People in developing countries, with higher inflation and weaker payment and banking systems in general, have more of a natural incentive to use Lightning as a medium of exchange earlier on its monetization process. The exception is for the subset of people who specifically need Bitcoin/Lightning’s permissionless nature for one reason or another, or for whom the majority of their liquid net worth is in it. Most people in developed countries have an incentive to spend their fiat and hoard their bitcoin like an investment, at least in this stage of the monetization process.

Taxes on cryptocurrency transactions, as well as the lower supply inflation rate of bitcoins compared to fiat currencies, results in Gresham’s law being applicable here. The first couple decades of monetization for the network as it undergoes open price discovery to reach the bulk of its total addressable market, should be different than the “steady state” of the network after it reaches the bulk of its total addressable market, assuming it is successful in doing so. A new money cannot go from zero to trillions without upward volatility by definition, and with upward volatility comes speculators, leverage, and periods of downward volatility. Volatility is inevitable along the path of monetization. As such, they failed to gain structural adoption as money and rendered their high throughput irrelevant, especially since they were brought into exist in the shadow of Bitcoin’s larger network effect. They optimized for throughput and speed on their base layer, at the cost of weaker decentralization, auditability, scarcity, and/or immutability of the underlying bearer asset. Many cryptocurrencies that followed in Bitcoin’s wake put the cart before the horse.

On top of that foundation, Lightning as a payment network is being developed, and has reached a critical mass of liquidity and usability. It created an underlying digital gold and settlement network, with a credible degree of decentralization, auditability, scarcity, and immutability that no other network currently rivals.

It’s hard to envision any other path succeeding.īitcoin started with a smart design from the beginning. In other words, in order to create a decentralized version of Visa, beneath that you must first create a decentralized version of Fedwire, and along with that you must first create a decentralized version of digital gold. In order to create a truly new digital bearer asset that is useful for payments in the long run, it must also be an attractive store of value, so that a meaningful percentage of the population begins to persistently hold it as some percentage of their liquid net worth and be willing to accept it for goods and services. If instead it runs on top of the fiat currency system or relies on external custodial arrangements at its foundation, then it is neither decentralized nor permissionless. A truly decentralized and permissionless payment network requires its own underlying self-custodial digital bearer asset.

Lyn alden oil