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Lightning Thunders in a Down Market


When the above chart was shown last Monday at the San Francisco Bitcoin Developers’ monthly meetup, the room broke out into spontaneous applause. Even though the value of bitcoin (the blue line) has decreased because of the bear market we’re in, there was unbridled enthusiasm. Why? Because spending of bitcoin (the gold line) on the Lightning Network continues to rise, thus evidence that people are not just sitting on (hodling) their bitcoin, but using it to buy goods and services, even during a seriously down market. That seems counterintuitive to what one would expect.


For those of you unfamiliar with the Lightning Network, it’s a payment network that rides on top of the Bitcoin blockchain. It’s commonly referred to as a layer 2 solution, or “L2,” if you want to get technical. Lightning and other layer 2 solutions enable a massive number of small peer-to-peer transactions, denominated in bitcoin, that eventually settle on the Bitcoin blockchain. For small businesses and individuals wishing to transact outside of legacy banking systems, and more importantly, avoid the traditionally high banking fees associated with credit cards and payment apps like Venmo, this opens up all kinds of possibilities


More fascinating to me, as someone who has been around the startup scene for a couple of decades, is that Bitcoin Lightning Network Leader Strike Raised $80 Million in Funding.

While most everyone else in the startup community is laying off employees and tightening their belts, Strike is raising money in an unprecedented bear market. What also struck me as interesting was that two of the investors in the $80 million funding round were universities: Washington University in St. Louis and the University of Wyoming. If I were looking to go to college. I would look into those universities. Obviously they have some different ideas around the future of commerce.


The Lightning Network is still very much the wild west and very small in liquidity. But it’s showing signs of maturing and being taken seriously as a viable, alternative solution. Among the evidence of this are proposals for a rate card among Lighting Network providers to calculate fees incurred for forwarding a payment on the LN. While to be sure these are baby steps, it indicates positive moves towards transparency and standardization that will ensure the Lighting Network grows orderly and strategically.


We are still a ways off from Lighting having billions in transactions over the network as opposed to tens of millions today. So far all I’ve personally purchased over the Lighting Network are bitcoin socks from Mtsocks.com and a coffee mug.

However, given that the Network continues to grow and attract strategic investments when everything else is stagnant, I have a feeling that I (and even you dear reader!) will be conducting a lot more transactions on the Lightning Network in the not too distant future.


All the best,


Jim


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