Bitcoin and the Lightning Network

My experience using the greatest monetary network in the world

Bitcoin vs Banks

Since 1949, banks have robbed merchants by skimming off the top of every payment made through their systems, leaving merchants to bear the cost and consumers to pay the price. This thievery is achieved through the use of payment processors, or payment networks, such as Visa and Mastercard, that charge large fees for the use of their systems to process and settle payments. These fees lead to merchants taking a hit on their revenue, causing them to raise prices and possibly switch to cash and coins to avoid payment processors altogether. Consumers are then left inconvenienced and with a bigger bill than they should have gotten. Thankfully, Bitcoin has provided us with a solution: the Lightning Network.

Not only has bitcoin¹ proven to be an incredible store of value and investment, but its use case as a medium of exchange is rapidly evolving with the development of the Lightning Network, a payment network built on top of the Bitcoin blockchain. The Lightning Network was created with the goal of enabling instant settlements and transactions with little to no fees, using bitcoin as payment without having to make an on-chain transaction, which is the most secure but very time-consuming way of sending bitcoin to someone.

An on-chain transaction can take hours to be sent and confirmed, which is desired for large transactions, like purchasing a house, to ensure the funds are received safely, but can be very tedious for a small transaction, such as buying a $5 cup of coffee. With the Lightning Network, your payment for that cup of coffee can be sent, confirmed, and settled instantly, at virtually no cost, all while still ensuring the validity of the transaction.

With a payment system tied to banks, it can take days, if not months, for a payment to be confirmed and settled in the bank account of the merchant, regardless of whether a credit card, wire transfer, check, or other form of payment was used. Our current payment system forces us to depend on a third party to access our own money, have all of our purchases tied to our personal identity, and deal with ridiculous fees that only serve to line the pockets of bankers. The Lightning Network enables us to take complete control of our money, reduce the cost of goods and services, increase personal privacy, and accelerate societal advancement.

El Salvador's Adoption

March of this year was the first time I ever stepped foot in Central America. On top of that, it was the first time I ever stepped foot in a country that has adopted bitcoin as legal tender: El Salvador. I didn’t know what to expect when I got off my flight, but I knew I wanted to try living solely off of bitcoin and the Lightning Network for the time I would be there.

If you come to El Salvador with the same goal I had, you’ll immediately have the chance to put yourself to the test. Before leaving the airport, you’re required to purchase a $12 tourist card, and with the country having adopted a new digital currency as legal tender, of course you have the option to pay in bitcoin. Here is where I ran into my first roadblock: the attendant didn’t know how to request a Lightning payment and instead requested an on-chain payment.

I explained to her that she was creating a request for the wrong type of payment, but she wasn’t too familiar with how to operate the Chivo Wallet Point-of-Sale machine (Chivo Wallet being the Bitcoin wallet developed by the government of El Salvador) and couldn’t figure out how to create a Lightning invoice to accept a Lightning payment. I eventually had to settle for paying in cash. After that little setback, I thought it would just be smooth sailing from there.

I stayed with several friends of mine and mainly spent time in El Tunco, Santa Tecla, and San Salvador. I had the opportunity to try and pay in bitcoin at restaurants, bars, and with street vendors. Only once was I successfully able to purchase food and drinks from a restaurant using a Lightning payment. Granted, when we were there, my friends and I would put everything on one bill and split the cost after, but at almost every place we went to, I asked if they accepted bitcoin. Only about half of the restaurants said they accepted the digital currency; no bars or street vendors took it as payment.²

I had come to El Salvador just assuming that Bitcoin adoption would be widespread and prominent across the country, but I was mistaken. People appeared to be more weary of using it than I thought, but with good reason. The volatility in the price of bitcoin is definitely something that exposes its users to the risk of having less of their local currency from one minute to the next (with the flip side of having more money over the long run as well).

The thing to realize is that regardless of bitcoin’s dollar price, the Bitcoin network allows its users to freely transact with anyone in the world over an open, decentralized monetary system that is truly peer-to-peer. By adopting bitcoin as legal tender, citizens of El Salvador have a way to escape a dollarized system controlled by a foreign government that does not care about what is best for people living in El Salvador; the American government hardly even considers its own citizens. The U.S. has typically acted in its own self-interest, disregarding the devaluation of the savings of the people it governs when it runs the money printer to finance bloated government programs and unnecessary wars.

Bitcoin allows the people of El Salvador to stop putting their trust in the U.S. government and think long-term to advance their country in a way not possible before. With bitcoin appreciating in the range of 100% to 200% annually on average since its creation, anyone using bitcoin is incentivized to hold it, as their purchasing power has the possibility to increase substantially over time. If someone would rather invest their bitcoin in a business or innovation they see as appreciating in value greater than bitcoin itself, then that person is incentivized to thoroughly research and choose the best possible thing to invest in. Bitcoin’s limited supply makes it coveted to hold, so people holding it have to be more considerate of their use of the currency and not just throw their money at any random ideas they think might have a chance at success.

Moreover, in a fiat currency system backed by the U.S. dollar, people holding onto it as cash have had their purchasing power decrease on average by about 7% annually for the last 100 years due to the expansion of the money supply by the Federal Reserve. This is seen in the increased cost of housing, food, education, health care, and other necessities over the years. The devaluation of the currency leads to excessive and unnecessary spending and investing that incentivizes taking huge risks in order to keep up with the loss in purchasing power everyone experiences holding U.S. dollars, or any government-controlled fiat currency, for that matter.

This expansion of the money supply also artificially increases the value of assets without increasing the purchasing power of the holders of those assets in real terms. The price of a share of stock may go from $100 to $200, but by the time it reaches that price, $200 may not go as far as it once did, especially for someone who lives paycheck to paycheck.

El Salvador is largely a cash-based economy, with the majority of its citizens saving in dollars and not investing in assets, meaning that each year Salvadorans are even worse off in terms of what they can buy with their hard-earned money. Bitcoin provides the people with the opportunity to protect their purchasing power in a way not possible before, with an asset accessible anywhere in the world and without restriction. Even with governments attempting to ban or limit the usage of Bitcoin, the network has stayed running smoothly and is only getting bigger.

The other thing I noticed while I was in El Salvador was that not many people are properly educated on how to transact using Bitcoin, and the Lightning Network in particular. This, I think, is the biggest hindrance to Bitcoin adoption: people just don’t know enough, if anything, about it.

If the Salvadoran government were to take the time to create and publish videos or guides educating its citizens on how to use its Chivo Wallet software (or any Bitcoin wallet software, as anyone who wishes to can use and implement the open-source code to run a Bitcoin or Lightning wallet)³, everyone would be instantly more capable and willing to try out the technology.

Adopting Bitcoin and Lightning allows the people of El Salvador to jump light years ahead of where they were in terms of payment infrastructure. There aren’t even that many places in the country that accept card payments, and most accounting is done with pen, paper, and a hand-held calculator. Lightning allows for the immediate recording of any transaction and provides many benefits for the merchant, allowing them to receive payments instantly from anywhere in the world without having to deal with foreign exchange or payment processing fees. Any individual or entity is also able to instantly send money globally without having to deal with up-charges or additional fees as well. It’s only a matter of time until the entirety of El Salvador, as well as the rest of the world, catch on.

The Best Money in Miami

The Bitcoin Conference in Miami last month was the only other place where I’ve been able to physically purchase things using bitcoin, and it couldn’t have been more seamless. Unlike El Salvador, where adoption and understanding of Bitcoin are limited, the conference was full of people who are incredibly passionate about Bitcoin and its increased use.

While I was there, I was able to buy food and drinks from food trucks and booths, as well as merchandise and other souvenirs, without hassle. Every merchant was already knowledgeable about how to request payments using their wallet software of choice, and people from all over the world were able to buy things without having to exchange their national currency into dollars and incur forex fees just to buy a burger.

As I saw and experienced, Bitcoin is the most open monetary network in the world, allowing anyone to purchase and spend it anywhere that there is an internet connection. Bitcoin allows for more financial inclusion, and in a place that has the proper technological infrastructure and understanding, it can easily thrive and overtake any competition as merchants and consumers come to learn the benefits it provides for its users.

What's to Come

Bitcoin still has a long way to go before it’s fully embraced by the public. More education has to be put in place to teach people how to use Bitcoin and Lightning technology, and the price has to stabilize or continue to appreciate in order for more people to be drawn to it as an investment and currency.

Already, however, it is becoming even easier to interact with and use bitcoin and the Lightning Network for everyday purchases. Bitrefill, a company that helps people live off of crypto, recently added a service to pay your utility bills with bitcoin, on top of already offering you the ability to pay for travel, groceries, your phone bill, and more with bitcoin. The Central African Republic also recently adopted bitcoin as legal tender, greatly increasing global financial inclusion for its citizens, who have been living under an oppressive financial system that restricts them from global trade and limits their societal development.

Strike, a Bitcoin payment company, also announced an integration with Blackhawk and NCR, the world's largest point-of-sale provider, that is planned to be rolled out before the end of the year. That means that soon merchants such as Walmart, Whole Foods, McDonald’s, CVS, and many more will be able to accept Lightning payments, and they don’t even have to be exposed to bitcoin if they don’t want to. A merchant will be able to instantly convert their bitcoin into whatever currency they wish without worrying about dealing with expensive processing fees or taking a tax hit. Likewise, a consumer doesn’t even have to send bitcoin to pay; they can send whatever currency they choose while having it converted to a merchant’s currency of choice.

In terms of price, or rather, purchasing power, bitcoin is also bound to reach meteoric heights. Just look at Metcalfe’s law and the law of supply and demand: as more users choose to join the Bitcoin network and as demand for bitcoin increases with its fixed supply, its value can only go up, and exponentially so.

It is becoming more and more clear that Bitcoin is superior to any monetary network in place today. It is becoming easier for merchants and consumers to tap into the most open and global monetary network to have ever existed, benefiting everyone who chooses to use it in the process. I can’t say for sure what’s in store for Bitcoin, but I do know one thing: It’s going to be a wild ride!