BTC019: Bitcoin's Layer 2 Lightning Network w/ Ryan Gentry (Bitcoin Podcast)We Study Billionaires - The Investor’s Podcast Network
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- 31 Mar 2021
In this episode, you'll learn:What is Bitcoin's second layer?Where does lightning labs fit into the second layerWhat is Lightning pool?How is liquidity managed on the second layerWhy does a person have an incentive to run a nodeWhy open channel with other nodesWhat are the nodes that will benefit the post from opening many channelsWhat are the incentives for people to use lightningWhat will things like Sphinx chat enable in the futureBOOKS AND RESOURCES MENTIONED IN THIS EPISODEFollow Ryan Gentry on TwitterFollow Lightning Labs on TwitterThe lightning labs websiteSphinx ChatRun an umbrel full nodeGet a FREE book on how to systematically identify and follow market trends with Top Traders Unplugged. Automate your money with M1 Finance. Get $30 when you sign up for free today. Push your team to do their best work with Monday.com Work OS. Start your free two-week trial today.Take your business to the next level by hiring the right people with ZipRecruiter.join OurCrowd’s Investment in Shield—an AI-powered platform that helps global financial enterprises meet increasingly complex communications compliance rules Open your account today.Invest in high-yield, professionally managed real estate, starting with as little as $10K with EquityMultiple.Find opportunities to help diversify your portfolio with investments in alternative asset classes with minimums starting at $1,000 with Yieldstreet.Follow other investors, discover companies to believe in, invest with any amount of money with Public.com. You’ll even get a free slice of stock when you join.Browse through all our episodes (complete with transcripts) here.Support our free podcast by supporting our sponsors.
You're listening to Tsipi. Hey, everyone, welcome to our Wednesday release of the podcast where we're talking about Bitcoin. It brings me great pleasure to bring you this week's episode with Lightning Labs. Ryan Gentry Ryan provides some amazing insights about all things happening on Bitcoin second layer. Although we've talked about the Lightning Network a few times on the show, we haven't dedicated an entire discussion to all the things happening on this part of the network and what it might mean for further adoption use cases and overall market dominance.
This was a fascinating discussion that you won't want to miss. So without further delay, here's my chat with Ryan Gantry.
And you were listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Kristen. Hey, so we got right here, like we said in the introduction, Ryan, welcome to the show. Great to have you here. Thanks for having me. Really excited about it and looking forward to this. So, Ryan, we've talked about the second layer on our show a couple times, but we've really never got into it in depth. And you, the folks you work with at Lightning Labs, you guys are the experts at this.
And I'm kind of curious if you could give us kind of a one over the world on the Bitcoin second layer lightning network, the impetus of how it got started back in twenty seventeen with the second update in general terms, what it means to you. If you can give us that overview, I think that would really help lay the foundation of the rest of the conversation that we're going to have together. Hopefully, your listeners are aware that the Bitcoin doctrine is limited to one block, Jambox come every 10 minutes, every 10 minutes, each block is about a megabyte plus and size filled with transactions.
And a megabyte plus every 10 minutes means a throughput of about 13 kilobits per second, which is really bad. I think the old AOL modems in the early days were famously like sixty four kilobits per second or something like that. So you're working with twenty five percent of dial up, which is which is pretty terrible, but it's not that bad if you're comparing it to what it's supposed to be compared to which is Fedwire. Bitcoin is a real time gross settlement system, just like Fedwire is and the Fed Reserve System payments network scales and layers.
All right. You have Fedwire and then you have commercial banks with that accounts. And then on top of the commercial banks, you have Visa, MasterCard and different payment networks. And then on top of that, you have been and PayPal, et cetera, et cetera, cash up. It's all these layers. And kind of one of the main differences between Bitcoin and between payments and networks is all those layers of layers of IOUs. Right. The layers of credit on top of each other, the bitcoin network.
You want to avoid that? We have a bare asset with no counterparty risk at the base. Right. And so what we want to do when we scale up is when we want to make sure when we scale, we're maintaining the security assurances of the network. We want to make sure that every layer to transaction that happens off the Bitcoin block chain is a valid Bitcoin transaction. So that's what we've done with flighting. And when I say we, I mean the brilliant people like labs and stream and husting, et cetera, et cetera, who are actually building the thing, not me, the the bad guy that gets to talk about it.
But in the early days when talking about how to scale this chain and what trade offs to make, how we can get off chain security assurances that are the exact same as all transactions, there's this really great chart image from I think it was from Tadjo, Georgia, but I may be distributing it to somebody at a scaling bitcoin. Twenty sixteen in Milan, there was an image of a bathtub. And so like the trade off space was, if we make the blocks way too big so that we have huge throughput, a ton of transactions per second, then nobody be able to verify the block chain.
And miners and businesses can tell you that you have a number of coins that you don't actually have and we just get fractional reserve system over and over again. If we go the opposite direction, we make the blocks too small and fees will be so high that normal people will be priced out of the base layer anyways. They'll have to use custodial bitcoin anyways and we'll have the exact same effect, fractional reserve over and over again. Right. So we got to find the sweet spot in the middle where it's not too big, not too small.
And the way that we chose was the network. And so what the network is, is the way I like to think about it is every online transaction has three parties involved, but you have the sender, the receiver, and we don't really like to talk about third one because we like to say it's peer to peer involved in every single Bitcoin transaction is also a mine that there's miners, it's hustlas. We know the game theory behind their incentives. They're widely distributed, so they always have to compete, yadda, yadda, yadda.
I'm sure like you had Terry and Marty on who can explain mining far, far better than I can. I would highly recommend going to set up upset as one of my favorite episodes of all time those fantastic. It's incredible the stuff that they're doing. The fact that they're still just getting started. Yeah, it's mind boggling. So in every transaction, you have three parties involved, the center of the receiver in the minor. And minors, like I said, are just minimized.
You don't trust them. They behave according to rules to be set for them. So all we do is the lighting at work is we replace the miner with a network of routing nodes. And so these routing nodes are anybody anywhere, just like anybody anywhere can spin up a miner. Anybody anywhere can spin up a routing node. All they have to do is, is bring their capital and put their capital into what we call channels that connect the two of them together.
And you can kind of think of if you look straight down on the network, on the topology, it doesn't look dissimilar to like a map of of highways across the US. You have like big kind of hubs, their cities, and then they're connected with a bunch of these channels or roads that where cities are flowing back and forth. And so all we've done is we've replaced the miners with these routing nodes. And that means that every single lightning transaction is a valid Bitcoin transaction.
Every single Bitcoin transaction could have been a lightning transaction. And the benefits are lightning. It just feels much better. It has instant settlement. It has very low fees because anybody compete to process these transactions, we don't have the same throughput limits. The constraint that we face, it's kind of like they're very naturally counterbalanced systems. One way we like to think about it is unchanged. You can send a billion dollar transaction for the same on the same fee that a five dollar transaction would cost.
It's your pricing is dependent upon the size of the transaction on the boxing, but off chain and lightning, it's more traditional spaced. You send a thousand dollars off chain pay one percent or lower or whatever, whatever the miner or whatever the routing nodes are charging. So you're kind of constrained in terms of size of transaction, but the benefits you get are low fees and instant settlement. So I really like this comparison that I've heard recently, which is this Fedwire comparison for on chain layer one, I wonder at scale what type of fee have you heard of any type of estimates on what that fee might be if Bitcoin would go all the way and we're talking about a million dollar Bitcoin price, what kind of fees are you hearing?
Will that be? Would it be like a 20 dollar fee? I know it really depends on when how full the temple is and all that kind of stuff. But have you heard any kind of numbers like that? The real answer is that by the time that that's the case, we're not going to be counting fees and dollars anymore, we're going to be counting the Tosches. I think what's really interesting about the way the Bitcoin scales is the real way it scales is actually by taking large in value, but small in size inputs and creating many, many outputs.
So like a large part of what we do at Lightning, with our lightning labs, with our new product and with our product, is we try and take large amounts of volume and in value terms chain and compress it as small as possible on change such that, say, we receive a million dollars in Baltz, which is a swap between offering liquidity and liquidity. We can take that and send it to 10 different people on chain. And if everybody had tried to do that transaction on their own, they would have cost them ten dollars.
We can do that and charge each of them 10 cents or something like that. It's like value compression on the block, like Netcare. Carter talks about this a lot. And I love this term is the only real way to scale a block chain without making any sort of compromises is economic density, economic density of transactions. Right. So I think it's one study that I mean, I keep meaning to do that. I just haven't done yet. And this was I didn't answer the segment part of your question earlier, but this was a big thing to say.
What allowed for us to do is allowed for us to Bache launching transactions together, whereas back in the old days, maybe one input, one output would have been a single transaction. Now we can do one input, 20 inputs, one input, a thousand outputs, something like that. And that's where the transactions per second number is kind of meaningless because transactions themselves are changing. It's hard to say it's a constant kind of arms race between the transactors on chain and the developers to try and make it to where these transactions are as economically dense as possible so that we can really scale this thing and still allow again, still stay in that bathtub where maybe not a person tipping somebody on social media can make an online transaction.
A reasonable person sending somewhere on the order of hundreds of thousands of dollars if they wanted to, could make the transaction without having the whole thing eaten up with these. So, like, if you're buying a car, kind of like how we use Fedwire today, like if you want something that clears on the day you want to send 10, 20 thousand dollars to somebody, you're going to use something like Fedwire to do it. Very interesting. You brought up how if you looked at an overhead view of the Lightning Network, it would look like a bunch of cities.
I found an explorer. This is at Explorer, ACIM, NQ Dot CEO, and this is the Lightning Network Explorer. And I'm looking at it right now. And I see over on the right hand side, there's a rail of all these different full node addresses. And if I say anything wrong here, correct me, the first one I see is ACIM Cue and it has one thousand three hundred and fifty three channels that have been opened with other nodes.
As I go down, each full node that I see here has less channels that have been opened. But I can see like a graphical map of them all kind of connecting together. If I click on any one of the four nodes, I can see roughly where it's located geography wise, and then I can see just all the other full nodes that they're open to. And it says thirty five thousand channels are open and there's eight thousand nodes that are listed on this explorer.
When I think about like what this represents or what this means, how would you describe it? So that it's just really simple for the audience to kind of visualize or maybe understand what's going on here with this.
Our CTO at Lighting Labs, Roast Beef, his actual name is Lollo, but his Tagus recipe says this a lot and I think it's absolutely correct. The network is a transportation network. Associates and transportation networks, we understand very well that's in the same category as railroads, as highways, as fiber lines for data. As you go down, there's a Wikipedia article on transportation networks. And I'll tell you kind of all the different ways that these all the different examples and this is the exact same thing.
Like all transportation networks, there are certain places that are really popular destinations for people to go for, in this case, for value to transfer. And so, like I'm saying, the major no, they they're one of the other two major implementations of the Lightning Network software. They're known as called Éclair. They have great mobile wallet called Phoenix Wallet. And they have a really big note that does a lot of volume. Right. They have a lot of users that send a lot of transactions either between themselves through the rest of the network, et cetera, et cetera.
And so all of these I think the next two biggest nodes are different. It's a major change. They were like the first major exchange to support lightning. They have just their own exchange. So they have a ton of Bitcoin. They do a lot of trading. They have a lot of liquidity. And so it makes total sense that they would be a top destination for all of these nodes. I think that refuellers up there, they do a ton of traffic.
OK, going kind of just got on the lightning network like two weeks ago and is already one of the top tech nodes. Like, the way to think about this is there's just there are these destinations that's value likes to accrue in the Bitcoin economy. There are just for whatever reason why it's not really important. I don't think there's just there are these destinations are super popular and destinations that are super popular need really big highways or they need airstrip's. What's driving that so like when I think about a city and you think about all the roads that are connecting into New York City, it makes sense.
There's a lot going on. There's a port, there's Grand Central Station. You got the finance hub of the world there. All of these things make sense why you see the roads going in. So when we look at these nodes, is it because it's an influencer that's put their their address out there? Is it because it's a a Visa debit card that people are are amassing Satoshi is that they're then using lightning to get them out? What's your opinion on what's driving that?
The thing about lightning is that it is an indication to honestly is it's an opinion, it's a value transfer mechanism. Another great episode that you did was with Jack Milers, of course. And so he's using the Lightning Network to transfer fire, not even really to send Bitcoins around like this is just a neutral value transfer network. And it's only been live on Mangat for I think the first node is like the very end of twenty, seventeen early twenty, twenty, eighteen.
So it's only been like three years and change and people are really starting to figure out some use cases that make sense for it. So like for instance, I think like I said earlier, they have just this great super sleek mobile wallet that sits on Android and, you know, like 90 percent of the world. I'm an Android user, so I have a big chip on my shoulder in favor of Android and against iOS. Nine percent of the world uses Android and they just have this amazing user experience for being able to send Bitcoin super fast and super cheap.
I don't know how many users they have, but I imagine that they have a ton because they have seven million dollars worth of capital committed to their node and they're just like a startup that's raised a series. So that's one thing that's really popular that people are connecting to their node because, one, it's really well managed to do a great job with the liquidity and making sure that payments are always processing to they just have this this fantastic app. If an X again is an exchange and the pools of liquidity, dominant pools of liquidity in the crypto economy are all centered around exchanges that are one two like the OG's, they have tons of Bitcoin or supporting the trade.
They're just kind of out of ideological alignment more than anything else, even. I mean, and also because it's one of the very few exchanges that when things get busy, it doesn't go down, unlike some other exchanges that will remain nameless. So they, of course, have tons of capital committed because they just have to do tons of they're like a cornerstone of the crypto economy. And Refill sells tons of gift cards. They've been amazing pioneers on the lightning network and pushing the ball forward on a ton of different things.
And what's really interesting about the refill is Sergei CEO made just a strategic bet a couple of years ago. It was like we're going to be a lightning network company like this is this is strategically important for us. And so they sell gift cards to anybody all around the world who wants one example. And he told me a while ago, that's just like such a cool use case for lightning that you don't really think of is he has users in Saudi Arabia or somewhere in the Middle East where their version of the Google Play store is very different from the American version of the Google Play store.
They're not able to buy the type of apps that we're used to buying. However, they can like through VPN or through like a side loader or something, get access to the American version of the Google Play store. But the only way that their currency is good and that play store is with an American Google Play store gift card. So they buy the gift card over lightning. They log in to this alternative app store, they download the app that they want.
And one of the tough things about the lighting network is it's private by design, like we want the network and not for any nefarious reason, just because nobody needs to know that you bought a coffee yesterday. There's no reason for that. Nobody needs to know that this small dollar payment is supposed to be cash. Nobody nobody needs to know what you do with your with your cash at all.
So it's important for it to be private because of that. We can't tell you, like with advanced diagnostics or analytics, you know exactly what's happening. But you can just look at this leaderboard of these nodes and see, well, it's people that love to spend. They're going to have Android phones, exchanges that are doing supporting our jobs or allowing instant deposits. People selling goods like that refill or like open road are like Coingate. It's a very diverse ecosystem of people who are just trying to push the ball forward with this new protocol and make the most of it.
Do you find that folks overseas that maybe don't have tax implications will actually drive this adoption enlightening a whole lot more than you find in the United States or in Europe? Yes, unequivocally, it is one really good example of this is there is just like a voracious lightening community and Argentina, of course, has direct experience with hyperinflation. They know what it's like. They know to be afraid of it. And so when they hear that there's physical currency that has a fixed cap and nobody can remove it, that's very attractive to them.
There's a great lightening wallet made by Argentineans called Moon Wallet, and you end very user friendly again, like they've been working on lightning since the beginning, innovating, pushing the ball forward. And they have just a ton of users that they're on the Bitcoin standard. Right. Because like, why use the Argentinean peso? Because it's been hyperinflated, like, three times in the last 30 years. Right. They're just not interested. We here in the US and a lot of investors in the US as well.
We take it for granted that like our payment systems are pretty good, our banks don't like directly steal money from us, like out of our bank accounts. And so we look at lightning like, well, but like you said, we have to pay capital gains tax on selling bitcoins. So like, well, nobody is ever going to use this seven and a half billion people on the planet. And a very a vanishingly small percentage of them has property rights and rule of law like we do.
And so they see something like this. It's like, oh, man, I can just zip money around to my Nana's mobile phone and don't have to ask permission, don't have to pay fees, don't have to worry about a third party.
So that's awesome. I'm in. So I I have my own full node and I opened a channel and then I was kind of like I didn't know what to do. And I'm sure this this feeling's probably mutual for a lot of folks out there. Very common. But you mentioned this moon wallet. And one of the things that that became really noticeable to me is, OK, so I've got Bitcoin on lightning and I can continue to use it as long as that channels open.
But then when I want to close the channel out, I pay a fee to basically get it back on chain. And in general, that that fee, especially if you're only using it for a couple ten dollars here. Twenty dollars there are the fees expensive to basically pop this money off the first layer on to lightning and then back again, like basically when you open you want to basically keep it open. So when you mentioned the moon wallet, I'm thinking, are these people down in Argentina opening their own?
Do they run their own full node? And then are they doing this activity where they're taking money on chain, on the first layer into the second layer? Are they doing all those gymnastics or is it kind of already built into the wallet? And is somebody else running the full node and opening the channels? The flip that needs to happen for every corner that's using Bitcoin as a currency, not not for cold storage investors, is to be on board directly into lightning and to to skip the chain part of it.
There's no point. Right, like like you want to get into lightning anyways. The users like Ngunnawal in particular, I think it's not a full validating node. I think you compare to a full validating node if you want, but by default, you trust their bitcoin known and your funds are locked in like a TUV to them. They do some pretty tricky stuff that is probably a little technical for this. But this audience to get into, they do some really tricky stuff doing with with swaps, with batching together, small transactions with like the users.
I think the users have like a light client on the mobile phone that's validating the change, but is not reading all the blocks. And then the actual lightning logic is running on the server. But in general, I think the thrust of your question is no, people should not be on board. Unboarded direct mail chain, like directly on change should be a destination for your funds when you want to put them in cold storage. If you're looking to spend funds, use them on a daily basis and we can get into like all of the different applications that people are finding out for, that you should just go directly from the lightning.
And again, Jack, milers with with strike is a phenomenal example of what that looks like in the UK. OK, going now in the US, like there's more and more of these direct fiat to lightning on ramps that when I first got into bitcoin, like the block chain part was really disappointing. I was like I thought this was like the internet of money. This is not what I was expecting at all. Like, this is way different.
But you go directly from Fiat and the lighting and you start zipping sets around. And this is what I was expecting the whole time. This is the future. Absolutely. Let's take a quick break and hear from his sponsor.
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All right, back to the show. And if I'm wrong about this, correct me, but my impression of this moon wallet is it's basically cash up. And if I would go down the Argentina and I'm twenty four years old and I'm out with my friends and I buy somebody a beer or vice versa, and you want to settle with your friends, like, hey, send me this many stats, twenty thousand stats or whatever the price would be.
And you would, you would use this moon which is all over lightning and I would be sending them to Tosches over lightning outsourcing the full node somewhat outsourcing the full node to a server that the wallet provider is like you said, it split between the phone and their server a little bit on the. Security side, and that's all, you know, it's just it's just easy peasy, just works. There's a bunch of the great thing about this being an open protocol and on focusing on developers in particular to try and get this protocol up and running.
There's like a whole slew of of options for security and usability wise, like I run, I have an umbral node, which is a full node that has already baked into it on a Raspberry Pi like right there that I have paired to a wall on my phone. I'm running a full node, a fully validating node on chain and with lightning has the whole lightning graph synched and all that sort of stuff. But when I actually use it on a daily basis, usually I'm using it for my phone.
And so my phone will send the message back to this Raspberry Pi in my house and say, hey, you need to make sure and send this payment out and it sends it in on my phone. The service on the other side receives the payment and tells me back, oh yeah, OK, I got it right. And I think that's that's the model that makes the most sense to me if you want to run a fully validating node. But like if you're a part of the world where your power goes out on a consistent basis, like maybe that's not an option.
Maybe you need to be mobile first. And so, like a great example of a fully validating node on the phone is Breece. So Briese, Breeza, they have fully validated node. You have your own channel, you both are managing Bitcoin and the lightning graph. So like it is possible, it's doable and it's doable with really a UX. It's just that there's this I mean, there's everything from straightup custodial to FL mobile node on the phone and just kind of depends on where in the spectrum you want to be.
So right. Like you, I've got an umbral that I'm running. Like I told you before, I, I took some on chain first layer bitcoin. I opened a channel with some random. I found that off this explorer that I mentioned earlier, I opened the channel with some random person. I think it was one hundred thousand Satz. I then took Jack Maulers Zap Wallet. There was like a barcode there on my umbral screen. I scanned it with my zap wallet that's on my phone.
So if I wanted to send you let's say I wanted to send you one hundred Satz right now you could hold up your phone with your wallet, you could give me the QR code, I could scan it and then in and we can't do this because I closed the channel.
I was going to say like we can do it right now. I'm excited, I'm getting ready. So I, I closed the channel and I was like, whoa, that just cost me a lot of money. Like, I mean it's all relative. I was like, whoa, that sucks. And this is how I'm learning. Right. Let's say I still had the channel open, which I need to open another channel again to to get this going.
But you could hold up a QR code with your whatever lightning wallet you're using. I could scan that and I could send you could I send you one Satoshi or would that not work? Once the Tosches dicy, just because by default, the base fee that's charged is a single set, if we had a direct channel, yes, absolutely like 90 percent of the time, if there was only one hop in between us, yeah, it would work.
You get a little dicey if you go two or three hype's hops off, one that will work. But again, I think there's right now like fourteen hundred and that's like one. That is nothing you can get up to two, maybe three. I was just curious, it was like with the limitations, and that really helped me understand it, because I've got this connection. I've opened the channel with some random noad and you and I would still be able to connect over the over our wallets.
It might hop. How many hops do you think that would be like three or four hops between nodes?
It really depends. I mean, there's like there's been some great math and graph analysis done on this where it's like ninety nine percent of payments are within six hobs, 90 percent or within five, 80 percent or within four. And then 50 percent are within three or something like that. It really depends. I think it's very likely we would be within three hops and it fullscale it'll be seven.
Seven separation's of Kevin Bacon. Exactly, I mean, like, yeah, that's all Grasstree, yeah, they just didn't know it at the time. Amazing, so that's making a lot more sense for me. Not many people really understand how the innards of the Internet work. I unfortunately am one of those nerds that studied that got a master's degree in it. But like from me to you right now on this video call, you have a computer that's connected to a router.
Your router is plugged into fiber or something like that, which is a cable that then runs to your ISP and your ISP peers with some bigger ISP down the road. And then it goes down some backhaul fiber to then repeat the process to get from an ISP to an ISP to my router, to my laptop. All of those things like my network is the exact same. It's just that it's all virtual, it's not physical, and it's instead of value or instead of data, it's flowing down.
It's the exact same architecture. So now let's talk about so if I opened the channel with this random node and let's just say I did it with one hundred thousand SATs and let's say you opened your channel for one hundred thousand SATs, the most I could send you would be if my channel was still open at one hundred in that direction. The most I could send you would be one hundred, is that correct? Correct, lightning is a four reserve system.
So then after I send that hundred and you would receive a hundred, and let's say when you open your channel, you had one hundred thousand throughput as well. Does that mean that you can't receive any more than that that I sent you or can you receive more? Let's say another friend want to send you another hundred an hour after you and I had had our interaction? Could you still receive another hundred thousand from that from that other person? If I didn't do anything, no, however, like liquidity in the network is is.
I think the best metaphor. My favorite metaphor for it is you open a channel with Alice, random note. Right.
The way that liquidity is distributed within a channel is like beads on an abacus. And so if you open one hundred thousand channel, you have one hundred thousand one hundred thousand beads on your side. Alice has zero. So if somebody goes to send a payment through Alice to you, you can't receive it because Alice doesn't have any money to give you. So the same thing works in reverse, right? You have a hundred thousand sites on your side of the channel.
You can send them spend down your channel all the way until you've sent one hundred thousand and then you're done. You can't spend anymore. However, there are a ton of ways that you can get that liquidity back. And so I think the easiest one and I actually do this and I'm sorry to keep shilling strike on your podcast, but when I have a channel that's been depleted and I have no more outbound capacity of send all my coins out of the channel, the easiest way to do it is to open up strike, creating invoice on my own note and say I want to receive one hundred thousand sets and refill my channel balance with the pay strike to refill my channel and then boom, I now can send one hundred thousand.
That's again you can do the exact reverse as well. Say like in your example, I have received a hundred thousand SATs. I can no longer receive any more down this channel. I can just send those coins to an exchange and trade them for freedom, for fear. Or you can use any product. And this is where I'm like really earning my business development salary.
Here is what we have is we have a product called Leupp, which is a swap between inbound or between off chain and on chain liquidity. So if I can't receive any more coins and I still want to keep getting paid like so in your example, in between you having sent me all your coins and Bob wanting to send me his, I can send my funds off chain to our Leupp server and our Loopt server will receive the coins and send you an equivalent amount on chain.
Right. So now all of a sudden you have your your off chain funds swap from chain and your own chain wallet has the hundred thousand sets that were yours chain and then you can receive again. So there are any fees associated with that. There's accounting fees, there's we, of course, charge a fee because we're not running a charity, there's there's unchained fees. But the great thing about them are the whole point of the lightning network. If we go back to my really early example is to create markets for all this stuff is to create markets for routing these transactions, to create free markets for transactions, because we know that nothing does a better job of lowering fees than competitive markets.
So because we have I think there's like ten thousand light notes on the network, nobody can raise their fees to high or they start getting undercut. And so the fees, I don't know what the equilibrium is going to end up being up, but I think betting that it's somewhere on the order of 50 bips per node is like maybe a little high. They're very low and I think they will stay low. So I really want to dive into this.
And I literally have the lightning terminal open and I'm looking at it right now, what you're talking about. So when I'm thinking about the future of where this is going, these hubs that have the most connections to all these other channels, I love the example of cities because I think that's a great example of let's say you become that your node becomes dallas' in your node, becomes New York City, and it's connected to all these other cities that are out there.
And, you know, it's a major hub that all the cities are going to have to travel through. And as this becomes more prominent and this becomes a major use case in the future, the fees that are going to be able to be collected on that traffic that's basically going to be going in and out at at parity with each other seems to be a mechanism to earn some great interest on on your Bitcoin. Absolutely. What are some theories on what that might be?
Is there any guesstimate? So think about it this way, there are two hundred and fifty thousand Bitcoin transacted on chain per day. There's this like kind of a I don't know why that's the number, but that is kind of a steady state and has been so for the last year or so. Two hundred fifty thousand Bitcoin transacted on time per day. I think it's like pretty fair to expect that not overnight, but the next five to ten years when demand for lighting payments really picks up when the protocol is like really, really solid.
There have been a bunch of great apps built on it. There have been a bunch of bunch of people, billions of people have lighting wallets. I think it's pretty fair to say probably 10 percent of that daily volume will travel over the Lightning Network. You're talking about twenty five thousand Bitcoin transactive per day. Right. And you can take 50 tips off that. That's two thousand five hundred two. That's twelve hundred and fifty. Bitcoin in profit to these routing operators per day.
Say that that is power law. And like the core of the network takes, I don't know. Seventy five percent of that. Right. All of a sudden you're looking at something like a thousand bitcoin and profit for the core. I don't know how many nodes. It'll be hundred, something like that that are in the middle. Like, that's serious, right? That's good money for. All you have to do is just keep a server online and make sure that your channels are well maintained.
We're a long ways from that for sure. But I can tell you that one of probably like the foremost expert on the planet in running a routing node, Alex Bosworth, is on the Line Labs team. He always posts his Twitter account is a a treasure trove just for looking back on it. It's like a time machine for like when the Lightning Network has really started picking up volume and like when things have started to work because he's been running a node since like late twenty or early twenty eighteen.
And he's got a website that he built on it. Yarl's Doug. That's like kind of like a Reddit type thing that people use every once in a while. And he just over like the last couple of months, all of a sudden it's like I'm starting to make more per day and routing fees than I make in my salary and we pay him pretty well. He's a world foremost expert and like he's he's got some of the biggest nodes on the network.
I think about that this network didn't exist three years ago and already, like a lead engineer, the foremost startup building this stuff is already making more money just from passive liquidity provisioning than he is in a shower. That's crazy. Think about what's what's going to happen on this thing. Ten X's and capacity and volume, like, yeah, there's a real business to be made. It's a land grab, just like on the Bitcoin block chain. It's a land grab for having as many territory, as much territory in the blocks as you can.
This is the exact same thing. So for him, he would have taken let's just say he takes five Bitcoin, puts it on his noad, he then drops it in the lightning and then just tries to open as many hundred SAT channels or 100000 SAT channels. It's very dynamic, like one of the things we try and do in our marketing is there's a constant tension between this is a permission loose network. Anybody can run a node. We want the barrier to entry to be as low as possible.
But on the flip side, like not everybody can run a node, if you know what I mean. It's work. This is a dynamic network that's constantly changing. It's like the the dark forest. If you've read the book right. You don't really know. You know, when people are changing their fees, you don't know when those are coming online and like all of a sudden are popular destinations, like maybe one guy has figured out how to balance his liquidity.
So he's undercutting this path that was feeding you a lot of traffic. It's complicated stuff. It's a it's kind of like a game. And Alex is really good at it. But I mean, he has channels, there are several Bitcoin apiece in capacity just to maximize the amount of volume that he can flow through before he needs to spend money to rebalance his liquidity. Honestly, when we when we talk to new aspiring node operators like we at this point with fees, the way they are, like we don't recommend opening channels smaller than like a million or five million.
So if you're like trying to put them to work because it's it's the math here is bips versus bitts, how much volume can you process off chain and take this off of and profit versus how small can you make the online footprint of taking your coins back to cold storage? So if you could open a channel with somebody that wanted to match you at one Bitcoin or three Bitcoin or something like that, how would that how would that pay back to the two parties that would enter into opening a channel like that?
You can only charge fees on outbound transactions, so if you're routing traffic and somebody is sending through, you say you have a channel to me.
I have a channel to Alex. Right. I can only charge fees for successfully forwarding a payment to Alex. And I can only charge by forwarding to you. Exactly correct. So what that means for the topology of the network, and this is why we built the little product that we built, is it actually within the network, the scarce resource? Is somebody pointing their channel to you, somebody providing you with inbound liquidity, with the ability to receive because they can charge fees on that.
So we don't generally see and there hasn't yet been what you're thinking about as a dual funded channel where I put up a Bitcoin, you put up a Bitcoin, we have come by and have this nice channel together. What has happens all the time is I open a channel to you because I think that I'm going to forward a bunch of payments in your direction and I'm going be able to profit from. This is very much a burly capitalist market for liquidity in the lending network.
It's all about how can I maximize my earnings? And the only way to do so is by forwarding traffic to popular destinations. So when I'm looking at Lightning Terminal, I see this lightning pool and I see a preview and it appears like the application is allowing me to set this bid premium or it helps me dynamically be able to figure out what I should be charging in a fee by participating in this lightning pool. Talk to us a little bit about how this works in general, what their concept is.
My understanding is as if I got a Bitcoin, I want to plug it into this lightning pool. I can earn interest on it. It's really kind of the simple narrative. What is it beyond that if you want to get into any of the nuances? It is only that what you described, if you've already done the hard work to turn your node into Manhattan real estate, if your node is Iowa farmland, you can't just put up your client and earn interest on it, meaning I haven't connected our open to channel with anybody.
Exactly, because why would anybody want to purchase your inbound liquidity, are you going to be forwarding them any traffic that then they could forward on and profit from? No, probably not. However, they would love to buy liquidity from from any of the nodes on the top of the list or any nodes that are maybe not quite as high in capacity, but are still well managed and do a lot of forwarding events. They would love to purchase liquidity from those nodes because that will guarantee or not guarantee, but that will ensure that they're making profits.
So, again, like I said, the scarce resource in our mind and the Lightning Network is inbound liquidity. It is difficult to determine because all fording events are private, because all traffic is private is very difficult to determine where that inbound liquidity is most efficiently allocated within the network. And because it's difficult to determine that and to centrally plan, that sounds like a solution for a market. And we let buyers and sellers meet in a single venue, priced our liquidity accordingly, and those who have need for inbound, who want to receive payments will buy it.
And those who have excess Bitcoin that they want to allocate in the market, it's instead of them doing it themselves, they would rather let market forces allocated for them. And so we've written a couple of a blog post. I wrote a blog post as kind of a higher level describing how this all works, roast beef and excellent both technical blog post and a white paper that is just like a work of art that I highly recommend. People go and read on how this auction is, how this market is designed, because it's up at the double-blind auction.
So there is no order book sealed bid. So the only way to put in a price, the only information you have on pricing it is the pass clearing prices of the auction, with the goal being that this should be the fairest way to price liquidity in the network. And so as this goes forward, the really cool thing about this is if you have a Manhattan real estate node that's really well placed and you're selling channels when you sell a channel, the only risk that you're taking is opportunity cost of capital risk because you're not giving up custody of your clients, which I think is incredibly important.
We took great care to name this financial product that is trading in this auction, a lightning channel lease, because like leases, you are not giving up ownership. There's still no debt involved at all. Right. This is this is a lease which, again, ties back to property like the real estate metaphor that we've been going with. So if I lease my capital to you for the duration, you're paying me an interest rate for just for providing the ability to receive coins on lightning.
And I am not taking any counterparty risk whatsoever. The only thing I'm doing is I could put my coins and Blackfire, I could put my coins and join the market. I could keep my coins in cold storage and said, I'm putting my coins and I'm directing them at you. So you need to pay me for that.
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All right, back to the show. You know what's funny, Rinus? I had, I don't know, 20 questions here. I haven't even looked at the sheet questions yet for this interview. This is mind blowing and you can see I'm learning here. I, I've done all the stuff that everyone says I should be doing as far as like doing the the full node, opening the channels. But it's, it is a little challenging. And I think the thing that that I often think about is what will this look like at scale?
What is the person like if my mom and dad are going to, you know, five years from now, let's say hyper bitcoin causations is real and we have people that are now using this as a form of currency. How does that work for your typical person? They're going to download a wallet. They're going to basically be using lightning and they're not even going to be realizing that they're using lightning. They're not going to be running a full node.
Is that pretty much how you see it playing out on a global scale? I think the I hope I aspire to the idea that the lightning rod is going to be like the router in your home. Ninety nine percent of people have no idea how it works. You just plug it in and it gives you Internet. I think that I hope that the lightning note ends up being exactly like that, where you plug this thing in your phone to the Bluetooth or you scan QR code or something like that.
And all of a sudden, like you're on the lightning network and you can make payments and that's just how it works. And maybe I love the this is a model term, but something that we've been really leaning into the concept of an Uncle Jim node where like, you know, not everybody is going to have their own node. But that doesn't necessarily mean that there's going to be some Infinera like company that runs nodes for the whole world and holds other Bitcoin hostage.
Why not just have the technically savvy guy in your family, the Uncle Jim, be the guy that runs the lightning node? He's the one that manages the channels. He's the one that makes sure liquidity is good. And his his kids and his brother's kids and his parents all pare their phone to his node and are transacting that way. That sounds like a perfectly sufficient decentralized solution to me. And I could do that. I mean, actually, I do do that.
Like, my wife is making tons of lightning payments all the time, but she does have an app on her phone paired to my node. And it's not a fully validating but trust me, because we're married not to steal our money from her. And I think for most people it will be like you download an app and you're on the network. But one thing that I think will catch people by surprise is I don't expect most people's apps to be like the cash up where it is just dedicated just to money and finance.
What I actually expect most people's wallets to be is the lightning part is like a bonus. It's a it's a side thing that you do. You don't download the app because you want to get on to lightning because lightning payments are going to be in tons of apps. You download the app because it's a chat app or it's a gaming app that you like or something like that. Like two of the most, I think the most interesting companies in the space right now.
One is finished. I chat who I sent you to the phenomenal podcast with Marty Bennett, where every message that you're sending to your friends is a lightning payment. It's encrypted on your phone, wrapped up in this message, sent through multiple nodes, routing nodes in the network, arrives at its destination and then is unwrapped. It's the most private way to send messages, I think, that we've ever had. And it's in this incentivized peer to peer network, which is amazing.
And the great thing about it is it is a lightening node. But like the payments part is the same. UX is sending a text message or a gif or something like that. And I think that is something that's much more likely to get people to start using lightning, especially people in the Western world, than just making payments. So, Ryan, I have this app, I have this up on my phone, I've got a hundred thousand SATs on here.
Could I send you five SATs over this, right? Yes, let's do it.
What's funny is I didn't even realize it, that I could be using lightning right now with this app, so that's what you're getting at. So here I am using a text messaging app that runs on lightning. This is wild in voice five sets. I'm going to click pay. Invoice paid just like I get out of town. Smooth like butter, right? That was instant, my hardest part was just getting the QR scan to go through the the video messaging thing that we're using right now, we're using Zoom, but as soon as I got it, I clicked pay.
And you you said I got it, like literally a second later. And I could have been in Burundi, I could have been in Antarctica, I could have been in Kazakhstan, doesn't matter as long as I have an Internet connection and there's even like some ways to do it, that just blew my mind.
Five says, like, how much is how much is five sets and. I'm trying to look at the like a history, is there a history here? I think down at the bottom of Sphinx, the way Sphynx works, you would probably need to go into like the actual logs of the node backing it. Like I they have locked there's a very privacy focused app. I have not given you my popke my address yet, so I haven't registered you as a contact.
So they just they just don't let you know who it was. You could get into the logs e like where you actually sent payment. But this is really important, so like I'm looking on my app, it says Transaction's I see five Satz went outbound and there's literally no address. Now I guess I could have screenshot of the QR code in like the the really generic address, their public address, but I had no idea who that went to. That's crazy.
OK, so this app let's just talk about this one a little bit more so you and I could start a chat conversation and would that cost a certain amount of Satoshi for us to just converse over this app or is it free? If we were to have a direct channel, just straight media, and we were sending messages back and forth like any of us, again, neither of us would be sending outbound forwarding outbound traffic so we wouldn't be charging fees to be free.
We just be chatting over this encrypted tunnel, over the Internet between me and, you know, nobody be able to read our messages. We wouldn't be paying any. And that's happening over lightning, over land, through lightning channel. So let's just say there's three full nodes that are connecting you and me together, that digital traffic is passing through those nodes, it's rap on top of Tor so no one can track what we're saying to each other. Would you argue that this is that this is an even stronger messaging chat platform than what are some of the popular ones that people use signal?
Unequivocally, because all of them have it's just the way that applications work on the current Internet. Yeah, that's better than telegram or definitely better than WhatsApp. Definitely better. The signal is as good as it gets, and I have no bad things to say. Well, I have one bad thing to say about signal, and that's like alerting everybody in your context that you don't signal. I don't get why they do that, but they keep as little information as they possibly can about you.
But still, you download the app, you register with their server somewhere. They have some information. And like your payment, your messages are routed through their network. They've done a great job making it as decentralized as possible, but they are still it's like you're trying to build a four story amazing house in a swamp. The public Internet was just not designed for private traffic. It was not meant to support this type of stuff. So it's really hard to build here with lightning by nature, by default.
All traffic is encrypted, all traffic is private, and there's tons of nodes that are willing to forge information without asking any questions because you'll pay them just a couple of cents for the privilege. Right. So, like, by definition, this is the solid bedrock upon which to build privacy, preserving applications like this, because you don't have to make like you just got to deal with what the network gives you and you get all of these great benefits out of the box.
So here's here's my concern is, let's say five or 10 years from now, you and I are not just sending the chat, but we're doing it at just this breakneck pace because we're trying to overload the resources on all the nodes that are connecting the two of us. How is that protected against. If there's one node in between us and we're sending back and forth, that node is just laughing his way to the bank because he's taken fees on each side.
It's like, thanks, guys, great experiment. This is fantastic. Yes. In general, the like DOS prevention question, the denial of services, which is what going after is solved by charging fees. I don't think that, like, I already kind of hemmed and hawed on the ability to send one set fees on the network. They're not going to stay this low forever. Like, I expect that they will end up being like a base fee of, I don't know, like somewhere between five and one hundred SATs, hopefully lower and then a percentage base fee of something like twenty five to fifty bips.
This is not going to be for free forever. The only reason why it's free is frankly, there's more capacity on the network than there is demand and the capacity like the whole point of the Lightning Network. The whole point again is this bips versus bitts arbitrage. The whole point is to recycle capital without touching the chain. Right. And so it's supposed to be really, really efficiently deployed capital where like the way that you make the most amount of money is you're just Zanin back and forth Satz in this channel and stacking up fees with every transaction.
Right. So you don't want to close that channel. You want to keep it open as long as possible. And so that's one one kind of frustrating thing that the public metrick the people point out to the network is the public capacity because it's like, well, frankly, there is like kind of too much in there to begin with. But now, like, we know that there's tons of traffic happening and we don't want to, like, dock's everybody and tell everybody whose businesses are succeeding.
And we don't frankly know exactly how much volume a lot of our partners are doing, but we know that it's picking up in a huge way. We know that people are really using it. And we're happy that the capacity stangl, because that means the network is getting more efficient, which is exactly what we're supposed to do. So this is a very long answer to I think it was a pretty simple question, which is the loss prevention get solved by higher fees.
Eventually fees can get too high because somebody will come in to undercut them if they start getting too high. But there will be some studies to go around that will probably price out single sad messages. And that stuff will just grow to happen on like a layer three somewhere. Before we go to the layer three piece, talk to us about some more applications that you see happening on lightning. So we just talked about texting. Is audio something that could happen?
Like if I wanted to call you ever lightning, if I wanted to do a video call with you over lightning, what are the possibilities of those things? You can do all that stuff in Sphynx riding in one of the really, really interesting things about Sphinx, the Sphinx, it's this Chadda, but they're they're trying to get creators on and actually like podcasters in particular, because if you've been watching my Twitter feed. Yeah. He has this podcast that as you're familiar with podcasting, of course, you serve up your podcast to the world over RSS, which is a decentralized, open protocol that everybody speaks.
But the problem with RSS is you don't really get any feedback from your community on what works done, what they listen to, anything like that, and you especially don't get it. So one really cool thing that Sphynx has done and their first like go to market is they've built an RSS podcast player into the app. So when I listen to, say, Tales from the Crypt, I already has embedded in his RSS feed for his podcast, his public key on the network.
And when I listen, I opta and this is not true. This is kind of like donation based, just doing it out of goodwill. I stream him 20 cents a minute just for the privilege of listening to him. And if a particularly good comment is made, I can press a boost that gives him the feedback that 30 minutes and 40 seconds, I like something he said, and I can send him a thousand stats just right there. And it just automatically streams into his wallet just for the privilege of listening to him to the app.
And, you know, like I could do that. I can listen to this podcast for free on any number of podcasting apps. But I like Marty. I like the work he does. I wish he didn't have to do ads. And so I would prefer to listen to him through this and just opt in to stream in some stats while listening. And I do it because it's just really cool.
This is funny, so I'm showing you my screen here, said this is my chat with Marty. He's the only person I've talked to on this. And when I open that up, I see there's like a phone call button there. So if I click that, obviously it's going to ring Marty. But would I be streaming him satz over that phone call or. Not quite so interesting comparison, if I can digress just a little bit, is in the early days of TCP IP, the Internet protocol stack, people look at TCP and the way it was designed and they were like, no, the Internet is going to be for streaming video and all of these just insane applications to people in the 80s and like TCP is like never going to scale to be able to do that.
Right. It's just never going to work. This congestion control problem. We got packets that we don't know how to label all this sort of stuff. It took a while, but like eventually this data transport layer ended up scaling to be able to support streaming video just fine. Like we're at that really crazy stage. We're like right now we're sending text messages through these incentivized private encrypted channels. And it sounds insane to say like, oh, yeah, one day we could be running hundreds of gigabytes worth of throughput of data through these channels.
And instead, I think it's probably going to take 15 to 20 years. But eventually we think about it like people have wanted and incentivized data routing protocol for ever since the inception. And now we have it and it works. It only works for really small stuff right now. Mostly because you just haven't had the incentive structure for people to build the capacity that's needed for a global use.
I mean, there's just yeah, there's like the demand, isn't there? The applications aren't there. Like, you know, the protocol has is leaps and bounds beyond where it was three years ago and especially leaps and bounds beyond where it was a year ago, especially where it was three years ago. It's nowhere near done when we still have tons of things that we want to add to it. But right now, I mean, the capacity is still for relatively small payments, although, again, like six months ago, especially after March 12th when Bitcoin was down and 3s, like, you can barely send a 10 to 20 dollar payment and have it succeed reliably.
Now, you can pretty frequently send two hundred to five hundred two thousand dollars payments. It's a bummer when you get hit with it with a failure, it's just gotten phenomenally better and I don't expect the trend to continue. So when you're calling me through Sphynx, that call is not going through lightning. It is going through like to see you as a zoom open source zoom alternative. But it's open source. I think they I think Sphynx runs the server, but I think still like the traffic is encrypted with your public key.
So, like, they would need your private key to decrypt it, the actual data. But I mean, you could do it if you wanted. And I think that there are going to be adding other things, which is like the ability to do a clubhouse style thing where you're chatting and maybe like in order to listen into the room, you have to buy a ticket with Satz. That gives you your only your private key access to like be in the room and have audio like they could do things like that.
Like the thing we haven't even scratched the surface of what programmable micro payments mean, like there are going to be everywhere and everything. Like one thing that Paul says, the Sphinx founder that I absolutely love is like concept of free is is probably over with if you're downloading something or you're participating in some online activity in five years and it's free, the hair on the back of your neck stand up. You should know that you're the product because now you have the ability to function honestly.
Charge ten Satz. That's what's so interesting about what you just said, so when people are paying this, they're actually starting to see the monetization that's been happening to them for decades. Exactly. And it's crazy, I remember this is one of my old bosses in my last job used to tell this story all the time. This was like one of his go to lines about how much technology is transforming the world is a very true, but it resonates so well.
When I was growing up, like my parents, two of the strictest rules and my parents had for me was one like never put any personal information on the Internet and to never hop in a stranger's car. And now every weekend I call some random person with a car to come pick me up at my house and say, like, that's crazy. Out dramatically. Things have changed over the last 30 years and I think we're in for a pendulum swing back in the other direction.
Yeah, I agree with you. OK, let's go to layer three. I'm having a hard enough time wrap my head around layer two and this just sounds fascinating. So what in the world would layer three be? Again, some of the really early, early Bitcoin stuff was around, like the idea of transferring around tokens was around the idea of like bit message, which was login text messages on chain encrypted. So only your buddy could read them for all these great ideas for programmable money that then rational people in the Bitcoin community decided like, this is never going to scale.
We need to prioritize the ability to run a full node to protect twenty one million cap and those all got booted off chain. Unfortunately, like a broad swath of the crypto industry did not learn those lessons. I'm just trying to reinvent them on these blog chains. But all of these great ideas still exist. We just have wanted to push them up to higher layers so as to not burden footnotes. And importantly, just like how every transaction is a Bitcoin transaction and inherits the same security as the base layer, I think we want to do as much as possible to make sure that Layer three at minimum inherits the same assurances as layer two.
And I'm going to this is going to be a super fan precedent, but I'm going to reference another great podcast that you've done with Nick Boutiette. His layered money book is was just fantastic. And I think in that layer, it's possible that although lightning is a full reserve system, it's possible that layer three is where we finally introduced debt. Right. Which is where we finally introduce tokens that are redeemable, based for some Tosches based on the reputation of the asset issuer.
And so what's really interesting about that is I think if you imagine a fully mature, ubiquitous layer two, there's hundreds of thousands of nodes, there's 10 percent of the Bitcoin network is is locked in lightning channels, all of these nodes, they're going to be always online. They're going to be varying degrees of nodes and large data centers to Raspberry Pi, something like that. The main thing that this provides is what has been theorized about for forever in computer science circles, which is a decentralized public infrastructure.
If every human on the planet and even lots of machines are addressable and payable by a public key, like, we can just do incredible things like one thing that we're already doing at Lightning Labs and this is a layer to thing about bring it up to layer three. One thing that we're already doing in production at Lightning Labs is we are charging per API call. So say we run a server like, for instance, the loop server that does these swaps, not just anybody can show up.
And like in our API, like I can do with Twitter dot com or like you name it your website. Right. Usually when you do that and you limit your API, you get kicked off and they ask for username and password and then you have to sign up in their account and then you're on your email list, all the sort of stuff. But we don't want to deal with anything like that. So what we do instead is we just say doesn't exist.
If you want to use our API, like, you have to include that payment alongside it. And it doesn't matter. Like, it's kind of crazy doing b'day for this company where, like, I don't know who. Seventy five percent of our customers are. I have no idea. And not only do I not know what let me know they have I don't know their actual entity, like I don't know what they have because what they've done is they've purchased this authentication token that we call an LSAT lightning service authentication.
I think this is like the first instance of a Bitcoin asset, Bitcoin backed asset on layer three. We've issued this token. This token gives the token holder the permission to hit our API without paying, because they've already paid, they've already authenticated themselves. And so all that matters is that they have possession of this token and they can hit our API. And so that's great. It allows us to scale financial services to anyone around the planet. And I'm digressing again.
But I think this is a really important point. If you look at the S&P, five hundred and like ninety one versus the S&P, five hundred and twenty 2011, like the starkest differences you notice. Ninety one. There was a bunch of banks and media companies and energy companies, 2011, all Internet companies, but no finance companies because financial companies, they have not been able to scale their services to the rest of the world. And reason why they haven't been able like Google and Facebook and Apple, et cetera, et cetera, to have over the Internet, they haven't been able to do that because they're restricted by the fiat banking system with the ability to provide financial services to anybody around the world, regardless of who they are, because we're based on bitcoin smart contracts and we don't require identity.
We can just do spam prevention with prepayments like we can scale financial services to anybody around. We can we can finally get a global market for this stuff, which is crazy. So getting back on topic layer three, we have imagine we have this global network of these always online nodes who are looking to justify their existence somewhat. One of the really cool things we can do because you can do these paid APIs is you can get nodes who are maybe paid to store some files for you, like kind of the decentralized Dropbox.
And how would you know where all of these files are stored? You would have some database that's owned by five or six different nodes who all keep track of where those files are and things like that. And all of that stuff would be on layer three because when an exchange would need to happen, they would settle on day or two for instead not settling down the block chain. Right. Because there's no need to go and pay the fees or anything like that.
You don't need blackfin security. All you'd be doing is just settling back to layer two, which I think is I mean, the possibilities there are endless. I think the distributed storage is like such an obvious one biol going on. Lightning is definitely doable. May not have like the security assurances of the Bitcoin network, but you really need that for, like, Captain Marvel movie. Probably not. I think the distributed computer stuff is also like really interesting in general, just getting these online computers to opt in to marketplaces and leverage like the resources that they have put them to work for.
Satz is what layer three is going to be all about. So, Ryan, one of the things that I think was just massive news this year was the idea that financial institutions can now use block chain and block chain technology for clearance. When you look at clearance and I talked with Jack Maulers about this a little bit, it's just I mean, it's the Rube Goldberg of Rube Goldberg's. And when you look at the speed, I mean, heck, I sent you five sets instantly while we were having this call and there was no fees for for me sending that to you.
And that's such a minuscule amount of value that immediately cleared. And I'm looking at these banks and I'm looking at how they're doing this clearance right now and how long it takes. And I could essentially five thousand, ten thousand dollars in value and it would have cleared just as fast. So do you see this causing disruption? Do you see them kind of smoothly transitioning? What are your thoughts around clearance and traditional legacy clearing systems as they exist today? And a very broad sense, what Bitcoin does is Bitcoin creates natively digital value and allows for natively digital value transfer, just like the Internet created natively digital content and the distribution of natively digital content.
Like one metaphor I like to use is like, when's the last time that you physically wrote a letter or that you read something that was printed physically on purpose? It's very rare now, right? Almost everything is created digitally first because it's just that's so much more efficient to distribute digital content than it is to create an analog piece. Media translated to digital and then distributed digitally. Right. The same thing is going to happen to finance. It's going to be like what Google did to all the newspapers and local media and local news and stuff like that, not in newspapers.
They're not going to be able to compete. Right. Like they're still relying on paper bullets and mail trucks and stuff. And we can zip things over the Internet at the speed of light. There's more as almost already one. It's just a matter of time. I think there will be massive disruption. I think probably more likely than a bunch of banks closing down as a bunch of crypto exchanges end up buying banks for their user base and forcibly converting them over to upgrading them to the newer technologies that hopefully it means a lot more.
One interesting way that it could go is that actually the services, financial services provided by what we think of as the banking industry just distributed and baked into normal everyday companies, just like how now can every company has to be a media company and publish their own media content and stuff like that? It could be that your I don't know what a good example is like your like how steam is where people buy video games, the marketplace for that. It could be that they start offering a savings account on your bitcoin as long as you keep your funds with them.
And these these core value added by this industry that was wrapped up by regulation for mostly good reason, probably wrapped up either by regulation in the fiat world, all those services just distributed to actually value adding businesses and they now have the tools to offer payments. They are the tools to offer interest-bearing accounts. They have the tools to offer custody, et cetera, et cetera, et cetera. I think that would be a pretty cool way for it to go.
But I can't see the future. I don't really know. Brian, I can't thank you. This has just been mind blowing. We've got to do this again, especially as you guys continue to pump out new and amazing things over their lightning labs, give a hand off to folks to follow you. Any articles I know you mentioned Alex Bosworth is somebody to follow. Also the roast beef blog post, your blog post. Anything else that you want to highlight?
Go ahead. So I am at the gentry on Twitter. Highly recommend following our lightning Twitter handle, which is just lightning for Lightning Labs, our monthly newsletter. If you want to stay up to date with all the stuff that's happening in the lightning ecosystem, it's targeted at not of developers, but at investors and people that want to stay up with the ecosystem is just lighting labs that substract dot com. Our website is lightning dot engineering. And I mean, our team is just like an absolute host of rock stars.
I mean, all the way down. I'm lucky to work with every one of them. Like, if you think I blew your mind, Preston, you should sit in some of our meetings. Oh, my God. These people are on another level entirely. Like, I'm just lucky that I kind of translate what they're talking about and then building and saying, AlixPartners, absolutely. I must follow tweets every day at nine a.m. Pacific. And that original tweet is just an absolute gem.
Roast beef, of course. I mean, the whole team all the way down. Elizabeth Stark, of course, none of this would have happened to her. Another thing like if we do have some developers or somebody listening that wants to get into building on lightning, I highly recommend lightning polar dotcom, which is a tool that one of our team members, James, built. It's a really easy way to get started building up some lightning that I think hopefully this year people are really going to see the potential and get inspired.
And then we think probably got one more good show left in me. And then, of course, we have kind of like our own developer, our style of engineering. I mean, just in general, I'm not going to say that the network is hitting its stride because we're just like so far away from the potential that this thing has for the world and for everyday people like we kicked off the year with with Jack Mollas and strike level and just all of these companies, the strikes, the 70s, the Sphinx's refills, the bottle plays like all of them have just been crushing and they're getting tens of thousands, hundreds of thousands of people on the network as we speak.
It's a beautiful thing to watch happen. And I'm just like incredibly bullish on the future.
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