What the Lightning network shares with the Smartphone Camera
Lightning is the most successful layer two protocol running over the Bitcoin layer to date. From humble beginnings a few years ago it has evolved to offer global peer-to-peer payments between anyone across the world at almost zero cost and at near instant speed.
This post looks at Lightning adoption through the lens of the digital camera phone to see where we are in terms of progress and what the future might hold.
Figure 1: Image representing the first Kodak box brownie.Although there were early attempts at photography dating back through the 1800s, the majority of these were experimental in nature, limited in features and required a skilled operator to use. This changed when Kodak invented the first roll film camera in the late 19th century, with a tagline: ‘You press the button – we do the rest’. The user simply had to take up to 100 pictures and then send the entire camera to Kodak for processing.
Roll forward half a century and Kodak was established as a major player in the camera industry, with a complex ecosystem of business functions, at the front end developing and distributing the film, designing and building ever more complex cameras, and a distribution network to stock, explain and ultimately sell the cameras to consumers. Companies were also needed that could process the film rolls, and Kodak had a recurring revenue stream from supplying them with replacement film. Holiday makers at the end of their trip would deposit them and then had to wait a few days for the pictures to be developed, often of dubious quality, but it gave birth to a ‘Kodak moment’ tagline depicting the capturing of a personal event for posterity.
The digital era and the demise of Kodak
Around the height of its dominance in the industry, Kodak innovated again with the invention of the first self-contained digital camera. Once again, early experimentation had taken place elsewhere, but it was an engineer at Kodak who produced a solution more suitable for the consumer. However, its internal R&D, manufacture and distribution were built around a model that was for the most part obsoleted by digital technologies. It failed to pivot to this new model, and it gradually lost its lead to competitors.
As often happens with technology innovation, although Kodak could see the future and had even helped to invent it, the changes to the business model were just too great and it eventually had to file for bankruptcy.
At the turn of this century, with Kodak struggling to innovate in the digital era, the first integration of a camera into a phone was launched. In a similar pattern, it was primarily a gimmick for the first few years until the integration with the iPhone in 2007. Apple didn’t invent the camera phone, but it made it accessible to the mass market.
Integration with phones heralds a new era of innovation
Users were able to easily send and receive pictures across the cellular network for the first time using an integrated solution. The first version was still clunky, with limited pixels and features – but 16 years on it is now embedded in our lives with advanced features and improved quality. The ability to take photographs or videos and instantly import them into various apps to share on social media and store them securely in the cloud has become an integral part of many people’s lives.
It has also enabled new use cases that weren’t previously imagined or possible. Streaming videos live onto social media to capture events as they happen, storing QR codes for tickets to gain entry to events, or capturing evidence of that unfortunate auto accident for the insurance claim are just a few of the many ways having a camera always to hand with integrated connectivity to the internet has changed our lives for the better.
What has this got to do with money and Lightning?
That’s great you may be thinking, but what’s that got to do with Bitcoin and Lightning?
You will hopefully have noticed a few themes in the examples given:
New innovations start with a period of experimentation as the new technology evolves.
Technology builds on layers – the ability to instantly send that Snapchat picture around the world relies on many innovations that came before it.
It becomes more useful and scalable to the public when it is made more user-friendly.
Once established the new technology often finds new use cases that weren’t considered previously, as people start to experiment and innovate with it.
A disruptive technology can leave behind the biggest players in the established market even when they can see it coming.
A Brief History of Lightning
This is not meant as an overview of Lightning, for that there are many resources on the internet. However, a brief overview is useful to add context.
It was first proposed in 2015, there was work on iterations of the whitepaper and an initial release of a beta was released in 2018. It relies on the base Bitcoin layer and is intended to enable users to send or receive micro-payments instantly, globally and at near zero cost. So as a solution, it is still very much in its infancy.
Lightning is creating a new ecosystem of companies
The ecosystem of companies required to manage the creation, execution and processing of the legacy film industry produced a solution that was less flexible and more expensive than the modern digital alternative and was replaced by companies focused on simpler digital technology. In the same way, the current system of global payments is based on old technology, relies on a complex ecosystem of partners to cooperate and is proprietary, slow and expensive to operate. If history repeats, it won’t be these legacy companies that bring the new technology to the market, but new companies that don’t have to concern themselves with the old systems, except to connect where necessary. The ecosystem of Lightning is full of new and innovative companies building directly on the secure, distributed and permissionless Bitcoin network.
New use cases for micro-transactions
We have already seen some use cases for micro-transactions – the ability to send small amounts of money at little or no cost instantaneously across the internet.
The Fountain App streams sats to users to encourage them to listen to podcasts.
Microstrategy has started integrating lightning to reward staff for being on time for remote meetings.
Remittances abroad that were not cost effective can now be sent instantly and without using a bank intermediary to family and friends in remote locations worldwide.
This is just the beginning, as the technology scales, becomes more user-friendly and new platforms adopt it, Lightning and micro-transactions will be used for a variety of use cases not yet imagined, just as the digital camera is now used for applications never considered when it was first developed.
So where are we on the evolution of Lightning and micropayments? Let’s compare it against the themes mentioned:
Lightning:
The experimental stage is over, and Lightning has already proved its potential.
Theme:
New innovations start with a period of experimentation as the new technology evolves.
Lightning builds on the solid foundations of bitcoin.
Technology builds on layers
Companies are currently innovating to make it more user-friendly.
It becomes more useful and scalable to the public when it is made more user-friendly.
We are still in the early stages of seeing new Lightning use cases.
Once established the new technology often finds new use cases that weren’t considered previously, as people start to experiment and innovate with it.
Lightning already makes it easier, cheaper and faster to make small international payments compared to traditional financial services, an example being Coincorner.com in the UK **
A disruptive technology can leave behind the biggest players in the established market even when they can see it coming.
In summary, we are following the same path as the previous examples, companies are currently in the process of making Lightning more user friendly which will enable many new use cases and potentially disrupt the existing global payments network.
Unlike the existing payments system, Lightning was developed from the ground up for the digital age. The compelling value of a permissionless, peer-to-peer global payments solution running over a secure Bitcoin layer and accessible by anyone makes it difficult for the current system to compete. As it continues to grow, according to a recent report from River.com, the Lightning network grew by 1212% in the last two years to August 2023*, we will see further innovation in usability and scale, and different use cases develop.
Just as we saw with the digital camera and its’ integration with the phone, a new breed of companies are being built to take advantage of Lightning as a platform. They will be able to upgrade the world by providing global services that the existing financial system may see coming, but have too much vested interest in the existing system to effectively compete.
*River.com state of lightning report https://river.com/learn/files/river-lightning-report-2023.pdf** Coincorner.com blog on innovation in the remittance marketThis is a guest blog by David Pool / @fbjtrades. Views expressed are David’s own, and do not necessarily represent the views of Bitcoin Collective.