Kevin Rooke - 00:00:00:
Lyn Alden is an investor and an analyst who, frankly, needs no introduction on this show. In our conversation, Lyn and I got into her interest in Bitcoin's Lightning Network liquidity as a network effect. We got into the impact of stable coins on Lightning, Bitcoin, nation state adoption, and much more. Now, this is the part of the show where I usually ask you to send in sats and comments and questions over the Lightning Network. But today, today we've unlocked a brand new use case for Lightning payments on this show. Yesterday, I asked Lyn to send me her Fountain username, and today Fountain released an update that allows me to put any username into the show split so that that user gets a portion of the sats that are sent in. So right now, you should be able to see in the show split if you're using any Podcasting 2.0 app, any sats you send in, any comments and questions as well, will be split 50-50 between Lyn and I. So we'll both be able to see the comments and questions, and half the sats will go to me. Half the sats will go to Lyn. This is also Lyn's first experience with Podcasting 2.0. So if you enjoy this show, if you learn something new, send in a comment, send in a question, send in some sats, and let Lyn know that you appreciate the episode. Just a quick shout out before we get into the show. Today's show is sponsored by Voltage, the industry standard and next generation provider for Lightning Network infrastructure. Today's show is also sponsored by Zebedee. That's Zebedee. And Zebedee is your portal into the world of Bitcoin gaming. We'll have more from Voltage and Zebedee later in the show. Lyn, thank you for joining me on the show today. You are really well known for your takes on macroeconomics on equities Bitcoin as an asset investing strategy. And I guess listeners may not all know this, that you're also very interested in the Lightning Network. You've been studying it for a while. I see you every now and then liking Lightning Network tweets on Twitter. What is it about this technology that is so interesting to you?
Lyn Alden - 00:02:06:
First of all, thanks for having me. And yeah, it is true that I've been pretty bullish on Lightning ever since, really around probably January 2021. And mostly there's a couple of reasons for that. One in the broad kind of quote unquote crypto space, right? So a lot of it's speculation oriented. And what I like about Lightning and most things in the Bitcoin ecosystem is that the speculation to utility ratio is so good. So Lightning is not a place you go to gamble and kind of do arbitrage and things like that. It's actually use cases. It's about sending and receiving payments and about using it in the real world and making Bitcoin more efficient as a medium of exchange. And so, like any financial system, it should be built in layers. And so we're starting to see that emerge more and more on the Bitcoin stack. And so I'm very bullish on that. And mainly what I saw just from kind of taking experience from other markets, is that I saw it reaching critical mass, right? So for several years it was in development, it was starting liquidity from a very low level and it was kind of reaching that critical mass point of being usable in the sense that liquidity was reaching sufficient levels and there was starting to be kind of a number of apps and things like that being built for it. And so I started to sense an inflection point after talking to some developers, particularly Elizabeth Stark from Lightning Labs, is very helpful in kind of getting up to speed on some of things happen to Lightning Network, but also I talked to other people in the space to some extent. We had since then a pretty sharp rise in capacity. So it's kind of a well timed call and it's something that continues to spark my interest in it because it started playing out. Sometimes you have a view on something and then you end up being off in terms of timing or magnitude, whereas if you start to get confirmation that what you're seeing is playing out, that of course keeps you interested, you say, okay, well, that played out. So what's next? Is this going to keep going? Is this going to stagnate for a period of time? And so Lightning has been one of my more interesting areas to explore in the whole Bitcoin ecosystem.
Kevin Rooke - 00:04:11:
Why is Lightning an integral part of Bitcoin? What makes it so important?
Lyn Alden - 00:04:17:
So, mainly the speed of transaction and the efficiency of that transaction without sacrificing the base layer characteristics. So the way I would describe it is that Bitcoin does not need Lightning, but Bitcoin benefits from Lightning, right? And so I think one of the problems with most blockchains is that they sacrifice. So the most important thing about blockchain is that you're decentralized, right? If you're not sufficiently decentralized, what are you doing? You might as well be in a database somewhere, right? So the whole point is to be decentralized and a lot of blockchains then make sacrifices to their security or decentralization or both, in order to achieve other characteristics. So more expressivity, higher throughput, faster speed, whatever the case may be. And I think it's pretty clear that's not the best direction to go in. I think the way that the Bitcoin ecosystem is developed makes a lot more sense. Any financial system history operates in layers and each layer is intended for a specific purpose, right? It could be settlements or it could be high speed, less secure transactions, but they're secure enough for their smaller transaction size. And so the fact that Bitcoin is growing in layers, not just Lightning, just Lightning, I think, happens to be one of the most technically challenging, but I think it's one of the ones with the highest ceiling of where it could go compared to some of the other layers. But the fact that Bitcoin is growing in multiple layers makes it so that you can have your cake and eat it too. You can have a base layer that's immutable and decentralized, and yet you can have the higher throughput. And you can basically pick your own adventure in terms of how much you want your experience to be trustless and fully self custodial versus bringing different elements of partial centralization or partial trust or completeness in some areas. So you can choose the base layer, you can choose Lightning, you can use Liquid, you can use something like Cash App that just runs on top of the whole stack. And so depending on your circumstance, you can pick that. And I think that's important for the way the ecosystem is going.
Kevin Rooke - 00:06:22:
When we think of the base blockchain as layer one, Lightning as layer two, do you think all those other additional layers that may get added on over time are going to be focused on something other than transaction speed or it seems like Lightning is so scalable in terms of transaction speed, and throughput that there may not be a need for another layer on top of that. Right? At least in the direct sense. But what might be like a layer three or a layer four on Bitcoin hand.
Lyn Alden - 00:07:00:
So there are different ways to describe it. I mean, some people would describe Impervious as another layer even though it's on top of Lightning, right, so you're using Lightning for additional capabilities. You're sending information rather than just value. But I also would describe any custodial platform is basically a third layer. Now, if they run directly on Bitcoin, I guess you could call them a second layer. But if they run on Bitcoin and Lightning, you can call them a third layer. I think it gets murky because not every layer is cleanly above another layer. Right, so a layer can directly attach to multiple layers below it rather than just one. But I think that there are always going to be some degree of custodial solutions and part of that, if you do the math, I mean, how many Lightning channels can be opened in a given period of time, right, yeah, I think some people are still going to be using custodial solution tos right. Because there is still some scaling limitation with Lightning. It's not perfect across the board. And two, if you're competing on speed, Lightning is about as fast as you get for trustless ordinarily trustless type of interactions. Whereas if you're just in someone's database and you're being trusted, that could be as fast or faster. So if you're sending money from Cash App to Cash App, that's just in Cash App's ledger, and it's hard to beat the frictionless environment of that. So I think you're always going to have these kind of hubs these players. Some people want someone to call on the phone when they have a problem. They want customer service. They might want additional features. They might want all sorts of rewards, whatever the case may be. The interactions we have with companies, some people might want that for some percentage of their interaction with the network. And so I think that there's going to be layers that interact with Lightning. But the Lightning is an important infrastructure layer, and then people can choose how directly they want to interact with that personally, or interact it interact with it through, you know, a more centralized third party.
Kevin Rooke - 00:08:56:
Makes sense. I want to have a discussion about network effects, because I know this was a focus of your discussion with Elizabeth Stark at Bitcon 2021. You did a panel there. You wrote a piece about network effects as well last year, and you kind of highlighted some key reasons why you started to buy into Bitcoin's network effect, just to highlight a few for listeners. You talked about the resolution of hard forks, layer two, tech industrial, great custody, bringing major investors on board. Now I guess what I'm trying to understand here is, like, what do you think? Do you think Bitcoin's network effect has now passed this tipping point at which it can't be stopped? Because in the piece that you wrote, you highlighted examples of times when companies or products had gotten to such scale that they were effectively impossible to compete against. Do you think we've achieved that point in Bitcoin's kind of like twelve year, 13 year history here?
Lyn Alden - 00:10:04:
I think it's achieved escape velocity in the sense that I don't describe anything as riskless or unstoppable, but I perceive that the risk to its network effect is much diminished compared to it was years ago. And the reason I focused so much on network effects is because when I began analyzing the whole space years and years ago, one of my hang ups was, okay, so Bitcoin scarce, but there's Litecoin, there's this other thing, there's a theorem, so there's an unlimited ability to create new ones. And so what makes one retain market share over another? And that still holds up a lot of people today, right? So I kind of kept doing research on it, and I saw more information come out. So, for example, like you said, resolution of hard forks, which I covered. But there are a number of factors at play that maybe say, okay, wait, so Bitcoin has a serious network effect in a similar way that say, anyone can copy Wikipedia, but it doesn't mean your copy of Wikipedia is going to have any traffic because you don't have the millions and millions of links around the Internet pointing to your version of Wikipedia. Nor do you have the army of editors and people constantly contributing to it to keep it updated. Like the real wikimedia, right? So it's very hard, even though you can copy it and make your own to actually go against the real wikipedia. And so I viewed Bitcoin as having achieved that level of status where the level of decentralization, the backstory of how it was created, with the anonymous creator walking away, it's hard to replicate that whole thing. The branding, the security, the level of decentralization, all these things reached a point where any other attempt at a cryptocurrency is inherently inferior, almost with an infinite gap in terms of its ability to keep up with any of those things that Bitcoin has. And from a technology perspective, any of the trade offs that they make are usually sacrificing something that is inherent to what a blockchain is supposed to solve, which is decentralization. It's basically a whole point of a blockchain, is that you're being very inefficient in order to have this trustless, decentralized thing. And so it's kind of ironic that many of these other cryptocurrencies then sacrifice some of that in order to achieve other features. And so I basically viewed the reason I went into that analysis is to explain why my view on Bitcoin became more favorable over time, because it kind of cleared out my biggest concern, which was market share dilution in the space. What I'm seeing now is that Lightning is like another network effect on top of Bitcoin's network effect. And in some ways it's an even stronger network effect. Even though it's smaller, it's kind of harder to displace because liquidity is very hard to build up. Liquidity is a type of network effect you can imagine. So people often say Lightning is small compared to those crazy things happening in DFI, right? But one is that there's no financial incentive to get on other than to use it. You're not like, you're not speculating, you're not doing arbitrage opportunities, really. It's really about that actual utility, first of all. But also, it's just an inherently hard technology to get bootstrapped because it's a chicken and egg problem. No one can use it when liquidity is low. But in order to get liquidity up, you have to get users, right? So it's one of those things, it's like a freight train, like one of those super long, mile long trains, and they're very hard to start, right, because there's so much mass to get moving. But once you start moving, once you do that really hard part in the beginning, it's really hard to stop that train because there's just a tremendous amount of momentum. And so the way I would describe Lightning is that it's a very technically challenging system to build. It's very, very hard to bootstrap. But now that it's reaching critical mass of liquidity and usability and serious network effects, that's really hard to replace anywhere else, that's extremely valuable in the direction it's going. And I know that there are still limitations, there's still a lot to do. There are disagreements in the community about different directions to go in what different implementations are prioritizing. But I think the really hardest part, which is establishing that baseline liquidity is a very powerful network effect that is now built on top of Bitcoin's original network effect.
Kevin Rooke - 00:14:34:
Now, I'm interested in hearing about why liquidity specifically is what this network effect revolves around and why is it not just the number of people on the network? Why is it liquidity rather than number of connected people that can access lightning?
Lyn Alden - 00:14:54:
Well, they're closely correlated, so more people make a more Liquid system. There's also differences in how those people, how organized that liquidity is. Right. So, for example, in Lightning, there was a burst of initial capacity Bitcoin put onto the network, but that was not very efficiently allocated yet. That was like bootstrap liquidity. And so it looked for a period of time that Lightning capacity was stagnating and was going sideways, whereas that's because it was going from these inefficient blobs of liquidity and it was actually spreading out to creating more liquidity with the same amount of capacity, it was becoming more efficient. And then over the past year, we've seen that explosion in capacity, which was kind of an actual growth of the network. And I think so if you think about something like a stock exchange, right, so the stock exchange that were around 50 years ago are still the leading stock exchanges, right? The New York stock exchange is not going away. And that's because once you establish yourself as a place where there's liquidity, whether you've hit the critical mass of market participants, it's hard for another entity to come around and say, hey, all you people that already have this thing working should come over to my other system. And so the fact that Lightning did reach a usable number of people, and then it worked on some of the challenging problems of how to get that initial liquidity going. And so the fact that now you can send a payment with a pretty high chance of success compared to what you could do a couple of years ago, both the size of the payment and the chance of it going through makes this system much more usable. And only at that point could you do things like onboard a sovereign nation state and things like that, that you can start having rather large entities come into play. So right now you see Cash App getting into it. Now you see Kraken getting into it, right? So these are things that are possible because of the work that developers did over the preceding years and that the early users did back when it was really janky to use and it was more of a novelty. All that initial building that bootstrapping is now what makes it workable now. So that's why liquidity is so important, because if you want to actually send serious payments easily, you need that critical mass of enough people using it and for the connections between those people to actually be reasonably efficient.
Kevin Rooke - 00:17:15:
So those two are pretty tightly interlinked then, the number of users and the liquidity on the network. And they kind of would you call that like just a feedback loop there between the two?
Lyn Alden - 00:17:27:
Yeah it is a positive flywheel. So if you had trouble launching from the beginning, it's possible Lightning never would have taken off. But once you get to the point where there's enough people on it, where it's usable, that makes it far more inviting for more people to come in, at least when they're ready, when they have a need for it. Because I still think Bitcoin as a medium of exchange in general is still very early days compared to Bitcoin as, say, the hard money narrative. So I still think it's super early and that rather small percentage of people, quote unquote, need it. But the fact that now it's there for people that want it or need it, I think it's really valuable. And so I think that critical mass that it is reached, I think is very promising.
Kevin Rooke - 00:18:10:
So now what do you think about the relationship between the network effect of Bitcoin, the asset, and this Lightning Network effect, where, like Bitcoin as an asset, maybe if Michael Saylor buys 100,000 Bitcoin, that doesn't necessarily make the Lightning Network more effective, or it doesn't it doesn't change that. How do you think about those two network effects? Are they entirely separate or how closely are they related? I would love to hear the distinction between those two.
Lyn Alden - 00:18:44:
So I think they're interconnected in the sense that the number of people that own Bitcoin is relevant for the success of the Lightning Network. Right? So you can build the Lightning Network on Litecoin, for example. I mean, that's happened, right? So you can build Lightning on other blockchains, but it doesn't mean that it's going to be as successful because you need that underlying network effect, right? So if I want to start Lincoin and then try to build a lightning network on top of Lincoln, that's probably not going to do very well, right, whereas Bitcoin gives you that huge starting point from which you can then build on. So I think that in order for Lightning to be successful, Bitcoin has to be successful first of all. And then I think Bitcoin is less reliant on Lightning than the other way around, as the base layer doesn't need Lightning. If Lightning were to fail, for some reason, I think that maybe that's a little bit of a black mark on Bitcoin. But it doesn't mean Bitcoin can't succeed, right? It just means because there are other layer twos and there are other ways to scale. But I think that it does strengthen Bitcoin, because now, in addition to Bitcoin being, say, the most secure, hardest money, you can also say it's the fastest, right? So it's the best as a meme of exchange, while also being that hard money. There are some people, like Elizabeth Stark, that for years have been putting out the separation between Bitcoin the asset and Bitcoin, the network, and that Bitcoin can become like the TCP/IP of value. And so now you can theoretically transfer other types of assets over Lightning, at least over time, you'll be able to do that and we'll see to what extent that capability is used. But I do think that the more features of Bitcoin that are heavily used, the better it is for Bitcoin, right? So Bitcoin as a store of value is useful, but then also Bitcoin as a medium of exchange adds another layer of value to Bitcoin and makes it more entrenched in people's lives. Because I think the two biggest selling points of Bitcoin, one is the inflation resistance, right? The ability you have this set stone supply distribution schedule, over time, it becomes the most non inflationary asset in history. We have fully auditable supply cap and so that's a huge total addressable market for the world, right? So the world is plagued over time, especially in emerging markets where really globally, by inflation, by fiat currency dilution. So that's one. But number two is the whole censorship resistant payments, right, and the ability to self custody and to make payments without anyone's permission. And so you can do that with the base layer, especially when fees are low. If Bitcoin becomes more and more popular and if block space is filled more often and fees are higher, it's nice to have other layers that people can go to and still have at least a relatively trustless experience, rather than having to rely entirely on a custodial scaling solution, right? So I think that that is an important ability for people to use the other aspect of Bitcoin, which is as that medium exchange and as that censorship resistant way to transact with someone.
Kevin Rooke - 00:22:02:
How does Bitcoin make a transition to being a unit of account? But what will it take to kind of get there? Because we've seen like two countries now have kind of said, from a top down approach, we're going to make this legal tender. Do you buy into the idea that it kind of goes through this phase of first store of value, then medium of exchange and then unit of account? Or is there another way to kind of get to unit of account, going through top down government orders or kind of like countries adopting Bitcoin as their own currency?
Lyn Alden - 00:22:35:
I think for the most part, you need to go to that store of value avenue first. And that's because to the extent that it's not widely held, right, if only a small percentage of the population holds it, and if a lot of people still understand it or are certain about it, that combination of things is going to give it volatility. And extreme volatility makes it very hard to use as a unit of a cow, right? So it's hard to price things in Bitcoin when Bitcoin, it changes so rapidly compared to the price of copper compared to price of a house, compared to price of gold, compared to the price of a dollar, right? So it is still fluctuating significantly because it's a very small base. And even though it's larger than a lot of small currencies, now it's distributed across the world, right? So this other ones at least have the advantage of everybody in that small region uses that currency, whereas Bitcoin, with very limited exceptions, right? So some part, you know, that Bitcoin beach, for example, but with very limited exceptions in any given area, the percentage of people that have Bitcoin and they want to transact with Bitcoin is very low, low percentage. And so that makes it very hard to use as a means of exchange in a broad scale, and that makes it nearly impossible to use as a unit of account. Plus just, you know, you have all these tax laws, you have all these just accounting systems. All of that is like a huge network effect built up literally over centuries. And that, so that's a very that's like a gigantic container ship. You have to turn very slowly that doesn't just turn on a dime. And so I think that it's one of those things where you have to have more people hold Bitcoin, and Bitcoin become a larger and larger share of their holdings. And if they can, if you hold Bitcoin, let's see, what, 10% of your net worth in Bitcoin, and then it outperforms your other assets over the next five to ten years. And now Bitcoin represents the majority of your net worth. You want to consume now, right? You want to use some of that, you want to diversify some of that, and you say, okay, I can either sell Bitcoin for Fiat or you can just go to merchants. Can you accept my Bitcoin? I want to just pay in Bitcoin, right? It's easier anyway. Lightning is great by that point, let's say, I think that as more people have Bitcoin and they have it in significant amounts, that's when you start to see more and more interest in a medium exchange. I think that the early users of medium exchange would fall into one or two camps from the very beginning. If you specifically need permissionless, sendership resistant payments. That's where Bitcoin from the beginning was useful. So you could use it on the dark web, for example. And that's where it got some of its nefarious things, because people are actually plying its use case for both good reasons, bad reasons. I know Alex Gladstein, for example, documents all the human rights kind of circumstances where people use Bitcoin constructively for its portability and permissionlessness, right? So there are niches, and I think if more people were educated on it, the use cases are more so, where you can use it for other properties besides store of value. But I think for the broad scale, especially for people in developed markets, I think the store of value really has to come first. And when you do something top down, I think you're going to get limited buy and it's going to be confusing to people. I think it has to really kind of come organically for the most part. But of course, it can be accelerated by countries saying, okay, well, Bitcoin is now not taxed when you send it around. So that's obviously a huge impediment. That's one way that countries manage their own currencies, right? So they say, okay, if you want to trade gold around, we're going to tax every transaction. We're going to call it a capital gain. Same thing with Bitcoin. If you're going to move that around, we're going to tax every transaction. So we're going to disincentivize you using that as minimum exchange. We're also going to make it so you can't pay your taxes with it. You have to convert it to dollars and then pay, or wherever you are in the world, your local fiat currency. You have to pay taxes and those things. Those are the two avenues that the countries basically enforce the usage of their currency, other than turning to outright bands of their assets. And so the combination of not many people having Bitcoin in large amounts and all the frictions associated with taxing and things like that, I think makes it slower for Bitcoin to become a widespread medium of exchange and unit of account.
Kevin Rooke - 00:27:04:
Do you ever see an instance where someone like the US. Says no capital gains on Bitcoin? Or do you think there's always going to be are they always going to try and use that to kind of, like, reinforce the strength of the dollar and people's reliance on the dollar?
Lyn Alden - 00:27:19:
I mean, there is that that's I believe that there's a bill in the senate being proposed to make under a certain amount, like, yeah, $600. I can see things like that because the argument there is that you don't want to stifle innovation, right? So you say, okay, I don't want someone with a billion dollars of Bitcoin being able to use that for tax avoidance. But you can see, okay, I want small users to be able to say, fund their favorite podcaster right, with Lightning. Right. So I think that there are that there could be things like that that make it easier to use on the small scale. I think you'd have to see a pretty radical change in order to see Bitcoin be a non taxed asset in the US or Europe. I think that would take quite a while at a bigger scale.
Kevin Rooke - 00:28:15:
Right. And now this kind of ties into the discussion around stable coins, and specifically stable coins on Lightning have been getting quite a bit of steam in the last 612 months. I think the human rights foundation has a bounty up for stabilized Lightning. Synonym is working on bringing tether to Lightning. We have Taro bringing all sorts of assets to Lightning. What impact actually before. We get into the impact. What do you think got this push to stable coins? Kind of what was the catalyst here for Lightning? Stable coins? Why is this now such an important thing in your mind?
Lyn Alden - 00:28:55:
Well, so I've been bullish on stable coins for a few years now. It's kind of the one area outside of Bitcoin that I've been bullish on, even though they started on Bitcoin, but just primarily right now, they're not on Bitcoin because Bitcoin is not optimal for being the base for them. People prefer to use them on other blockchains. And I think for obvious reasons. One is because Bitcoin is still volatile and because it has tax issues, having blockchain rails with fiat unit of account is useful to a lot of people, right? A lot of people need dollars for various reasons. And so stable coins are useful. And I mean, for example, if you're in Lebanon and if you have dollars in your bank, they can be confiscated. Something like Tether or USDC, despite any risks they have with their collateral quality, certainly seem like less of a risk than in some of these banks, right? So people are willing to take those risks also over time. Back in the early days, Bitcoin was used as the unit of account in crypto trading. So if you wanted to buy an altcoin and sell an altcoin, it'd be against that Bitcoin pair. And with the invention and proliferation of stablecoins, Bitcoin kind of lost that status, and he made stable coins and just dollars in general, the unit of account for all that kind of crypto trading. And so most of the stablecoin usage is not really for medium exchange. It's for trading liquidity, it's for trading unit of account, basically getting back to cash and then getting back into whatever speculation that they want to do for the next period of time. But we do see around the margins that there is some usage of them as medium exchange, right? Especially in developing countries or especially if you want to send value globally, it's a much easier experience. And then, of course, regulators are looking at that. It's kind of this open thing, that's kind of this tug of war between users and regulators, and we'll see how they catch up. What Lightning does is, okay, well, here's the cheapest, fastest way to send value. And now you can combine it, or at least you will be to combine it with stable coins. Right? And so I think the implications are obvious for I mean, there's a reason. So, for example, stable coins for while they were heavy on a Ethereum than they still are, but they also spilled over to Tron. And the question is, why do they spill over to Tron? It's like, well, because they don't want to pay $50 to send a $50 transaction, right? You can only do large stablecoin transactions on Ethereum because of the speed and the throughput and things like that. But with Lightning having nearly unlimited throughput and speed with low fees, especially as liquidity grows, that is a very attractive kind of underlying layer to have stable coins run over. And so to the extent that stable coins can return to Bitcoin, I'd be happy to see that. And I think that at least for that medium exchange element, they are a useful bridge between now and whatever future is where Bitcoin is more widely held and more kind of stable and more clear from a regulatory standpoint and more people understand it. I think the ability to exchange fiat value, stable value over Bitcoin rails is very useful. So I'm pretty bullish on stable coins on Lightning.
Kevin Rooke - 00:32:29:
How much of that I think the stablecoin market today is about $200 billion or somewhere around there. How much of that $200 billion do you think flows towards Lightning? Given that this is probably going to be used primarily for payments rather than some of those trading use cases for borrowing and lending.
Lyn Alden - 00:32:46:
So I think not a lot at first. That's also why I think the comparisons of, say, people are like people in altcoin spaces will say Lightning doesn't matter because look how small the total locked value is, right? But they're comparing it to basically a casino. They're comparing it to a leveraging and trading environment. Right? I think that just like that, this will also be kind of slow just to start out right, I think it's going back to that freight trade analogy. I think that it starts slow, but that it just picks up a lot of momentum. And so because there's not some huge, massive Arbitrage incentive thing to get people in, right, they're not coming into it to gamble. For the most part, I think that people come into it when they need it. And so I think it's going to be one of those things that just keeps grinding up over time rather than some immediate explosive burst when it comes out. So I think for a while, or for kind of the foreseeable future, the percentage of stable coins on Lightning probably won't be huge, but I think that will be disproportionately weighted towards more valuable use cases. Right? I think that giving emerging market people more access to payments is more valuable than having whales doing Arbitrage in DFI, for example. I mean, if you look at chain analysis, does statistics, they look into DFI and it's almost entirely like institutions in Wales, these large funds playing around and Arbitraging things. It's this big circular kind of speculation thing. There's very limited use case for the little guy, right? So actual kind of practical, real world things. And so I think going back to that, Lightning has a higher ratio of speculation to utility, so a higher ratio of utility to speculation, we can say. And so I think that whatever usage is on Lightning will be a more valuable usage. And it's there for people when they need it, once that capability is developed.
Kevin Rooke - 00:34:54:
And over time, do you think let's take a look at something like Taro where you can issue all sorts of assets, maybe all the Fiat currencies that exist today can be issued on Lightning. What do you think that does to existing Fiat payment rails? Like which rails are going to be the most impacted by a transition of Fiat currencies onto Lightning?
Lyn Alden - 00:35:18:
So I think that traditional payment rails can be impacted unless they adapt to it pretty quickly. But again, I think that will take time, right, because there are huge entrenched advantages, network effects of the existing things like Visa and all that. So they have this thing where they charge pretty high fees, but they also give people pretty significant rewards, for example, on their credit cards and things like that. And so over time, I think we'll see more and more growth coming from Lightning oriented payments compared to the legacy players. But I don't think it's like a light switch where it all just kind of rapidly goes over there. I think that some of those just the growth can be unimpressive while the growth that we can see in Lightning can be much faster. And that especially when relatively tech savvy people look at the differences and especially if they want to do international payments, right, it's just the frictions are much less. And so I think that it just can over time take market share by being more efficient and cheaper and then you can also there are platforms that do rewards and things like that. And so I think over time we'll see more and more integration and then we'll even see integration between those legacy players and Lightning, which we're already seeing to some extent, I think it's going to continue. And so I think that with something like Cash App, the fact that you can send value to any other Cash App account, but then now also you can withdraw the Lightning and things like that, I think that's a very useful product to a lot of people. And then also people can go out of the custodial solution and if they want to do all sorts of international things like that, that's now open for them. And of course that brings regulatory challenges, right? Because really what Bitcoin did was prior to Bitcoin was hard to send value internationally in large amounts. You could put a couple of dollars into an envelope and send it to Japan, for example. But other than that, it's hard to send Liquid value long distances without using a bank intermediary. You had to go through a trusted centralized entity and they could just say no, right? So if any country wants to impose regulations of where you can send money to or who you can send money to, they don't have to enforce that on the consumer layer. They can just tell the banks these are rules to follow. Whereas now that due to technology, consumers have direct consumer to consumer payments globally. And instead of relying on a trusted intermediary, they can say no. They're just relying on this decentralized network that doesn't really care, that opens up regulatory kind. Of questions about how governments are going to respond to that if it becomes larger and larger over time, where it's much harder for them to enforce because they have to enforce it on the consumer layer, which is obviously orders of magnitude more enforcement points than just telling a number of banks what their rules are. I think that there are challenges ahead for the Lightning Network, even though I'm bullish on the whole space and the technology involved.
Kevin Rooke - 00:38:23:
What do you think some of those regulations might look like? If governments all of a sudden say, listen, there's too much activity happening on Lightning, we can't see any of it, we want to step in and kind of like siphon it off? How might they approach that? What would be some of those strategies? I guess exchanges would be a first point of contact.
Lyn Alden - 00:38:44:
Yeah, I think the exchanges, the large custodians, there'd be regulations, more regulations on when you can withdraw it, what size you can withdraw it, things like that. Beyond that, it's hard to do. I think that's an open question because then you have to predict who wins elections, things like that. So it's hard to say what's going to happen, but it is very hard to enforce in practical terms. And if you go back to the gold band of the 1930s, that was also very hard to enforce. How do you stop people from owning a benign yellow metal? They didn't go door to door with guns searching for everyone's gold. Instead, what they did was they said, okay, you get up to ten years in prison if you have any other than small amounts like your wedding ring and things like that. And so there are very few prosecutions, but it kind of forced it underground and dissuaded a lot of people from owning it. So basically draconian penalties can be a substitute for actual enforcement because if you make a few examples of people that can really slow down, obviously usage of the network. But of course in order to do that, they kill innovation and they push it elsewhere. So there's kind of a game theory aspect to it. So I do think it is a challenging network for regulators to regulate and I have open questions about how they're going to approach it in different countries.
Kevin Rooke - 00:40:14:
Yeah, I wonder, do you think they have the like, could they take a similar approach to gold there where they just say, hey, if we see you making transactions in it, if you're sending money to or from exchanges in Bitcoin, off to jail.
Lyn Alden - 00:40:33:
So you've seen that in Turkey to the extent they basically said that you can't use crypto as a way to pay, right? So they didn't make it illegal to own, but they made it illegal to pay with it. And I haven't dug into the details of how that law works or to what extent it's being. I don't think it's really enforceable, but it's there kind of like the gold thing. So I do think obviously in some countries you'll see that another way to go about it without being kind of like kind of that blatant is to just be really picky with tax enforcement and basically say this person moved a lot of value around. Hey, do you have tax receipts for every one of those microtransactions? And then if you don't, well, you just committed like a tax you just violated tax law, right? So I think they can apply existing laws in a very aggressive way to deter usage of it. Now they can do response functions. I mean, you'd have to have the software get better and better at tax reporting and things like that so that people can use that. But it's just a challenging environment. That's kind of that transitional period is very challenging. And that's actually where stable coins on Lightning can be helpful because then you can use Lightning without incurring taxable events. That's actually another big thing, is in addition to the volatility reduction, you can make payments without taxable events because it doesn't fluctuate relative to the dollar. So there's no capital gains, at least noticeable taxable gains.
Kevin Rooke - 00:42:04:
I hope you're enjoying the show so far. I just want to give a quick shout out to our sponsor, Voltage. Voltage is the industry standard for Lightning Network infrastructure, creating layer two applications and services on top of Bitcoin starts with Voltage, where you can spin up nodes, get access to liquidity, optimize your node, and much more. Voltage is leading the way as the next generation provider of Lightning Network infrastructure. And if you want to get a free trial and start using Voltage today, you can do so at Voltage.cloud. I want to talk a bit about different kinds of payments that can happen on Lightning that just can't happen at all in a fiat system. I guess remittances are hard to do in the fiat world, especially if you're moving money internationally and it's a time consuming process, but it can be done. What do you think some of the interesting use cases are going to be developing on Lightning that simply cannot happen on fiat rails? They're just too expensive or they're too time consuming. Things that have to happen, like instantly. We're seeing initial traction for things like gaming and podcast streaming and internet native applications like that. Are there any particular ones that you're excited about? Things that you think could develop on Lightning that there's just no precedent for in the fiat world?
Lyn Alden - 00:43:28:
Anything that involves micro transactions and very, very frequent transactions. Again, you would need either reporting or tax improvements around that front. But essentially anything that is right now, if you look at PayPal and visa and things like that. There's usually a minimum fee that they charge because it takes a minimal amount of work for them to process a transaction. And so they're very discouraging against, say, penny transactions, right. Whereas with Lightning, you can do very small transactions and so that opens up machine to machine transactions, right? So automatic machine to machine transactions, that opens up gaming transactions, that opens up things like Impervious, where you can use tiny little transactions as part of your focus on transmitting information, but you're also transmitting micro amounts of value with that information. You don't do that over Visa, for example, and then just a general programmable money, right? So just little things you can do that. I think an analogy I recently used is that when the iPhone came out, no one thought, wow, in ten years, this is really going to disrupt the taxi industry. Right? You don't kind of put one and one and one and one together until you get like seven. You just think two or three steps ahead and it's hard to say what happens five steps ahead. I don't know. I think that programmable money is a set of building blocks similar to smartphones and the Internet, where it's hard to say where it goes in ten years. I think another thing that's exciting would be anti-spam. That's something that Michael Saylor talks about a lot. I don't know if it's going to catch on. I hope it does. It'd be cool because you can use that as proof of work was invented as an anti-spam technology and so it would be cool to see Lightning used for some of that purposes. I think it has some of the capability to be used as a way to reduce spam and as a way to add small amounts of friction to improve Internet quality.
Kevin Rooke - 00:45:40:
Now with micro earning or micro tasks and being able to earn in tiny amounts from anywhere, as long as you got an internet connection, if we zoom out, what impact do you think that will have on developing economies? Do you think this is going to be a meaningful shift in value flowing overseas and basically like enabling billions of people now to access work or things that they could not participate in before?
Lyn Alden - 00:46:08:
It should reduce frictions for basically people in developing countries. Really what we see is a combination of work from home technologies and smoother payment systems. So being able to go around banks and things like that, to the extent that those continue to be possible, that makes geography a lot less important. And so that can include people moving to other locations and continuing the work that they're doing. Right? So that's number one. And then number two, opening up access to people throughout many markets to new economic activities that they didn't have in their local markets or at least anywhere to near the same extent. So I think that's favorable. I think obviously the risk. Globalization has always had some sort of downside. So, for example, over the past several decades, the United States shifted a lot of its manufacturing base over to China, which has been very beneficial to Chinese working class. I mean, obviously is very challenging for them, but then over time, they build up wealth because of it, whereas the American kind of blue collar working class was impacted negatively by this general change. And so I think you can see potentially positive and negative divergences as you open things up. But that overall, an open system is more efficient at basically bringing on as much talent and as much work as possible to the global marketplace to increase in the long run productivity for everyone.
Kevin Rooke - 00:47:39:
Now, one way to earn money on Lightning right now that's picking up a bit of steam is value for value. Not sure, how familiar are they? Like, this is how, like, podcasting works on Lightning is basically like, anyone can listen to it, it's free, but you can support if you choose to. And this is also this is starting to be seen as like an actual business model for the podcast index that maintains the list of feeds for all these Podcasting 2.0 apps is a value for value business model. And that's kind of like starting to take hold a little bit. We have Stacker News as well. It's kind of a value for value approach to Reddit. Do you think that something like value for value or some other form of monetizing content on the Internet takes hold when Lightning kind of adoption matures?
Lyn Alden - 00:48:35:
I would like it to, I would say. I do think that overall business models that rely primarily on audience funding or direct customer funding are the best, the lowest conflict of interest for many types of businesses. That's already a smooth experience. With Fiat, for example, you can have a membership website where you get dollars. You don't really need Lightning for that. And so a lot of those business models are not, at least in the near term, radically impacted by the existence of Lightning. Obviously, Lightning is going to be popular in the Bitcoin space, in the Bitcoin ecosystem because people have Bitcoin, they have sats, they want to support other people that are working in that space. So I think at a micro level, that's really useful. If you reference Stacker News, that's also an example of using Lightning as antispam. Yes, because you're both incentivizing people and you're adding a cost to spam. I would like, for example, the option on Twitter to say, hey, if you want to comment on my thread, you need to spend five sats or whatever. Right. And so it's a trivial cost, but if you ever look at my threads, it's just like bot after bot after bot after bot. And I don't want to add a meaningful cost to normal people to contribute, but I want to deter this mindless spam, right? So I think that where Lightning can take off is in areas that are not currently well served by traditional fiat payment rails. And then aside from that, even where those rails work, there are people obviously in the Bitcoin space, they just prefer to use Bitcoin, right? So whether or not Lightning is solving a specific problem for them, they just want to use it and they want to support it. So I think those are the two vectors. One is just people want it, and number two is that there are specific areas where it's better now in the top of people being underserved by current solutions on the Internet.
Kevin Rooke - 00:50:39:
What are your thoughts on if Twitter allowed you to kind of like earn, if people just like your stuff and you can earn a sat for each like you get? And do you think that do you think that becomes a business model where none previously existed, where you can all of a sudden, like, monetize directly on one of these social platforms? It could be Twitter, it could be Facebook, could be Instagram, where all the engagement has a cost that accrues to you. And then all of a sudden, you can have a pool of earners that never could have directly. Monetized their Twitter feed and they can now see actual value that's transferable where they previously relied on sponsors or some other form of monetization.
Lyn Alden - 00:51:31:
So ideally, yes. Right? So ideally, yes. So one of the things I'm watching is to see how these network effects develop, right? Because the reason Twitter is successful is because it reacher critical mass for what it does. And so even though you can make your own Twitter, your ability to get Twitter's users is very hard. And when we look at, say, platforms that add a cost to posting, right, in some ways what you're doing is you're adding a friction to posting. I mean, there's a reason that Twitter accounts don't cost money to set up, because if they did, obviously Twitter be much smaller and it'd be much harder for them to have achieved that network effect. And so if you add a cost to being a user on a platform, that could slow down growth. On the other hand, you're also incentivizing good content to be produced, right? And so I'm still kind of watching to see to what extent that can take off. Does one outpace the other? Do the do the frictions, you know, for having a nonzero cost to participate? Does that make it too slow to kind of really bootstrap and reach that kind of critical mass of millions of users? Or does that incentive overcome that and make that work? So I think there are questions around to what extent should you make a platform that requires that versus to what extent should you add that as an optional feature onto platforms, right, so that it doesn't need to be there, but that especially, say, accounts that are getting spammed can then use it. So they need some ways to get best of both worlds. There's no friction for onboarding, but then you can add those capabilities to either reward content creators or to deter spam and at a cost, a minor cost to interaction. So I think there are still questions about business models, but it's something I'm super happy to keep watching to see what sticks. Right. So it's hard to predict ahead of time what sticks. And I'm just kind of watching to see what does stick.
Kevin Rooke - 00:53:45:
Yeah. Back in the 80s, you're reminding me of something that Stewart Brand said about information. He had a quote that was like, information wants to be free because it is, you know, the the cost of producing is continuing to go down, but it also wants to be expensive because in an information age, the movement of information is the primary economic event. And so I wonder, there is this tension, right? It's like, on the one hand, you want information to be accessible to all. And I think Web Two, the growth hack there was kind of like, just make it free and just make Facebook free, make Twitter free, make YouTube free, anyone can use it. But then on the other hand, you have like if you're not going to earn directly from the stuff that you're creating, you all of a sudden have to find a new way to earn. So there is a tension there. Do you think Lightning changes that situation and improves it meaningfully, where you can now charge directly if it's a small enough amount combined, multiplied by millions of people or billions of people, maybe that can actually create a business where you couldn't previously do that with Fiat because of those fixed transaction costs. I wonder, do you think that Lightning kind of changes that dynamic and that tension between information wanting to be free and information wanting to be expensive?
Lyn Alden - 00:55:18:
I think it can. I think also that balance changes over time. Let's say in the investing world, for example, decades ago, getting information was the hard part. And then over time, as information became more and more abundant, the harder part became filtering information. The information is like a fire hose now, right? And the question is, how do you filter quality information from useless information? And I think that's kind of the general trend we've seen in multiple places around the Internet is that as we've opened up information, the question is not can I afford books? It's how do I pick which book to read out of the countless books, the infinite number of books that are written every year and things like that. And then when you look at, when you're not paying any money at all to use a platform, that means you are the product, not the customer, right? So in some ways, your experience, either knowing to you or unknowing to you is going to be deteriorated, right? So it could be known to you. Like, for example, your experience could be that you have to see ads because you're not paying anything. Alternatively, you might not see ads, but all of your data might be taken and sold to people, right? So your privacy is basically infringed based on your ability, your desire to have this for free. I think one of the solutions to that is that kind of freemium model where you want to have so when you want to have kind of these interactive areas, you want to have as many people on as possible, right? So you want to reduce friction for getting people on, but then I think you want to add optional ways to either monetize your work or to prevent people from interacting with your work unless they go through some minor value transfer, minor friction, either to just deter spam or to have them kind of buy into that. And so that's why I think ideally, it's something like anyone can make an account, anyone can post on their own, but that people can set up restrictions on posting on their stuff or sending them messages. And you can also do things like send tips to people, boost people, things like that. So I kind of envision a freemium model as being ideal, and the Lightning enables that in a way that the current fiat rails don't really work. But I think that this is like a playground that entrepreneurs can figure out what the right mix is, right? And the existing platforms can implement things, but usually legacy players are slow to make changes. So it's really kind of up to startups to figure out what works. And I have an open mind about what's going to be used in this space, but I think that the building blocks are there to create really interesting things.
Kevin Rooke - 00:58:07:
Are there any particular applications that you've got a chance to test out and found useful or found exciting? Any of the Lightning applications. Have you tried any of them?
Lyn Alden - 00:58:18:
I've used some of the wallets because I wanted to test liquidity and things like that myself, test user experience. Other ones I look at, like, I've looked at Stacker News, I've looked at some of these because of the tax implications and things like that. I've not been super early adopter in some of these, but it's something I'm watching to see how it takes off. And then especially when you do things like add stable coins on top of Lightning, where even in unfavorable tax or regulation regimes, you can potentially have hybrid models where you're still using the benefits of Lightning with fiat. So I think that there are I'm just kind of watching the space mature and I just keep thinking about kind of directions they can go in and seeing what works, right? Instead of just theory craft, I'm kind of just watching to see what takes off what doesn't, and then trying to figure out why.
Kevin Rooke - 00:59:09:
Right, okay. That makes. Sense. I want to shift the conversation to nation state adoption because just yesterday we got the second country to announce Bitcoin as legal tender. Central African Republic. Maybe we could start off with a reflection on the first, I guess nine months of El Salvador and their Bitcoin law. What what was your opinion on it when it went into effect or when it was announced at Bitcoin 2021, and how has that evolved over time?
Lyn Alden - 00:59:40:
So I was positively surprised by the announcement. That's not something I would have guessed for 2021. It's kind of earlier in kind of Bitcoin's timeline than I would expect for something like that to start happening. I think it's favorable. I think it makes sense to them given how much remittances they have and the fact that they're already dollarized also there's first mover advantage because then you can bring in tourism, you can bring in investment activity and things like that. So I think it made sense economically. The biggest risk I'm watching, there's two risks. One is that now Bitcoin is somewhat tied to the reputation of El Salvador's governance, whether it should be or not. It's just kind of to whatever extent El Salvador stumbles, that gives media fuel to go on against Bitcoin, right? So they're somewhat tied at the hip now to a limited extent. Number two, for El Salvador specifically, so far, I think the biggest risks have been their sovereign bonds, right? So for various reasons, including credit rating agency downgrades, things like that, their bond yield spiked. And so that makes it hard to refinance and hard to get reasonable cost of capital unless they can entirely change over their funding to, say, Bitcoiners and Bitcoin backed bonds and things like that. And so their success in, say, generating more tourism or more investment types of activities can be somewhat offset by problems in their sovereign bond market. And so I think it still remains to be seen how successful that will be. But I do think it makes economic sense to have done what they did. And so I'm cautiously optimistic on how that turns out for them.
Kevin Rooke - 01:01:30:
And now that we have a second country jumping in as well, does that change the relationship between you mentioned that the close ties between El Salvador's success and Bitcoin success, does that change now that there's a second nation involved? And does that does that open the doors for other nations to step up and also take a look at Bitcoin? Because I think the currency that the central African republic was using is also used by a handful of other countries in Africa. And so I wonder, do you think that opens the door to a handful of other countries to also participate?
Lyn Alden - 01:02:08:
So the short answer I think is yes. One is there are strength in numbers, right? So if there's one country with Bitcoin legal tender, they're an obvious target because they go against the legacy system and, you know, basically to whatever extent they succeed or fail, people will tie Bitcoin narrative to that. Whereas if you have ten countries using Bitcoin as legal tender, that's a very different story. Right. And so that's a movement. This second one is so it's smaller in the sense that El Salvador is a relatively impoverished country on the grand scheme of things, whereas this other one is extremely, extremely impoverished. I mean, it's a small fraction of El Salvador's GDP per capita. They have very low internet access, unlike El Salvador, where mobile phone access is pretty high. The Central African Republic is very low. So I somewhat struggle to see that they're going to get anywhere near the benefit that El Salvador gets. But I think it's hard for it to hurt. Right. I think that to the extent that Bitcoin is legal tender, I think that's just good. I think it's just good for the economy. I just don't know. There's not a lot of information out of it yet, but I think a lot of it's symbolic. Right. So as you pointed out, there are 14 countries in Africa that use this currency that's tied to France, and it's actually split into two chunks. I think it's like eight use one type and six use the other type. But essentially they're using this kind of French run currency and that has obvious ties to colonialism. Right. And so I think that I wouldn't be surprised to see other ones of those other 13 countries do something similar in the future. You can call it kind of a pushback. Right. I wouldn't be surprised to see more countries in Latin America and more countries in Africa adopt Bitcoin legal tender. I think it's a good thing. I just think you have to be careful about how much we get enthused for some of these early entrants, especially if it seems more symbolic than something that's going to maybe pay off in the next couple of years.
Kevin Rooke - 01:04:30:
Right. And I guess for the people in The Central African Republic, I think I looked up, GDP per capita is something like $800 per person, and I think El Salvador was like $3,000. So in a situation where you have people who may not be able to save money and as you mentioned, may have low internet access, do you think it's realistic to expect Bitcoin to significantly improve their standing in life and their ability to kind of consume resources over time? How long is this process going to take? It doesn't seem like there's a quick win for someone who doesn't have much income and doesn't have much internet access to benefit from what Bitcoin has to offer.
Lyn Alden - 01:05:20:
That's how I interpret it. Admittedly, I'm not an expert in that country, and it's details right. So I'm always cautious to opine on things that I've just learned about. But yeah, basically my initial impressions are that with such low internet access and such extreme poverty, it is hard to get an immediate benefit out of it. Now to the extent that someone has internet connection and now maybe wasn't paying attention to Bitcoin, but now, because they pay attention to Bitcoin, they could potentially get work from abroad. They could earn sats in various ways that they might not have thought about a month ago. Right? So I think that there certainly could be individual lives that are changed because of this. I just think that it would take time and more favorable conditions to see this really start to kind of take root and make any sort of change. And then again, the political opposition in the country can then use that against them. They can say, okay, well, what is this for the top 1%? I mean, most of us don't even have internet connection. What is this? So it just opens up political challenges, but I think in the long run, it's favorable. I just don't know how it's going to materialize in the next couple of years. We'll see.
Kevin Rooke - 01:06:35:
Is it realistic to have a central bank in one of these african countries step in and buy Bitcoin in the same way El Salvador did? Because now they have a reasonable amount of exposure. I think it's something it's over a thousand Bitcoin and, you know, for a population of 6 million people. So if Bitcoin does succeed, there is some exposure in the country to benefit from that. It may not be directly at the individual level. So I guess do you think there's a playbook here for small or developing countries to step in, buy Bitcoin, and kind of ride its coattails to improving the quality of life in the country?
Lyn Alden - 01:07:24:
So I think that any country's leadership that becomes bullish on Bitcoin for one reason or another should seriously consider putting a non-zero amount in their reserves. So it could be a sovereign wealth fund, or it could be a central bank purchase, basically. And it doesn't have to be it's not like they have to go all in, right? I mean, it's a volatile asset. These are supposed to be the safest pools of capital, right? So you generally don't allocate to things that go up and down 50% in a short period of time. But I think around the margins, it would make total sense to have some because you're buying in this disciplinary asset that has a very strong track record and that I think that conditions are still looking very favorable for it for the next decade. And it also solves the second problem, which is permissionless payments. For whatever reason that country is cut off from payment systems, they have an asset that they can send globally for value to buy other things. And so I think that having a non zero amount of Bitcoin, especially for these smaller countries, that might have more flexibility, right, so they have less career risk. They have less they're kind of more able to take kind of hail mary type of plays to put it on zero mount. If you put 5% of your central bank balance sheet in Bitcoin, what's the worst that could happen compared to the upside that can happen? Right? So I do think it makes sense. I don't know if we'll see it, but I'd like to see it now.
Kevin Rooke - 01:08:59:
I know we're running out of time, but I want to finish off with a discussion around the bear case for actually, we can do this for both Bitcoin and Lightning, but specifically I want to talk about Lightning. Let's start with Bitcoin and your bear case on Bitcoin as an asset.
Lyn Alden - 01:09:15:
So I still think we have some regulatory risks of major regions cutting out off from their banking system, basically killing the fiat on ramps. I think it's a low chance, but it's a non zero chance, and they can combine that with ESG FUD. So even though I view Bitcoin as favorable to the energy grid, I think it's a positive thing. I think that opponents to it can use anything against it, including, quote, unquote, environmental impact. Given where politics are in the US. I don't see that as particularly likely in the next several years. It seems more likely than Europe. So I think there are ongoing risks there. I think another risk is regulation against self custody, right? And so I think that there's attempts to basically trap Bitcoin on exchanges and in large custodians. So I think that those are risks. I think there's very small probabilities, but there's non zero probabilities of technical risks. So things like if you find a major bug in the existing node releases or if you have really contentious forks, Bitcoin has been able to navigate that in the past. I think it will continue to. I think it's robust enough too, but it's still something I watch. And so I think that there are still challenges and it also is reliant on people eventually seeing that Bitcoin is more decentralized than these other altcoins. Right? I think the thing that slows down Bitcoin adoption is one of the biggest things, is the proliferation of altcoins. I think Elise Colleen said it best, where if Bitcoin succeeds, it will be in spite of altcoins. And to the extent that any altcoin succeeds, it's largely because of Bitcoin, right? So all of these other things are basically kind of spam attacks on Bitcoin. They're diluting attacks on Bitcoin, and over time, all those people that bought Doze in that last spike could have said bought Bitcoin, and maybe over time they'll learn and then they'll come buy Bitcoin. I think it's a learning process, but I think that some of these big engines of VC driven speculation have to kind of reach the natural conclusion and kind of wind down or fail spectacular in some cases before some of that capital kind of moves over towards Bitcoin. So I think there are things that can slow it down more so than stop it.
Kevin Rooke - 01:11:47:
Do you think that this cycle was kind of the peak of that altcoin mania? It seems like every successive cycle from the last, like, five or ten years, we've seen more altcoins pop up. At some point. Imagine this has to stop, right? Like, we went from having a handful of altcoins back in, what, 2013, 2014, to 1000 in 2017, and now 10,000 today or more. I can't keep track. At what point does this spiral back down or what point does this stop growing? Because it doesn't seem like, you know, there may be 10,000 now, but they have only captured a, you know, the Bitcoin dominance in the last four or five years is more or less unchanged. So they've kind of, like, diluted themselves and not necessarily gained traction against Bitcoin. So what's the downfall of altcoins? How does this all unfold?
Lyn Alden - 01:12:48:
There's a couple of ways. One is regulation. So regulation is more of a risk for altcoins than Bitcoin, right? Because a lot of them do pass the how we test seemingly and are probably securities, which means that there are various hoops that you have to go through if you're going to offer them to sales, to the public. And so I could see the US. Taking a harsher stance against some of them. That'd be kind of a big weight on them. I think another one is that you exhaust the ways to speculate and the narratives kind of dry up. Now, you could keep that going. By then, if people have short enough memory, you can revive an older narrative. Right? For example, Bitcoin went through the block size war, but then in some ways we have, like, Elon and Doje talking about the block size war as though the prior one didn't happen. It's just restarting it all. So the risk is that some of the narratives just recycle. You just pick something that failed five years ago and say, well, we're doing it again. This time it's better. So I think that in some ways you could just eventually exhaust it, but that you still have kind of residual desires to speculate. I think another thing is that the macro environment, if it becomes less favorable, it becomes more stagflationary, that kind of forces less speculation and more utility, right? So I think that to the extent that happens, it's better for Bitcoin than the other ones.
Kevin Rooke - 01:14:12:
Now, if you're to think about the bear case for Lightning, because you mentioned earlier that that Lightning didn't doesn't necessarily have to succeed and Bitcoin can still be a success. Right. So what does the bear case for Lightning look like? And is it possible that we see something else come up in the next few years that does replace some of the activity happening on lightning?
Lyn Alden - 01:14:38:
I think one of the most likely bear cases is that it just stagnates for a while, like it hits some sort of plateau and then it has trouble growing for a while. And we've generally seen that in other Bitcoin layer twos, right? So some of these, they come out, they reach some degree of usability and then they become kind of ghost chains, right? So just like not a lot of activities happening there. And so I think that's the biggest risk of Lightning where it continues to function, but it is just not a big thing, it just doesn't really explode. That'd be number one. Number two would be disagreements about priorities, right? So I think some people can say it failed for the purpose that they want to use it for, whereas other people say, no, I love it, it's great, I don't think it's failure state is objective to some extent, I think it's subjective. But the cool thing about it is it's an open network, right? So if someone feels that features are lacking, they have the ability to then go and build those. And the problem might be that some of those features are not heavily in demand, even though they probably should be, right? I think for example, overall, not just Lightning, but I think in general on Bitcoin, and even just going back to the altcoin speculation, I would have rather have the last five years been more focused on privacy development than some of the things you've seen in terms of speculation and things like that, especially in altcoin land. But even on Bitcoin I would have liked to see a little bit more of a push towards privacy and that's not Lightning specific. Like I said, it's just something I'd like to see. And so I think you can have individuals make a reasonable case that say that Lightning is not meeting the needs that they want, even though it might be meeting the needs of other people. And so there's always going to be disagreements about what to prioritize and that's also why there's different implementations because then they can prioritize different things at different speeds. Basically. Summarizing there's one that it just stagnates that's I think the biggest risk and number two, that you can't offer everything to everyone, especially with liquidity, if you want the major implementations to have the features you want.
Kevin Rooke - 01:16:55:
Do you think there's a risk that governments band together and kind of try and emulate the success of Lightning in a fiat world? Do you think there's a risk that maybe this looks like a centralized, maybe this is a CBDC, maybe this is some new implementation? Do you think there's a risk that because there's very clear tax rules on fiat that opens up a kind of vector for attack or a way for a government or a group of governments to build a competing solution?
Lyn Alden - 01:17:29:
So I think the ongoing tax implications are a challenge for Lightning and just in general, Bitcoin as a medium of exchange, right, it deters spending your Bitcoin and that can be somewhat resolved, at least bridged with the stablecoin on Lightning solutions, if they catch on and become workable. So I think there are defenses against that. I do think that obviously things like Cash App make things really easy because you can just send things within Cash App or you can use lightning. So I think this is a hybrid. So China started working on CBDC back in 2014, right? And so it's been years and years and years of development, and then now they're kind of in that launch stage, whereas, like, other central banks are just thinking about thinking about it. Right, so I I think that at the speed with which they move, it's hard for them to compete with what's going on on Lightning unless they're willing to resort to very draconian types of regulations, which, depending on the jurisdiction you're talking about, like in the US. For example, the political environment is very torn, right? So we have basically an evenly split senate. And so when people talk about, for example, that FDR gold band, you had one of the strongest majorities you've ever seen in American politics, right. So you had the Great Depression. You had an extreme consensus that was able to get things through, whereas you don't really see that type of unification in this environment. Right. So I think as long as you see kind of this split type of environment, that's good for private sector things that are just working because it makes it harder for them to be impaired upon. And we see kind of local jurisdictions also signaling favor. So, I mean, a number of cities, mayors and things like that are very welcoming to Bitcoin and sometimes more broadly crypto. But I focus on the Bitcoin. And we just saw, for example, Fort Worth, Texas, plans to mine Bitcoin in city hall. It's something like three machines. But the point is, it's symbolic, it's interesting. And so I think that the regulatory risks, at least for Bitcoin, continue to diminish, but they're non zero and that any sort of competing technology they can do is probably going to be slow and too late.
Kevin Rooke - 01:19:51:
Right, okay, final question for you. Year 2025, how much Bitcoin is in public capacity on the Lightning network?
Lyn Alden - 01:20:01:
2025, it's hard to say. I'd like to see over 10,000 Bitcoin, but it's hard for me to make a high conviction view because you could go through periods where it levels off and then explodes again, partially is going to depend on what Bitcoin does in terms of price. But back in January 2021, I said over the next five years, I think that this is a sleeper hit when I was basically saying it was reaching critical mass. And so we got a really big gain in the first year since that. In the next four years, I still have that five year positive view on Lightning. So that'd be kind of the end of 2025. So I'd be somewhat disappointed not to see 10,000 Bitcoin on Lightning. I still wouldn't think that failed. Right, so it's still useful for the people that are using it. Right. So I think that it's kind of like build it and they will come in the sense that it's there for people that need it. And so regardless of how big it is, as long as it's working for people that need it, I think it's a success. But then, of course, you can have additional success on top of that, the bigger and more useful it gets to people.
Kevin Rooke - 01:21:23:
And we also could see a moment where if there's 10,000 Bitcoin on Lightning, in a few years, it could be CLightning through the ecosystem ten times faster as well and satisfying so many more payments than it is today as efficiency improves.
Lyn Alden - 01:21:37:
Yeah, I would look at I know, Arcane Research, for example, they had a report lately where they talked about they separated, like trading compared to actual payments. So I think looking at payment type of statistics is very useful. So I like to see higher and higher payments. I don't think capacity is the only way to measure it. It's just kind of one of the easiest ways to measure it.
Kevin Rooke - 01:22:01:
Right.
Lyn Alden - 01:22:01:
But, yeah, I think most metrics could be to the right and up and the question is magnitude and timing. But yeah, if I were to give a number, I'd say I would hope to see 10,000.
Kevin Rooke - 01:22:14:
I like that prediction. I like it. Thank you so much for taking the time today. Where can listeners go to learn more about you and the work you do?
Lyn Alden - 01:22:23:
I'm at Lynalden.com and I'm also active on Twitter @LynAldenContact so people can see my work there. Thanks for having me.
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