{"id":15735,"date":"2021-07-08T20:00:00","date_gmt":"2021-07-08T20:00:00","guid":{"rendered":"http:\/\/ci02879df330002548"},"modified":"2025-10-02T09:40:16","modified_gmt":"2025-10-02T14:40:16","slug":"scaling-lighting-el-zonte","status":"publish","type":"post","link":"https:\/\/bitcoinmagazine.com\/culture\/scaling-lighting-el-zonte","title":{"rendered":"Scaling Lightning: To El Zonte\u2026 And Beyond!"},"content":{"rendered":"
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Here\u2019s a philosophical question for Star Wars fans: when Luke fired two proton torpedoes down the thermal exhaust port <\/a>and destroyed the first Death Star, was it the end of the story or the beginning? On the one hand, the Rebel Alliance had won the battle and was safe after that shot. They even had an awards ceremony. Cue John Williams. On the other hand, that shot really irritated the Galactic Empire and drove them to scour the galaxy for vengeance, setting off the next episode in the saga.<\/p>\n

My point is that where a story begins depends on who\u2019s telling it.<\/p>\n

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We\u2019ve all heard the news about El Salvador adopting bitcoin<\/a> as legal tender. And celebrated it. And felt our hearts racing. Whatever word you choose \u2014 \u201cmomentous,\u201d \u201cwatershed,\u201d \u201chistoric,\u201d \u201cjoyous\u201d \u2014 you can\u2019t really overstate what\u2019s happening. We live in exciting times, and there\u2019s nowhere in history I\u2019d rather be.<\/p>\n

But much of the discussion so far has talked about El Salvador\u2019s move as the culmination of something. It\u2019s like Bitcoin\u2019s adolescence is over, and with the Salvadoran decision, Bitcoin is moving out into its own apartment. It\u2019s a real currency now. A nation-state says so. Cue John Williams.<\/p>\n

There\u2019s some truth in that. But the end of adolescence is the beginning of adulthood. The time has come for Bitcoin to be responsible, to apply what it has learned, and to live up to its potential. What does that future look like?<\/p>\n

Many tellings of El Salvador\u2019s story have largely overlooked and understated the role of the Lightning Network. But make no mistake: any country could have adopted bitcoin five or eight years ago. The base layer hasn\u2019t changed much. The new ingredient, the innovation that has made this possible and is opening up all kinds of possibilities for the future, is Lightning.<\/p>\n

So let\u2019s think about that, what is it about Lightning that got us here and \u2014 perhaps more importantly \u2014 how to grow Lightning for the second, third, and 195th country where people are going to be using Lightning for, well, everything?<\/p>\n

Lightning Is Bitcoin\u2019s Future\u2026 And Always Has Been<\/h2>\n

What\u2019s happened is that Lightning has turned bitcoin from \u201cmerely\u201d digital gold into a \u201cpeer-to-peer electronic cash system<\/a>.\u201d Of course, this isn\u2019t news to many of us in the Lightning community. But it\u2019s one thing for a bunch of geeks to be buying pizza in some relatively obscure app\u2019s online marketplace and another when non-techies are using Lightning to run their local economy. Abstract ideas and dispersed online communities can be easily dismissed. A whole town buying smoothies, haircuts, and shoes with Lightning is somehow more concrete.<\/p>\n

Bitcoin Beach was Lightning\u2019s proof of concept for El Salvador. El Salvador is Lightning\u2019s proof of concept for the world. All bitcoiners \u2014 you, me, and the generations to follow \u2014 owe Michael Peterson a solid. Like, all the solids.<\/p>\n

It\u2019s fine that the mainstream press barely mentions Lightning, talking only of Bitcoin instead. Most people have heard of Bitcoin by now, and bitcoin is the base layer currency. But Lightning is what made current changes possible. The median household income in El Salvador is less than $5000<\/a> and just over $1000 per person. A single $10 transaction fee would be 1% of a Salvadoran\u2019s annual income. For all of Bitcoin\u2019s benefits, it would be totally impractical in much of the world without Lightning, but with Lightning, it\u2019s magic internet money for everyone, not just the whales.<\/p>\n

Speed, convenience, and cost matter. A lot. Michael Peterson has cited Lightning as the tech that has helped bitcoin grow out of the \u201cdigital gold narrative.\u201d Jack Mallers has said that seeing Lightning in action is what convinced President Bukele that the time had come to take the whole country onto bitcoin, and I guess he would know.<\/p>\n

And as monumental as Bukele\u2019s decision is, it was also inevitable. If it hadn\u2019t been El Salvador, it would have been Paraguay<\/a>, or Panama<\/a>, or Nigeria<\/a>, or somewhere else. I know this is easy to say with hindsight, after the fact, but it would have been a much trickier call three years ago, right? Could anyone have seen this coming in 2018?<\/p>\n

Yes. I did<\/a>. Had I not believed that events like those we\u2019re currently watching were bitcoin\u2019s destiny and that Lightning was going to make it happen, I would have had no business in the Lightning business. I\u2019ll say it again today: thanks to Lightning, bitcoin is a scalable medium of exchange, and its scale will grow. Hold me to that.<\/p>\n

All Sats Are Created Equal<\/h2>\n

Another point that those outside the bitcoin cognoscenti tend to miss is that El Salvador chose bitcoin exclusively. Not crypto, not digital currency, but bitcoin. For many people, bitcoin is a synecdoche<\/a> for all crypto, like how maki, sashimi, nigiri, sushi, and temaki are all just called \u201csushi.\u201d But the real bitcoin is very special, and the consequences of opting for bitcoin exclusively are hard to overstate.<\/p>\n

People keep calling<\/a> bitcoin a Trojan Horse<\/a> to express the idea that it invisibly contains things like freedom and sovereignty that surprise those who adopt it. First, I\u2019d like to suggest a new metaphor. Bitcoin adoption does bear invisible consequences, but they\u2019re far more appealing than a bunch of tired, sweaty, grumpy Greek soldiers hiding in an elaborate piece of furniture. Bitcoin is cake, and what\u2019s inside is candy. In fact, there are several different kinds of candy inside beyond just sweet sovereignty and delicious freedom.<\/p>\n

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The first hidden consequence is that, by accepting any bitcoin on an open network, you accept all bitcoin on that open network. There are fundamental differences between types of currency, but units within a type are identical. For example, dollars and bitcoin are very different currencies, but all dollars are functionally identical to each other, and all bitcoin are functionally identical to each other.<\/p>\n

By opting for bitcoin only, El Salvador has chosen a type of currency that is open, public, and decentralized, and by opting to implement it over an open network<\/a>, they can\u2019t distinguish one bitcoin from another. All sats are created equal, and open networks keep them that way. As a result, it doesn\u2019t really matter if the official government wallet<\/a> is custodial. As far as the network is concerned, the custodian\u2019s node is the peer, and sats move up and down its payment channels as they would anywhere else. There is no difference between \u201ccustodial\u201d and \u201cnon-custodial\u201d sats from the network\u2019s perspective; they\u2019re all just functionally identical fractions of bitcoin.<\/p>\n

With bitcoin on Lightning, El Salvador has committed itself to an irreversible process of choice on the free market between different offerings. They can choose less privacy, more trust, and higher risk for a lower cost with custodial solutions, or they can choose unbeatable privacy, minimal trust, and negligible risk for a slightly higher cost with non-custodial Lightning clients.<\/p>\n

The second kind of candy in the El Salvador-bitcoin cake is the rest of the world. One study <\/a>from about 25 years ago looked at how new rules and practices spread from one country to a few countries to all the countries in the world. The researchers found that, once a new idea is adopted by about one third of all countries, there\u2019s a tipping point that induces a cascade effect.<\/p>\n

El Salvador adopted bitcoin just a few weeks ago. Already, Paraguay, Panama, Brazil, Argentina, Tonga<\/a>, and Mexico<\/a> are eager to follow. There are 20 countries in Latin America alone, and a third of them \u2014 a regional tipping point \u2014 are already interested. There are about 195 countries <\/a>in the world, give or take. A third of them would equal 65. If 65 countries adopt bitcoin, its progress will likely be unstoppable.<\/p>\n

Is it reasonable to expect 64 countries to follow El Salvador\u2019s example? Absolutely. How much would I bet on it? I already bet everything on it \u2014 years ago.<\/p>\n

El Salvador\u2019s move put non-custodial, global candy inside a custodial, local cake, and the candles are already lit.<\/p>\n

Scaling Lightning Globally: Neobanks And LSPs<\/h2>\n

So Lightning was always going to be the technology that made bitcoin into a global medium of exchange, and the process is happening right now. Awesome. But there is plenty of work left to do. El Salvador has just under 7 million people. The world as a whole has 7.8 billion. A quantitative increase of three orders of magnitude might require a qualitatively different approach.<\/p>\n

El Salvador is scaling Lightning from El Zonte to the whole country primarily with neobanks. A neobank is an online-only bank. As with traditional banks, users give the bank their money, and the bank keeps it and handles it as an agent on the customers\u2019 behalf. There are already Lightning neobanks in the wild, like Strike<\/a>, Bottlepay<\/a>, and Lastbit<\/a>.<\/p>\n

While adopting bitcoin is always the right decision, and Lightning is always the right technology to do so, the neobank model is unlikely to scale everywhere as well as in El Salvador. The Salvadoran case is unique. How often will a visionary like Michael Peterson arise, receive a donation<\/a> to seed adoption, and have demand for cash primed by a global crisis? How many countries are likely to have visionary leaders like Nayib Bukele, who feel inspired rather than threatened by bitcoin and who have a perfect test case on their doorsteps? How often is Jack Mallers going to be the guy they call rather than some stiff banker in a pin-striped suit for whom bitcoin is just a hedge, like T-Bills?<\/p>\n

Will Lightning strike twice, three times, 195 times over? Absolutely. But we\u2019re unlikely to find El Salvador\u2019s perfect conjunction of rare conditions again. The norm is regulation in the form of money transmitter licenses, deposit insurance, KYC, as is already happening<\/a> in El Salvador. Such regulatory hurdles are probably justified because people are entrusting their livelihoods to the neobanks. El Salvador is regulating and managing the process closely. The complexity of operating in nearly two hundred regulatory jurisdictions is the reason there is yet no global commercial bank for Lightning or fiat.<\/p>\n

Plugging into the existing fiat financial system also puts Lightning at the mercy of the powers that be. A restrictive bill or a fiat shock could end the party quickly, even in El Salvador. We got lucky with Bukele. Will we have the same luck with his successor? What about three presidents from now?<\/p>\n

The scalability of neobanks is limited, but that doesn\u2019t mean Lightning is.<\/p>\n

The alternative to neobanks is Lightning Service Providers<\/a> (LSPs), which are simply network nodes that provide connectivity, liquidity, background channel management, and other helpful services to Lightning users, many of whom are onboarding directly from fiat. Perhaps the biggest difference between the LSP and neobank models is that LSPs allow the network to grow organically, to be \u201cthe result of human action, but not the execution of any human design.<\/a>\u201d The LSP model circumvents the staggering complexity of planning and organising a Lightning economy, letting the free market shape it from the ground up instead.<\/p>\n

Unlike neobanks, LSPs don\u2019t take custody of their users\u2019 funds; they only have to provide users with inbound liquidity<\/a> to enable payments. To bootstrap a network of LSPs, operators need rapid access to liquidity. The easier they can obtain it, the less capital needed to get started, and the faster they can scale. But who allocates that liquidity and at what price?<\/p>\n

With liquidity marketplaces like Lightning Pool, allocation can happen automatically and optimally. Lightning Pool<\/a> is a trustless, true-to-bitcoin technology that reallocates the spare liquidity some users have to other users who need it using a spot auction. Lightning Pool allows bitcoin to find its most productive location on the network and compensate its owner(s). Liquidity marketplaces transform liquidity from a barrier to entry into a business opportunity. They allow bitcoin to flow around the network according to vectors of pressure measured by price. Such marketplaces literally render liquidity liquid.<\/p>\n

The decentralized LSP model also scales better because it\u2019s more resilient and harder to curtail. It\u2019s decentralized. Nobody takes possession of anyone else\u2019s property, so there is not much to regulate. Central authorities can regulate the curvature of cucumbers<\/a> in stores, but they can\u2019t regulate the cucumbers in your garden. That\u2019s the difference.<\/p>\n

And the same decentralized structure that makes a network of users connected by LSPs hard to regulate also makes it hard to constrict. Even if you wanted to shut Lightning down, it\u2019s not clear what there is to target. You\u2019d basically have to shut down the internet. If space ninjas landed tomorrow and wiped out all servers and developers of a non-custodial LSP, like Breez<\/a>, our users would lose \u2026 hmm \u2026 a highly informative blog? The network would naturally, automatically adapt. The LSP model will work in Cuba and Switzerland, Canada and Nigeria, whoever happens to be in office.<\/p>\n

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LSPs are more private, secure, and they live up to the borderlessness, openness, censorship resistance, and freedom that Bitcoin was designed to achieve. Again, neobanks aren\u2019t wrong, and they will coexist alongside LSPs. If regulation is evolutionary selection pressure on different models of scaling Lightning and UX is reproductive fitness, the non-custodial LSP model is simply fitter and more sustainable.<\/p>\n

Want to watch the revolution? Look around you.<\/p>\n

The chain wasn\u2019t ever going to replace fiat. It\u2019s too slow and too expensive. That\u2019s no secret. Fiat has, however, just been diagnosed with a terminal illness: Lightning. El Salvador has adopted bitcoin because of Lightning. People are buying coffee and vegetables with bitcoin because of Lightning. The International Monetary Fund, the World Bank, national mints, and commercial fiat banks are all starting to sweat bullets because of Lightning.<\/p>\n

Since Bitcoin is an open, free, public protocol that exists everywhere and nowhere, like Lightning, it\u2019s now unstoppable. If any one person were doing this, it would be a story of a villain pursuing world domination. But since we\u2019re all doing it together, it\u2019s a global, grassroots revolution.<\/p>\n

While nothing can stop this change, choosing the right model from the beginning can accelerate it. A network of peers, each in custody of their own funds, connected by a free market of LSPs is virtually immune to censorship. It\u2019s a hydra with 7 billion heads. Lowering the barriers to entry while raising the incentives to enter, preserving Bitcoin\u2019s technological integrity at every step, and not diluting Lightning\u2019s principles for any fleeting prize is the way to make the first global, democratic currency in the solar system. Cue John Williams<\/a>.<\/p>\n

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Soon the whole world will be as beautiful as El Zonte\u2026 pecuniarily at least. <\/p>\n","protected":false},"excerpt":{"rendered":"

The path forward for Bitcoin is clear, with a revolution in the ability to transfer value occurring right in front of us.<\/p>\n","protected":false},"author":2517,"featured_media":6423,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[33],"tags":[691,238,130,460],"class_list":{"0":"post-15735","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-culture","8":"tag-bitcoin-beach","9":"tag-el-salvador","10":"tag-lightning","11":"tag-lightning-network"},"author_data":{"id":2517,"name":"Roy Sheinfeld","nicename":"roy-sheinfeld","avatar_url":"https:\/\/secure.gravatar.com\/avatar\/?s=96&d=robohash&r=g"},"featured_image_url":"https:\/\/bitcoinmagazine.com\/wp-content\/uploads\/2024\/11\/hyperloop-a-new-concept-by-lightning-aiming-to-solve-liquidity-problems.jpg","_links":{"self":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts\/15735","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/users\/2517"}],"replies":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/comments?post=15735"}],"version-history":[{"count":0,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/posts\/15735\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/media\/6423"}],"wp:attachment":[{"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/media?parent=15735"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/categories?post=15735"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bitcoinmagazine.com\/wp-json\/wp\/v2\/tags?post=15735"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}