed outline here. Such things open up potential for all sorts of future settled contracts for all sorts of reasons — your imagination and knowledge of your profession is probably the best guide here — or go ahead and try and make one!
4. Automated payments
Bitcoin has always been used for tips and sending little amounts of appreciation. This use is a no-brainer and was one of the first implementations of lightning I came across in the wild. Due to the ease and programmability, different implementations and ways of access have been created.
Twitter, telegram and browser extensions have been built where users can request or send payments by @-ing another user in an existing messaging system. These are pretty self-explanatory. They generate an invoice with the amount for the recipient, who scans and receives some sats. Easy peasy. So easy that Twitter was able to integrate Lightning payments for users with Strike in September with no disasters — making twitter one of the best worldwide remittance experiences available on the market.
5. Internet of Things and data marketplaces
The ability to automate payments through scripts naturally leads into the possibility of what can be done with the internet of things and further automation. An internet-of-things-enabled device can have a lightning channel open to its use. Like all of the previous examples, this verges into the what’s possible realm — and again it would be best to digest this and start thinking about use cases you can come up with for yourself.
In terms of property, the industry, like many, are in flux as the pandemic has made every company rethink their working practices. What will the office be used for in the future if 90% of work can be done remotely? How do offices continue to create income? Serviced and co-working offices have grown in popularity prior to the pandemic and it’s foreseeable that there will be a race to provide working hubs with enough pull factors to entice workers to change out of their pajamas. However, when only used for 1 or 2 days a week sporadically across different employees, making that cost-effective would be an accounting headache. So why not just pay for the time spent at a desk? With an IoT device in the desk able to receive payments, a worker could be using the desk for a few hours and automatically pay for its use for the time actually spent at the desk. How about car insurance? You could pay insurance on the time you are actually spend driving.
With IoT devices, there will be a lot of data being sucked up into the digital world from the real world. This data has a value. By linking a lightning-enabled IoT device with the data you are generating you could sell your data in a more transparent yet private way than the current crop of data-driven companies.
This could upend a lot of revenue models which are based on providing services in order to get access to your data since (much like bitcoin itself) it flips where trust is held in the system and gives control of the asset (data in this case) to the user. You could sell the data generated while using an office space back to the management in order to better understand the needs and requirements, or use it as a means to in-part pay for the rent. Other property investors could buy data from successful buildings and dive deep to find its competitive edge. You could join a pool of data being generated by a niche market, say, you are a marketing firm with between 20–50 employees and an annual turnover of over £5million. Pool the data with other similar films (anonymised by default) and sell it to someone who is desperate to know how to appeal and cater to these types of firms. Who knows? It’s your data! Similarly, sell your browser data to the advertiser who offers the most. Become your own Google Adsense market.
This is an esoteric and incredibly targeted application, but hopefully, you get the idea of how granular this could go across any industry. There are many ways to cut and slice data, lightning integration gives users the ability to control and transfer access or rights to that data in a quick and direct manner without there being some sort of ‘black box’. I imagine there will be IoT data marketplaces driven by matching engines with various filters where data can be ‘rented’ for a short period of time to populate a model or support a theory rapidly — so your data will be constantly updating and reflecting its most recent value to the market.
Or just feed some chickens.
There are plenty of current limitations to this, initially (as with all of this so far) is the usability for non-technical users — but that is fine for now and is improving every day. The larger issue is even though lightning is lightweight and easy to run — many IoT devices don’t have the resources to run a full implementation and are purposefully designed to be as minimal as possible. So either another clever workaround will be required, alternate more specialised hardware will have to be developed or continued expansion of Moore’s Law, increasing computational power across all devices over time — likely a combination of all three.
https://arxiv.org/pdf/2012.10576.pdf — nice proof-of-concept of paying for toll booths without slowing down, even at 80mph.
6. Content access
Wew, you’ve read quite a lot already, sure is nice to be able to work at a place where I can ruminate about new technologies and share my thoughts in a somewhat transparent way to increase engagement with our firm. What about people whose income is derived from being paid directly for the content they produce? There are already ways to monetize content; patreons, subscriptions and whatnot. Instead of paying upfront and driving content in the future, why not pay for the content as and when you need it?
The breez wallet lets users stream podcasts from a library of lightning-enabled podcasts. This means that you are paying for the podcast as you are listening to it. Mad. A few other wallet providers are following suit as since all this is open-source code and programmable once there’s one example others will follow not long after (if there’s a compelling reason to). Of course, this is also available for video streaming.
Similarly, yalls.org — the first lightning use case created — is a blogging platform where readers pay to unlock an entire article. This exists in the fiat world, but with lightning, it is so seamless and instant that if the user has the ability to pay either with a bank transfer or with lightning, one would assume lightning would be chosen most times due to the speed and ease to pay from an in-browser wallet, the instant feedback on the article page and because of the small size of payment ($0.09 on yalls.org). Again, with not much extra code such implementations can be added into existing web pages.
We can ignore the elephant in the room that many existing payment providers for webstores, content and subscriptions take an additional fee from both sides. Lightning removes these completely. There could be some services that charge to do something similar on lightning, but on the other hand, someone could come along and release the same thing for free. You cannot beat the competition of an open-source, decentralised (and ruthlessly capitalistic) community.
7. Self-custody trading and LNDURL-auth
In this wild west of web 3.0, nfts and defi, one of the favourite pastimes of the loud and bombastic degen community is to get continually rekt (a fun synonym for being in financial ruin) by placing ridiculous bets on small cap altcoins, defi protocols and the latest NFT in an attempt to seek out huge returns. Or, by making leveraged bitcoin bets.
LN Markets and Kollider are webapps to trade derivatives and offer leveraged trading directly over the lightning network from within your lightning wallet, so you are always in complete control of your funds. Imagine having access to a stock market directly from your online bank or app. These new markets are permissionless, pseudo-anonymous and private. This sounds like a great way to get rekt, especially as since it is on lightning, nobody cares if you get blown out. LN Markets reminds users that this is in alpha, in ongoing development and should only be used on the testnet for testing purposes. So naturally, it has done over $200 million in trade volume since its inception in March 2020.
Blitz and Fixed Float offer exchange to different currencies, again directly from your wallet. More of these types of marketplaces will start popping up. I won’t go into the intricacies of their workings. What is most interesting about these is how they handle the user validation. They make use of lndurl-auth, which gives access to sensitive actions that you’d expect when logged into an account you signed up for but without email, passwords or other private data.
This means lightning can be used as a decentralised identification system.
That is quite an achievement. It gives users on the internet the ability to have a validated ID online, it is not the same type of ID as we traditionally think of such as various licenses and passports, but an ID system that is native to the internet.
User data is open to mismanagement from the controlling firm and creates a huge honeypot for potential hackers. Using a lightning ID system removes the possibility of any of this happening, while also providing a unique and tailored experience to each user. This was one of the original dreams of the internet before it became a bit of a quagmire of digital and meatspace data.
8. World Computer
You’ve made it this far, a tough slog of a read, heady, abstract and pulling random thoughts into something, somewhat, unified. So here’s your reward. Essentially all these use cases so far (maybe except the gaming aspect) can be distilled down to having the ability to attach payments to data movement. The payments are as fast as sending a message and are highly programmable. And that’s pretty much it.
The internet is made up of APIs, or Application Programming Interfaces, sending and receiving information for software applications. Whenever you type something, login, or take any sort of user ‘action’ on a website, it will be directed to the correct place, with the right credentials and it will return new information that changes what you are seeing/hearing whatnot, based on your input. Lightning allows for a way to monetise an API in a few lines of code and some middleware.
Consider how you would previously monetise an API, you had to; choose a centralised service (paypal, business banking) that can shut you down, or be shut down at any time. The fees are high, people wanting to access your API need to have an account and ultimately, it can be hacked. Moreover, to keep track of your users and their API usage, collecting and holding user data raises privacy concerns as well as the potential risk of hacks and leaks. Finally, charging for requests is done in huge batches such as 10,000+ as single-use payment was not doable.
Now payment rails can be added to any API in a very simple configuration, at the moment it requires a bit of tinkering, but as with any sort of code package it will be refined and eventually be a npm package that can be imported into any application with minimal effort.
This is a great way to sell access to data as it has no slowdowns and potential users are interacting directly with the data, moreover additional conditions to the sale and use of the data can be implemented. For example a timed access to a model you have created. Dynamic pricing based on current demand. Who knows we’re only getting started.
You know when there’s an error on a website and it gives you a 404 or a different 4xx error. These errors were thought of by the early architects of the internet for issues they knew users would face. A 402 is for a ‘payment required’ error. This was created under the assumption that a digital cash and micropayments payment system would be one of the key pillars of the digital economy when the internet was first created.
Anyone making an internet native product or service now has the option to quickly integrate a permissionless payment system. This is on a collision course with digital skills and wider adoption of digital currencies. In developed nations, having at least some knowledge of programming and software is an increasingly important skill that all school leavers will have shortly, if not already. As well as that the developing world is coming online in a huge way with the advent of $3 android phones, single-board computers becoming cheaper and the access to education they bring. Considering the path of least resistance, lightning will become the default payment method for new internet native and digitally-enabled businesses popping up around the world when its ease in comparison to existing channels is night and day, especially in areas that are underserved or lack access to existing services.
I suppose that is one of the aspects of bitcoin I enjoy most. I was back at my mother’s recently when she had some friends over. They were all asking about bitcoin — can’t get a day off. One was asking why it was being used in El Salvador, the other was asking about defi and if it was worth staking some bitcoin for a return. Two completely different conversations and uses — and they had no idea about lightning! Bitcoin is servicing the cutting edge of financial innovation in the west while also being used for basic banking services that are missing on the other side of the world. Very few other technologies provide real value at both ends of the economic spectrum.
Bitcoin has always been referenced in terms of potential impact as the internet. Lightning is a part of that and what it does will be required (in one form or another) for cryptocurrencies to reach that potential. The internet has had such an impact because it cuts horizontally across all industry verticals (ie; finance, communications, service industry, manufacturing, everything). Lightning network has the power and potential to do the same to payments, and it is becoming increasingly clear that it will do that if given the ability to do so.