Why businesses need to keep an eye on the Lightning Network

Bitcoin was created in 2009 as a response to the global financial crisis. Money rules the world. It's not evil or good, but simply a neutral tool we use to communicate value. Everything we do is directly or indirectly related to money. The currency we use is controlled by central decision makers, like central banks and commercial banks. We have to trust central entities to allow us to have a bank account, to handle our money responsibly and to carry out money transfers. Especially in developing countries, many people do not have access to a bank account (~ 2 billion people). It's simply not worth it for the big banks to integrate these people into the banking system. Because hardly any bank wants to do business with developing countries, there are often far more than 20% fees for a foreign transfer. Behind every transaction are people who have full control over your money and have to transmit the necessary data. That is why microtransactions are not profitable. "Real-time" transfers are only possible for high fees.

Bitcoin works peer-to-peer, without a central party to trust in between. Because Bitcoin (unlike all other cryptocurrencies) is truly decentralized, this monetary system is open for everyone, incorruptible and resistant to censorship. However, due to the Blockchain Trilemma, only a maximum of 7 transactions per second can be performed on the Bitcoin Blockchain. This is far too slow to be used as a payment network. A blockchain cannot be decentralized, secure and also scalable (fast) at the same time. Everyone needs to have the possibility to be their own bank, so you don't have to trust a centralized entity. This is why the hardware requirements/costs of running a Bitcoin Full Node ("Bitcoin server") must be very low. The development of storage space is progressing faster than the storage requirements of the Bitcoin Blockchain. So it's increasingly becoming cheaper to be your own Bitcoin bank. Even today, you could install a Full Node on your smartphone.

"A VISA transfer works much faster. Why do I need funny internet money?" Anyone who claims this has only dealt with Bitcoin in a very superficial way. The Bitcoin blockchain is a settlement layer. Real money is moved. A transfer on the blockchain (onchain transfer) is comparable to moving gold from one safe to another. VISA is not a settlement layer, it's a payment layer. No real money is moved, only IOUs (I Owe You). These are two completely different usecases. We need to compare VISA with payment layers based on Bitcoin: the Lightning Network.

The Lightning Network is an open source project, developed since 2015. Lightning itself does not use a blockchain and is a decentralized payment system that you can put as a second layer on top of the Bitcoin blockchain. Just like on the blockchain, anyone can run their own bank (Lightning Node) on the Lightning Network. There is not a single entity with more power over the network than anyone else.

In order to link the first layer (Blockchain) to the second layer (Lightning), we need to make one transaction on the Bitcoin Blockchain. By doing so, we open a payment channel on Lightning that we theoretically never have to close again. The money sent is locked in on the Lightning Network and in return we receive Lightning-Bitcoin. However, since we have the proof that we really own the Bitcoin sent, one Lightning-Bitcoin (IOU) represents 1:1 the value of a "real" Bitcoin. So there can never be more than 21 million Bitcoin used on Lightning. With this one initial onchain transaction, theoretically an unlimited number of Lightning transactions can be sent to anyone in the world. The Lightning Network barely uses any energy, so the power consumption for a Bitcoin transfer therefore approaches 0.

With the Lightning Network, we can send value basically in real time, free of charge and anonymously. Just like digital cash. The more users, the faster and cheaper the transactions. While VISA manages around 25,000 transactions per second, several million transfers are possible with Lightning. A Lightning transaction costs a fraction of a cent or is often even free. Those who want to continue using inflationary money can also immediately exchange the Bitcoin they receive for Dollar. Bitcoin is just the underlying technology. By eliminating central decision makers, Bitcoin and Lightning allow us to do things that weren't possible before. In my opinion Bitcoin shouldn't be considered as an investment. It's the discovery of absolute, verifiable scarcity. It's a savings technology for individuals, companies and states (don't trust, verify!). Transfering a part of 21 million Bitcoin to the other side of the world is now as easy as sending a Whatsapp message. This is not only interesting for individuals, but also for companies.

One obvious advantage of Lightning: everyone saves the cost of a payment service provider. The surcharge of ~2.5% for card payments is eliminated with Lightning and no longer has to be passed on to the customer.?

With Lightning, we now also have the possibility of microtransactions. You can send someone a fraction of a cent and do it in real time and for free. All you need is a browser plugin or mobile app and a few sats (1 BTC = 100,000,000 sats). Companies could, for example, no longer distribute their (software) products only for a one-time fee or through a subscription model. Lightning enables Pay-Per-Use on a per-minute or even per-second basis. The customer pays exactly as much for your product as they use it. Theoretically, you just need to open the mobile/PC app on which your Bitcoin is "stored" (wallet), accept the price and you're done. By default, there is no registration and waiting time necessary. This can lower the inhibition threshold to try a new product. If I don't like the product, I close the application again and have hardly paid any money.

On Lightning, (decentralized) open-source alternatives to the software products of the big tech corporations are currently being built. With applications like the Impervious Browser, peer-to-peer alternatives of Whatsapp, Zoom, Google Docs, Twitter, Facebook, etc. can be used. Instead of giving content creators a "meaningless" Like for a good post, you can now send a small tip in realtime. With Lightning, you're in control of your data, not Google, Facebook & Co. Twitter founder Jack Dorsey and his team are currently developing Web 5, a new peer-to-peer version of the Internet in which you can decide whether to keep your data for yourself or sell it to advertisers. The native currency of this internet of value is Bitcoin.

A "Lightning Wall" (don't know if there is an official term for this yet) can prevent spam and DDoS attacks. When you enter a website, you first have to pay a deposit, which is automatically refunded to you free of charge after you leave the site. This also applies to chat apps. Because you have to pay an arbitrarily small amount of Bitcoin for each message you send, spam messages become less profitable.

But: Lightning is still very young. It's comparable to the internet in the early/mid 90s. The Lightning Network is already working, but it is not yet ready for mass adoption. Still, development is progressing very fast. Much like the internet changed whole industries, we can only guess what kind of business models will emerge from Bitcoin and the Lightning Network. But it may still be a few years before that happens.