The Promise of Lightning - A Fireside Chat with Michael Saylor & Elizabeth Stark (05/04/2023)

I could have worn orange for Bitcoin, you know.

Well, first of all, it's so great to be here. The first ever Lightning for Corporations event, and it's incredible to me that we've come this far. So, really excited to chat more about that. But my journey to Bitcoin was one around the internet and looking at open-source software, internet protocols, and really how it all evolved. My background is actually at the intersection of law and technology. Prior to my startup life, I taught at universities, including Stanford University. And one day, a TA for the course that I was teaching sent an article about what I saw as open-source money, which was actually Bitcoin. And my initial reaction, and many people that had heard of it here might have thought that I thought, okay, this is interesting, but will it ever work? And will anybody ever use it? Right? Many people originally approached it with some degree of, you know, questioning or even skepticism. But what I then realized, and this was way back when I was living an academic life, of course, I wish I had bought, you know, so many Bitcoin back then because the price is much lower than it is today, was that this technology has the potential, and really is living out that potential, to be the internet of money. Right? Because it is an open protocol. Nobody controls it. Bitcoin is the most secure blockchain, has the most hash power in terms of mining backing it up. It is the most decentralized, and for me, I was captivated. And for us in the Bitcoin world, we say we go down the rabbit hole, and then you start learning about cryptography, computer science, you know, economics, monetary policy, incentive structures, the legal aspects that we heard about, you know, yesterday. All sorts of really interesting topics that converge to Bitcoin. Really, once you start learning about Bitcoin, you pretty much cannot stop. So that's kind of where I headed. And from my perspective, I had always been an internet and tech geek. I was in high school. I was on the internet. My mom was yelling at me because I was online too much, you know, actually using the phone line. That's dating myself over here. I don't know if anybody else had that back then. And I had always envisioned that there would be a protocol and a technology to enable the internet of money, native digital payments. It made intuitive sense to me that you could go on the internet and, much like you could send data on the internet, you know, globally, instantly across the world, you should be able to send money and value. And when I first learned about Bitcoin, I thought, 'Oh, wow. This could be that. This could be the way to natively embed payments in the internet.' And thus came Lightning.

So, Satoshi released the Bitcoin white paper on actually Halloween 2008, which was actually quite significant in terms of the timing of that, the great financial crisis. There was definitely a message along with it. And the first era, you could say, of Bitcoin was one of Bitcoin the asset. You know, yesterday in Bitcoin Day, we heard a lot about Bitcoin as the asset, but we also heard a number of mentions of Lightning. And what Lightning enables is Bitcoin the monetary network. And really, the two need each other. For Bitcoin the asset to transact globally, you need a monetary network. And clearly, to have a monetary network, you need an asset that you can transact with. So, Lightning first came about in 2015. There was an original white paper. I helped to edit that white paper, and it was proposed to the world as a layer 2 technology. We just heard in the previous talk about the nature of Lightning, the fact that it's decentralized, the fact you have these nodes and channels. But importantly, on Bitcoin's layer 1 today, you can do about five to 10 transactions per second. There's a 10-minute block time. Every 10 minutes, there's, you know, a new Bitcoin block on average. And you have fees that can spike up. There's a fee market. And now this is all very important because it serves to decentralize Bitcoin. And without decentralization, Bitcoin does not have the security. So we actually want the security and the decentralization of Bitcoin. But not all transactions really should be on the blockchain. We were chatting quite a bit about that, you know, the past couple days. And what Lightning enables is this transaction layer to operate on top of Bitcoin, but to enable Bitcoin to have the security aspect of it. So you can actually use the Bitcoin blockchain to get onto Lightning, and to get off Lightning, you have to, and the Bitcoin blockchain is securing the Lightning transaction. You know, this is very important, right? Because people say, why Bitcoin? Why not do it on, you know, StarkChain or Sailor Yocoin or whatever you wanted to call it, right? Bitcoin has the security that enables this internet of money, right? You know that you're using the most secure platform or technology, one that does not go down. Bitcoin has something like 99.99% uptime. Lightning has tens of thousands of nodes, and as a result, this is antifragile. It does not go down like you see a number of other chains out there and a number of other systems that just go down for nine hours at a time. So ultimately, what Lightning enables is instant transactions, very high volume. We heard as well in the last talk, you can do thousands, hundreds of thousands, potentially in the future, millions of transactions per second. Visa can do thousands. There's a number, an upward bound of 24,000. It's debatable whether that's actually accurate. And then, as we discussed yesterday, Visa and credit cards do not clear for, you know, 60, 90, 120 days, right? And you can have chargebacks. With a technology like Lightning, you have the instant nature. You've got extremely low fees. They can be a fraction of a penny, and you have this high volume, which really enables all sorts of use cases that were not previously possible.

So there were the early days of working on Lightning. And for me, I really just saw the future. This is one of the things that I love. I've always loved technology. I've always loved the internet. I've always loved to think about what's coming next. And interestingly, back in the day, there were a number of people that said, you know, this will never work. You're crazy. I don't know what you're doing, but it's just not possible. And one of the things about being a founder is you have to, you know, hear that and say, 'No, no, no, it is going to work. I'm going to prove you wrong, and it is possible.' So to be here today is really quite a privilege and incredible to see the progress that we've had. So in about 2018, the first versions of Lightning, now importantly, by the way, Lightning is an open protocol. Nobody controls it, just like Bitcoin. It's like the worldwide web. And there are a number of different versions. We call them implementations. You can think of it kind of like browsers, but they're more for developers and node operators, aka people running these servers of Lightning, to run. And so nobody controls Lightning. You know, Lightning Labs is the leading developer of Lightning infrastructure, but if we went away, the network would still function. Other people, you know, would use it. There's open-source technology. So that's very important. So 2018, we had the first versions of Lightning for what we call mainnet on Bitcoin, which was for use of real Bitcoin. But developing technology takes time, right? The internet in 1969 really launched via ARPANET. A number of universities were connected. It wasn't until the early 90s that we saw the evolution of the worldwide web, and then it wasn't really until the late 90s or early 2000s that it went mainstream to some degree. And then, you know, the iPhone didn't come around until 2007. So we've seen this evolution both of the network and of the use cases. And from my standpoint, I've always believed that Lightning enables two major classes of use cases. The first is use cases that were not previously possible. Much like on the internet, think of something like Wikipedia, right? Many people use Wikipedia all the time, but imagine pre-internet, some of you may not have been alive then, having an encyclopedia that anybody could edit that is constantly changing. That just was not possible. You know, imagine Twitter is so commonplace. We were chatting about Twitter recently, where broadcasting a message instantly to anybody across the world is just intuitive today, but pre-internet, that also would not have been possible for anybody to do. So these native internet use cases are part of what's so key to Lightning. Interestingly, in the early 90s, the creators of the worldwide web thought that there would be a native internet protocol for transactions and for value. They actually created an error code. You know, we have a lot of tech people here. You may be familiar with 404 Not Found. Well, they created the error code 402 Payment Required. It just turned out that we didn't have the technology yet. You know, enter Bitcoin, and we did, and Lightning to enable that. So the idea was present, you know, in the early days of the web that you would have native internet payments, natively embedded web payments. So with Lightning, you can do things like, you know, machine-to-machine payments, natively embedding these payments. You can do micropayments. You can pay fractions of a US cent. Imagine trying to do that on traditional, you know, bank networks or card networks. You can't send less than a cent. You know, we've talked about sats, standard satoshis, the lowest denomination of Bitcoin. You can send one satoshi, a fraction of a US cent, on Lightning at a high volume, over and over again. And, you know, why would people want this? Well, I would think people here in the room would know machines can transact with other machines. You know, we think about AI, things like ChatGPT. There are a number of Lightning applications today where you can pay for access to API servers, for access to, you know, various AI services, and those are natively embedded. We also see use cases like creators on the internet, podcasters. This is actually part of what inspired me to work on Lightning, for creators on the internet. If you're anywhere around the world, you should be able to earn money globally. It shouldn't matter if you're, you know, in India or South Africa or Brazil or the US, you should be able to transact. And with Lightning, creators, say podcasters, people making videos, are able to earn satoshis over the internet instantly and actually engage with their fans. We see use cases like gaming, people that earn a living actually using Lightning over video games, and all sorts of other applications around machines, paying machines. So that's one key element of use cases. Now another one is what I like to call access for those who previously did not have it, or for those who were really priced out. There's an entire world of people out there that are not, say, in the developed world, right? You know, billions of people in emerging markets, many of whom have mobile phones, some of whom only have feature phones, and they want to pay and transact as well. They're not even, you know, they don't have access to banks. They're not on the traditional card networks, but they're using things like mobile money, in some cases cash. And with Lightning, anybody that has access to a mobile phone can tap into this global monetary network and they can transact. The fees are going to be far lower than solutions out there today, and they're able to access the financial services that they wouldn't previously have. You know, a year ago, Morgan Stanley wrote a report saying that Lightning is more practical for small-value payments than debit cards because fees are so much lower on Lightning. Well, we see mobile money in places like sub-Saharan Africa, but usually those are walled gardens, like they're only accessible in a given country, and if you want to pay across countries, you cannot do so. Enter Lightning, enabling these global use cases where people can transact. There's a really cool application out there called Machura by a friend of mine, KG, in South Africa. He's building mobile money using Lightning with feature phones. You can also use a smartphone, but you actually don't even need access to the internet, and now you're able to use Lightning as mobile money and send it cross-border to other people with mobile phones. And expect to see this use case of emerging market uses grow dramatically. We've already seen over the past year so many new companies develop, so many new people use that over Lightning.

We've seen so much progress since the very beginning. As I mentioned, in 2018, we had the first version for mainnet of Lightning. I mean, it was early days, right? It was like the command-line days of the internet. You know, things were clunky. Maybe they worked, maybe they didn't, but that's what made it so fun and interesting. And so, we have a community of global developers, you know, thousands upon thousands of developers working on, you know, Lightning applications, working on Lightning tools, building use cases for the world. And one of the things I love about what we do is we talk every day at Lightning Labs, as a developer-focused company, to people all around the world, right? And so what we've seen is the evolution of the protocol from something that was early, and you know, you send a transaction and you hoped it would work, and often it did work, but sometimes it didn't. And we heard as well from Alex around the concept of channels, and there's this idea of liquidity on Lightning, meaning that you need capital on the network in order to both send and receive payments on Lightning. And what that means is with Bitcoin, you know, you have what we call global consensus, and you can send and receive, but you have the constraints of five to 10 transactions per second. You have, you know, the 10-minute block time. You have the fees that can spike. On Lightning, you have instant, high-volume, very low-fee transactions, but we have this constraint, if you will, of you have to have the money on the network to both send and then to receive. And what that does is actually create opportunities. You know, we as developers and technologists, when we see a problem, we don't think of problem, we think of opportunity. And so as a result, you have a variety of, you know, technologies and services that help you allocate your capital in the network. For those in the financial world, you know, you want to allocate your liquidity if you're doing trading or other sorts of financial applications. So what we've seen evolve over the past few years is you have much more robust liquidity. You know, today you have about 5,500 Bitcoin on the network that's been growing steadily. Now the nature of capital on Lightning is not that, you know, the maximum amount that, you know, anybody can send over time is this 160 million. There's also a little bit more on there in what we call private channels. These are the publicly available routing nodes, but in theory, you know, you could send, you know, a hundred million, you know, every couple of seconds. We're not quite there yet, but you actually want efficient capital allocation on the network, and then you want to send the money over and over again efficiently. Because the nature of the nodes on Lightning is those nodes earn fees when people send transactions. So they actually want to route transactions. And then you have this idea of efficiency. So people in the audience may be familiar, you know, with packets and servers. With Lightning, we actually call it payments as packets. And you want to have efficient routing, much like you'd have efficient data routing on the internet. So with Lightning, you could have well-placed nodes where you can send and receive because they're centrally located with good connections, and then you're actually going to have more efficient routing on the network. So we're at a place today where, you know, River has done some great research and released reports. You know, they've had extremely high success rates of transactions. You actually have larger-value transactions clearing on Lightning. In the early days, we actually intentionally kept limits in place so that people couldn't send too much money because it was an early network. We didn't want you sending a million dollars on Lightning. Today you have the capacity for much larger transactions. You have many companies building applications, you know, many new companies announcing Lightning integrations because they want the benefit of the internet of money. They want the ability to have instant, high-volume Bitcoin transactions. And, you know, we've just seen mainstream both adoption, recognition, and use cases in a way that even a year or two ago would not have been possible. Right now, right, some people say we're in a bear market. And it's important to distinguish Bitcoin from crypto. We talked quite a bit about this yesterday. You know, Bitcoin has the staying power. Bitcoin has the security. Bitcoin has the mindshare. And as Jack Dorsey, a friend and one of our investors, liked to say, Bitcoin has the brand that people know, right? And what we've seen in the midst of the broader crypto bear market is an explosion of building in Bitcoin and Lightning. Whenever there's a lot of frenzy, it's harder sometimes for people to focus. These times are when people build. They focus on the real use cases in the Bitcoin and Lightning world. We really care about solving real problems for real people and real companies like the ones we have here today. And that's significant and important because while everything else is crumbling, Bitcoin is growing. Lightning is growing, and we're just seeing more and more use cases evolve. We're seeing the network mature. And, you know, yesterday you talked about being in the 90s, and it's something I've often analogized, you know, Lightning to, where it is absolutely early days. We're at a point where we're getting some degree of mainstream recognition. But now is kind of like when you were in, say, the 90s, and everyone said you need to look at this internet thing, and some people said, 'Oh, well, maybe I'll just use an intranet. Who needs this broader internet connection?' And actually, you needed to get on the internet, and those that were able to adapt and move quickly had an advantage over those that just waited and said, 'Oh, this internet thing will never work.' We now have the internet of money with Lightning, and we're about to see an explosion of new use cases, and now is the time to really adopt it, which is why it's so timely to have this event here today.