• theswissroadtocryp

How to earn sats on lightning - kevin rooke

Kevin Rooke - 00:00:03:

What I'm excited about when it comes to Lightning is earning, and I think people are going to be earning in ways they never have before. I don't think a lot of people recognize how many people have access to Lightning. There's probably over 100 million people. We're going to see someone come out with a really interesting use case for Lightning and get a ton of traction because there's this set of people that already have Lightning capabilities installed on their phone. They don't even know it.

Didier Borel - 00:00:33:

Welcome to The Swiss Road to Crypto Podcast I seek out the brightest names in crypto, mainly in Switzerland, but also from around the world. I seek out people that I think are bright and are doing something innovative and interesting. They might be well known or below the radar screen, but they have a special insight. Through these interviews, you will hopefully gain an insight that is not obvious today of what the future will bring. Today I am pleased to have Kevin Rooke. Kevin has written several articles on the Lightning Network. He also has a podcast called The Kevin Rooke Show, in which he talks mostly about Lightning, and I have learned a lot from this podcast. Furthermore, he invests in companies involved in Lightning. Today we will talk about the network, how big it is, what new business models it enables, and what still needs to be developed. But before we get started, a word from the sponsors who make this show possible. First up, Descript. Are you interested in having your own podcast but don't know how to get started? The idea of editing your own audio files intimidates you. I use the Descript software to edit this podcast, and I highly recommend it. It's easy to use, much easier than any other editing software I know. You can record directly on your PC or Mac or on another device and then import the files. It also produces a transcript of your audio files. Best of all, they have an overdue function. That means that you can type in text and your voice generated by the program will read the text. So when you need to add in a word or sentence to an audio file that you forgot to say during the recording, you can use the overdue function to insert it afterwards. I highly recommend the Pro version, which is what I use, and if you pay annually, it costs $288 a year. I really think it's worth it. Use the link in the show notes to connect to the script and help support this podcast. Next up, Shift Crypto. Are you looking for a hardware wallet to store your Bitcoin or other crypto assets? Consider BitBox made by Shift Crypto. They are based in Switzerland and have been very well audited. The CEO, Douglas Bakkum was on this podcast, and you can find that episode in the same place you found this episode. The other cofounder, Johannes Schnelli, was a Bitcoin Core developer and submitted his first line of code to Bitcoin Core in 2013. Also, if you like cool design, this product has the coolest design of all hardware wallets I know. Use the link in the show notes to get started and to help support this podcast. And finally, Braintrust. Are you a software engineer, UI designer, content manager, content marketer, and would like to work independently as a freelancer? And you think privately held platforms like Fiverr or Upwork take much too much of a commission? Braintrust has replaced the middleman by code, and the amount of take home pay you get on the Braintrust platform is 100% of what you build. Other fields of work are being added continuously to the Braintrust platform as well, so check them out to see if they have a job for you. On top of that, on Braintrust, you can make money by referring other people to the platform as well. Look at the two episodes I did with Adam Jackson and your favorite podcast player. Adam Jackson is a co founder and CEO and find out more about how Braintrust works. Click on the show notes to get started and help support this podcast. Good afternoon, Kevin.

Kevin Rooke - 00:03:53:

Hey, thanks for having me on the show. Let’s chat about Lightning.

Didier Borel - 00:03:57:

My pleasure, because, in fact, I discovered you a bit coincidentally about, I don't know, six, nine months ago by reading your Medium article. You've written many articles, but I think you wrote one Medium article that was very good on Lightning Network, which in fact showed that it's already quite big and much bigger than most people think. And that article is probably now six or nine months old. And then I came across you again, coincidentally, on the Palm podcast, and you explained the article and some other stuff, and I liked you there too. And then again, a little bit coincidentally on Twitter, I saw you at your own podcast, and I've already listened to three or four episodes and I've learned a lot. And so I said, this guy is great. Let's have him on the podcast. So thank you for coming on to be here. I don't know you all that well. So what did you do before? How did you discover crypto and how did you get involved in Lightning?

Kevin Rooke - 00:04:59:

Yeah, so I first discovered Bitcoin when I was in college. I was just about to graduate, and I was about a month away from graduation. I met a guy at a bus stop, and the bus was late, and we got talking and he was telling me about what he does. He was going to school across the street from me at a different school, and he was a poker player. And I was intrigued and he seemed very smart and he knew what he was talking about. And in the conversation, he basically told me, yeah, I played professional poker and I earned my winnings in Bitcoin. And then I converted back to dollars. And I'm like, what's bitcoin? I've never even heard of this. I've never heard the word. This was like 2017. And so immediately my ears kind of perked up because I could tell he was a smart guy. I knew he knew what he was talking about. And yes, I kind of latched on to that. And I said I followed up with him and said, hey, let's grab coffee. I want to join you in a little underground poker ring on campus. And I wanted to join that. I wanted to learn about bitcoin. Everyone there was talking about bitcoin too. And so that was the first kind of entry point for me. And really I was surrounded by a bunch of people who were all smarter than me, all discussing bitcoin. And I thought that was a pretty significant signal. So luckily, I kind of got introduced to it in a good way from someone who I respected and knew as smart rather than someone kind of pedaling some get rich quick thing. It was someone I already looked up to and was like, that guy is onto something. I just need to figure out exactly what it is.

Didier Borel - 00:06:54:

For me, it was about the same thing at first. I shrugged it off like everybody. And it's only because somebody I respect a lot told me who would mind some himself in 2011 or something. It's only because he told me it's not a scam and I ought to take it seriously. It's only because it came from him that I didn't want to answer him. It's a scam because the price is going up fast. I figure I'm going to have to give him a more educated answer than that. And then I went down the rabbit hole. So basically we have sort of the same it's because it came from somebody that you respected as being intelligent, that you looked at it as in a non scamming way. One of your main themes that comes across many of your podcasts is new business models enabled by Lightning. So you often site, for example, Fountain app or Stacker News. So can you describe to me what you think the new business models will be that are enabled by Lightning? And for example, I saw you tweeted that you just made forgot how many sats over Stacker News. So how did you make them? Can you explain all that?

Kevin Rooke - 00:07:57:

Yeah, so I think to give you an all encompassing term for what I'm excited about when it comes to Lightning is earning. And I think people are going to be earning in ways they never have before. So there's a line that Chris Dixon, who's one of the big kind of Web3 investors at a 16 Z, he has a line that he thinks the future of the web or the progression of the web from web one, web two, Web3 is read, write, own. And he thinks own refers to ownership of tokens that individual apps are going to be building. I think it's more like read, write, earn, where you can earn real money for your time and your effort on all sorts of apps. And that money that you're earning is perfectly interoperable across the entire ecosystem. It's a network effect in and of itself. It doesn't require every website to be token gated and to have like, you can own a piece of this website and own a piece of that website, but that website isn't compatible with this one. And this one requires you to swap your token to this one. It's money that can be moved anywhere across the internet. So I'll give you some examples of earning on bitcoin today. There's a number of game studios that are great for people who have never used Lightning and want to get their first sats just to experience it. You're not going to get rich from it. It's just the idea of experiencing earning money for playing something that you truly enjoy playing. So Zebedee is one that has a bunch of games, thunder games, they're another studio, they have a few more games. All these games are free to play and you earn bitcoin for winning or for hitting certain levels or getting achievements. And so that's something that right away give people access to Lightning. You all of a sudden have sats in your account, then you can take those sats.

Didier Borel - 00:10:03:

Sorry, doesn't that sound scammy that I played and I won a game and somehow I get money? Who's giving me that?

Kevin Rooke - 00:10:10:

So let's look at the way it used to be. It used to be if there was a free to play game, you would play the game and you see ads on it every now and then between screens or when you restart the game, or sometimes at the bottom, there's a banner ad and you get nothing. Today, if you play that game, you may see a banner ad, something on the bottom, something at the end of the game, and you can get money for it. You're getting paid from the game because they're earning from you, right? They're earning the ad dollars and they pay you.

Didier Borel - 00:10:41:

So the money is coming from the advertising, okay? It's just for you, the owner of the game or whatever is redistributing some of that revenue and advertising to the players. Okay?

Kevin Rooke - 00:10:51:

Essentially, yeah. That's one very rudimentary form of this, right? And we've seen that concept is being replicated across the industry, but there's also other concepts that are not tied directly to advertising. I want to go through a couple of big examples though, that are starting to get a lot of traction. So two of the companies I invested in, one is called Fountain. Fountain basically lets you earn bitcoin for podcasting, and now you can earn bitcoin as a listener. This is something I've been doing for about seven months now since I started my podcast. And every single day listeners are sending in sats as they listen to the show. They're sending in comments and questions come from all over the place and it all is in sats. So again, it's all interoperable with the sats that I earn from my little five minutes playing a video game. It's interoperable with the sats that I earn on Stacker News. And Unique, they've got an interesting concept now where not only can you earn Bitcoin as a podcaster, you're investing your time and people are sending value to you in relation to the value that you put into your show, but you can also earn as a listener. And they have this similar ad model as well, where if an advertiser is willing to pay to get in front of you, they want to pay 100 sats for you to watch their ad. Well now you're going to get the 100 sats or Fountain takes a cut along the way, but you get the money. Rather than you sitting through the ad on YouTube every day, you sit through ads and ads and ads and you get nothing. As a watcher of YouTube videos, you get nothing. As a listener on Spotify, you get nothing. As a reader on Reddit, you get nothing. And it's like, I think that the biggest thing that people have not woken up to is that that model of all these platforms building multi billion dollar businesses off of, you getting nothing. And you the user, you the listener, you the reader, you the watcher, are the ones that make the platform valuable in the first place. Stacker News is another one. Stacker News is kind of you can compare it to Reddit and basically the idea is on Stacker News, not only can anyone tip other users you upload by tipping, so you send them ten sats and you upload their post and those higher up the page. But you can also earn sats from that have a job board right now, where any Bitcoin companies can advertise their jobs, they pay Stacker News. Stacker News distribute that to the best users. Right? So this is what I was tweeting about the other day was that I think I'm earning about 6000 sats a day on Stacker News from posting good content that gets uploaded to the top of the page. From commenting on things like the comments on Reddit and from uploading things Stacker News can figure out. Like if I upload something that the 100 other people on the site also upvote. And I was the first to do it well. I identified good content that's valuable to the site. Therefore I should be rewarded. Now, if you come along, the reward.

Didier Borel - 00:14:20:

Again is coming from advertising revenue.

Kevin Rooke - 00:14:23:

For example, it comes from all the ad revenue. Yeah. So people can advertise posts on the main page, that's called a boost. Or they can create a job posting on the job board and those revenue sources basically go back to users 100% of them. Stacker News doesn't take a cut right now, but I think that is the model that we're going to start to see proliferate across the web where platforms that used to be able to grow, grow and try and build a network effect and then extract as much value from users as possible are going to start to think about growing in a different way. One easy way I think that they can start to grow and differentiate themselves when they try and grow is by actually paying the users. I think this is going to be a catalyst that helps a lot of these companies scale. It's going to be a tool they can use to get to a network effect. And because this is all interoperable, there's also no lock in. It's very hard to lock people into a system because again, on Stacker News, I'm not earning Stacker News points on Fountains, I'm not earning Fountain points on both. I'm earning sats and I can send those sats anywhere I want to my Lightning node to a Bitcoin address, I can send it anywhere, any other app, if another competitor comes up and they have better, they have a better interface or they have a better system or something that I like that I didn't get from the original one, I could switch over instantly. And so I think that's going to be more common over time. And the overarching theme here is that people are going to be earning, people will be able to earn for the value they provide to the platforms they use.

Didier Borel - 00:16:09:

And have you seen any other business models yet? Because for example, I certainly agree that you seem to say let's keep the money in the community and the people who create the value in the community will benefit from it. But the money is timing coming from advertising that gets redistributed to people. Have you seen other business models? Yes, go ahead.

Kevin Rooke - 00:16:30:

Yeah, so there's another business model that I think is interesting and that is earning for performing tasks. And this is like it's taking the job market and it's really condensing it down to the tiniest possible action. This is something that Stakwork is doing. So Stakwork is company that basically lets they have tens of thousands of workers all around the world and these workers are performing little tiny micro tasks. Often they don't even know what the whole task they're trying to accomplish is, they just have one little tiny piece of the puzzle to put into place. And so basically the way it works is I actually use Stakwork for transcribing my podcast episodes. So I have a transcript at the end of every show on my website where people can read my full transcript of the episode in 15 minutes instead of listening for an hour. And the way that transcription is done is it first uses an AI system to generally get the words right, but the AI messes up a bunch of words and it doesn't get the formatting right and it spells things wrong. And so Stakwork then brings in a network of workers all over the world and identifies this particular word. We're not sure if that's exactly what Kevin said or this particular word. We don't really know how to spell that. So each one of those little tasks, those like, two second snippets of audio, gets sent out to an individual worker and the task is, can you correctly identify what word was said here? They recompile all of that, put it back together. What I get at the end is a polished blog post of the entire transcript that is far better, far more accurate than anything an AI could create. And in the end, I pay like $8 to hundreds of different workers who all contributed little tiny snippets here and there. Often the snippets take two or 3 seconds. It's not like someone sitting there manually typing out my transcript. And they do this for images as well. They do image recognition for training machine learning models. They do all sorts of stuff. And they split up these tasks into little tiny chunks and allow people to earn for their time in ways they never could before.

Didier Borel - 00:18:51:

You're going to have to give me that link because I'm not always my transcripts aren't perfect yet. So here that seems to be the key factor, is that because Lightning is almost, you could say, instantaneous and free, what's enabled by Lightning is now we have a payment method that makes it worthwhile asking people to do such small tasks that might not be worth renewing if you were paying them with a credit card. What's enabled here by Lightning is the fact that it's basically free and instantaneous. And so we can ask people to do things that are so small that it's still worth their while. Really?

Kevin Rooke - 00:19:27:

Well, I wouldn't say it's basically free. I have to caveat that because the difference on Lightning is that the fees scale down to zero. And what I mean by that is, if I want to make $100 payment on using Visa, will they charge 2.9% plus $0.30? So 2.9% plus $0.30 on $100 payment is we're looking at like 3%. Basically, if I'm making a $10 payment, my 2.9% plus $0.30, right? The $0.30 is 3%, and then there's also the 2.9%, so that's 5.9%. If I try to make a one dollars payment, then my fee is 33%. 2.9% plus $0.30. But the $0.30 now represents 30% of the entire payment. So fees on Visa scale, they're pretty low if you're making high value payments, and then they get really high if you're trying to make small value payments. The fee as a percentage of the payment on Lightning, it's a flat line. It doesn't matter if you're sending one sat, if you're sending a thousand sats, sending a million sats or sending a billion sats, it doesn't matter. And the thing to note then is that there is a fee, but that fee is what is set by routing nodes. Collectively, these routing nodes are all earning bitcoin for passing payments back and forth. So we don't necessarily know what the level of that fee is going to mature at. It could be 1%. I think right now it's probably below 1%, but it could be 2%, it could be 3%, could be half a percent, it could be zero, 1%, I don't really know. But I know that over time, basically what's going to happen is it's going to be equal no matter how much money you're spending. And so if you're making a really large payment, actually Lightning is not a good solution. If you're trying to send ten bitcoin and you have a 1% fee where you just spent one bitcoin on the fee alone at least today, that's a waste of money. You can do it on chain for much less. But if you're spending a dollar, you can't do that on chain for less. You're not going to spend a penny on chain. If you're trying to spend a penny, you're not going to spend 100th of the penny on chain. Even on chain. Those bitcoin fees tend to scale up as you get smaller and smaller payment sizes. So that's why right now a lot of the interesting use cases are taking advantage of those super small payments that you simply cannot do those payments on any other payment system.

Didier Borel - 00:22:11:

Okay, so that leads me to my next question square, for example, Cash App, they allow, I think, Lightning payments through their Cash App. And apparently I think I heard on again on one of your podcasts they don't have that much uptake or that many people using it, I think. But correct me if I'm wrong, whereas it seems to me that other organic like projects or wallets developed directly for Lightning have a huge organic or much bigger organic uptake in use. Do you have any ideas on size and how would you explain that or why would you explain that? Why is that?

Kevin Rooke - 00:22:49:

So I have to say I don't know for sure how much Lightning adoption Cash App has. I think my assumption is that it's a very small percentage of the people who have it. I think right now there are 70 plus million Cash App users. That number is a little old though, so it might be closer to 100 million today. And I believe all of them have access to Lightning today. But the question is how many are using it today? And I think that number is probably a very small percentage. I don't know whether it's 10,000, 10,0000, a million, I don't know what the number is. But in relation to the overall size of Cash App, I think it's quite small, just my estimate. And when you think about the other the Lightning specific apps, these are apps that people are specifically seeking out to use Lightning. So their usage, everyone that is a user of these apps is using Lightning. Their overall numbers are smaller, but they're all using Lightning. If you have the app, you're using Lightning. There's no other purpose for downloading some of these wallets other than to use Lightning. So I think right now what we have is an interesting situation. I don't think a lot of people recognize how many people have access to Lightning. There's probably over 100 million people. When you combine things like Kraken and Paxful. Robin Hood's integrating Lightning Cash App already has it. There's a bunch of big names in finance and fintech that have Lightning access already enabled in their app. There's also a bunch of Lightning specific and bitcoin specific apps and wallets that do as well. But I think what we're going to see over time is we're going to see someone come out with a really interesting use case for Lightning and get a ton of traction because there's this set of people that already have Lightning capabilities installed on their phone. They don't even know it, and they don't need it right now. But there will come a time when some interesting app gets launched. And there was one idea that I thought was really interesting from a past guest. He talked about doing, like HQ. Trivia do you remember that? There was a game like HQ Trivia maybe six or seven years ago. It was just like viral app. It basically paid you to play in these. Like it was like a game show, a live game show, and only the top five or so winners of an episode would get paid. But maybe you get paid $100 or $1,000 or something. Well, why not reinvent that idea on Lightning where you can pay out everyone for getting each answer correct to a trivia question? I think something like that could be a really like it could just take the Lightning ecosystem by storm and immediately onboard a lot of people who previously would have never thought of themselves as Lightning users. So I think over time, what's going to happen is it's not going to be people seeking out Lightning because they want Lightning. It's going to be people who want these new interesting apps, and these apps just happen to be built on Lightning. It's going to be the layer that people don't really recognize and people don't really care much about. It's just going to be there. It's just going to work. People are going to be able to magically receive payments instantly. They won't know. 99% of the people won't know how it works. They won't care. They'll just use it and they'll earn money.

Didier Borel - 00:26:33:

Okay, thank you very much. I didn't have to even ask my next question, which is, what will it take for Lightning to explode? But you answered my question. You gave me the answer before I asked the question. That's great. So I would ask that question. So, like, I said in the introduction, I discovered you originally through your Media article, and your Medium article describes well how big Lightning in fact is. And it's much bigger than people think. Could you summarize a bit? Could you summarize that article for us, please?

Kevin Rooke - 00:27:02:

Yeah. So I wrote an article, this was about a year ago now, when I started really taking the Lightning Network seriously. This is around the time when Jack Mallers made his speech at bitcoin 2021, talking about the bitcoin law that was going to go into effect in El Salvador. My ears perked up there as well. Recognizing that a nation taking bitcoin adoption as a path towards financial independence, this is something worth paying attention to. I started digging into Lightning, and initially I had not heard many people talking about it. It was still quite niche. It didn't have much momentum behind it. But I was noticing that capacity on Lightning was ticking up consistently. It wasn't necessarily super fast, but it was consistent and it seemed to be accelerating. And it did accelerate for the rest of the summer and fall of 2021. And it's continued to grow since then. And every day we're kind of setting new alltime highs for public capacity. But one thing that I found interesting was that people tend to misunderstand what public capacity on Lightning actually is. They look at that and they think, I don't know if this was done intentionally or not, but I know there's some defy comparison tables where they compare the different total value locked in different protocols, and sometimes they'll include Lightning in there to show, oh, here's this bitcoin thing. And it's like 50th on the list. And everything else above it is built on other chains. But these comparisons are not correct. They're not apples to apples comparisons. And I started digging into trying to understand exactly how much activity is actually happening on Lightning. And I found a few things. So one was that first, public capacity is only a portion of the capacity on Lightning. You can have private capacity, and there are various estimates on how much capacity is private versus public. And there are different reasons you might want private capacity. But basically the idea here is that public capacity is just a subset of the capacity on Lightning. The second idea is that capacity on Lightning is not the same as value locked into some D type protocol. Like, I'll use Maker as an example where you can lock collateral in there and generate a loan. When you lock that collateral into Maker into a CDP, you are effectively storing those funds there and the funds don't move. They sit there until you either close out your position or you get liquidated or something like that. The funds just stay, they're stuck. Or maybe you generate some token that is based on your CDP position, something like that, some derivative on Lightning. When you lock funds into Lightning, or when you put. Funds into a multi state contract. Essentially what you're doing is you're unleashing it. You now have the ability to use the same bitcoin, you have put it into Lightning, but you can use it in different ways. Now you can send it instantly. You can send it for fees that scale down to zero, so it opens up access for things like micro payments. So there's a bunch of different reasons why these analyses are flawed. The ones that compare DeFi to Lightning, and I think people still misunderstand that at a fundamental level. They think that the number of public capacity is the total amount of activity happening on Lightning, and that's just not true. One other thing is that Lightning is a payment system, and it's also private by design. So it's very hard to get numbers on how much payment volume is flowing through the Lightning Network. It's basically impossible to get an accurate gauge or that there are ways you can be back into really rough estimates, but getting an actual number is basically impossible. That's another factor that leads people to believe that there's no activity because they can't see a number. There's nothing to rely on. You can't go to some metric website or dashboard and just see this number. Oh, here's exactly how much payment volume happened on Lightning. You can see it for bitcoin, you can see it for all the other coins on blockchains, but because it's not a blockchain, it's a different structure, you don't have that same visibility into all the payments. So that's another reason why people tend to forget about Lightning or kind of just like, dismiss it because there's no hard numbers to grab onto. There's no way to prove and say, oh yeah, this year there's a billion dollars that flowed through Lightning. We don't really know that. We have guesses and we can see progress, but we can't make concrete assertions like that.

Didier Borel - 00:32:21:

Yeah, and I think you gave some numbers, I think, for a few exchanges like Bitulu or Coinbase saying that they have a Lightning node. Just the amount that they send is already, of course, a small percentage of the total Lightning payments, but it's already very big. Do you remember those numbers?

Kevin Rooke - 00:32:38:

Yeah, that was about a year ago. And so that data is probably stale by now. But I try and find basically for my own interest, I try and find ways to back into estimates, and I try and pull data points and anecdotes from people that are willing to share it publicly. And I use that as a kind of basis for making estimates and figuring out, like, are we growing? How big is this thing? A few of the interesting ones that I've seen recently are from one comes from Breez. I had Breez, the CEO on my podcast a little while ago, and he mentioned that Breez was doing 200 to 300,000 payments per month. Another one is from wallet of satoshi. They have a public tracker available on their site, and they are doing about 215,000 payments a month. So both those two are kind of roughly the same if we think about them as being equal. Each one is doing about 7000 transactions payments a day. That's 14,000 payments between the two, and that's just two wallets. That's not counting a lot of the rebalancing, a lot of the payments that are happening between nodes. It considers maybe some of these streaming because Breez has streaming available. You can stream sats through Breez, but there's a lot of activity that is not counted by that. I think if we're talking Breez and Wallet of Satoshi are doing 14,000 transactions a day, the Bitcoin blockchain is only doing about 250,000 a day. There's a very real case to be made that the Lightning Network is already doing more transactions than the Bitcoin based blockchain, not in dollar volume, but in the number of transactions. And that's kind of going to show that there's a lot of activity happening on Lightning already, even though the dollar volume of it may be small in comparison to Bitcoin.

Didier Borel - 00:34:51:

Okay. Another thing I learned from one of your recent podcasts was that you said about five to 10% or he said your guest said five to 10% of payments on Lightning don't necessarily succeed. In other words, they don't arrive at their destination. So is that also what you think? And what do you think happens to those sats? Are they lost or do they get bounced back to the one who sent the sats?

Kevin Rooke - 00:35:19:

Yeah, no, the sats don't get lost. Sometimes there are payment failures, basically like routing on Lightning or sending a payment on Lightning requires you to have inbound and outbound liquidity. So you need to have enough money that you can spend and that you can receive in order for a payment to go through. And when a payment failure happens, that's often the reason you think it's one.

Didier Borel - 00:35:44:

Of the intermediate routing nodes that didn't have enough.

Kevin Rooke - 00:35:47:

Yeah. So sometimes when you're routing through other nodes, if one of those other nodes doesn't have enough liquidity, something like that, that can lead to a payment failure.

Didier Borel - 00:35:59:

But the sats come back to the originator of the payment, the person sending the money.

Kevin Rooke - 00:36:03:

Yeah. If the payment fails, you don't lose any sats.

Didier Borel - 00:36:06:

Okay.

Kevin Rooke - 00:36:08:

But this is something that is being worked on. I've heard a number of people talk about people who have been on Lightning for much longer than I have, talking about how payment reliability is improving. And there's certainly a long way to go before it gets to the point where we can compare it to something in the traditional space like Visa or Mastercard. But it's interesting just to watch payment reliability improve. I now make a Lightning payment, and I don't immediately think this one might fail. I assume that it is going to succeed. Now, when I make a payment, which probably wasn't the case when I started Lightning a year ago, so it's improving for sure.

Didier Borel - 00:36:54:

And when you started, did you start directly with your own node? Okay, something else I learned from the same guest who said 510 percent of the payments fail, and he was making the case. And this might sound facetious or cynical, but he was making the case, seriously, that Tron network uses I forgot, you can send stablecoin payments on Tron network almost for free and almost instantaneously. So the point is, will everybody be using something like that instead? Because most people would rather use a stable coin, and still most people prefer trust the dollar, and they don't really understand Bitcoin. And who cares about Lightning if we have another alternative, why can't Lightning be superseded or displaced by, even if it's a centralized blockchain, using a centralized currency? But if you're using a centralized currency, who cares if it's a centralized blockchain anyway? Do you see that as a threat? Do you see a good, cheap alternative network for a stablecoin as a threat or destabilizing factor to well, I think so.

Kevin Rooke - 00:38:07:

There's a couple of things here. First, stablecoins are definitely showing that they have a use. People are using them. I believe stablecoins collectively represent the second largest market cap of any coin, right? It's Bitcoin. And second is stablecoins. Collectively, that's about $200 billion, I believe. So there's clearly a use for them. I think everyone building on Lightning is recognizing that use. There's a bunch of projects that are working towards bringing stable coins onto Lightning. You have things like Taro, things like Synonym. The HRF has a bounty up for stabilized token on Lightning. We have Fuji Money being built on Liquid side chain and bitcoin. There's a bunch of projects and seemingly more coming out all the time, and I may have forgotten a couple, but one interesting thing is that Lightning's architecture is different from a blockchain. And there are definitely blockchains that are cheap to transact on or that are like, relatively instant, but a blockchain itself. This is something that I learned from one of my past guests, Pierre Rochard. He basically made the case that it's impossible for any blockchain to be as fast as Lightning, because Lightning is a network of direct peer to peer connections. So, like, if I'm connected to you and I want to make a payment to you, there's no way a blockchain that has to broadcast transactions globally to all nodes can possibly get that transaction confirmed faster than I can send it directly to you. If you take it to the extreme, Lightning is always faster than every blockchain. Maybe there are limits to how much consumers care about that level of speed. And I think that that level of speed is probably most useful to high frequency trading rather than making merchant payment. Whether a merchant payment goes through in 0.1 second or 0.2 seconds, maybe it doesn't matter so much, but it certainly does if you're talking about high frequency trading. And so I think that in and of itself is like one reason to consider I think this is a fundamental difference in the architecture here. Another point is that blockchains historically have trouble scaling. And to date I don't know of any blockchain that can handle the throughput that Lightning theoretically can. We don't know what the feeling on Lightning transactions per second is, but I believe it's far, far in excess of any of the block chains that exist today. And so one common point that crypto projects make is they say, oh, we have fasts and we have cheap transactions too. And then they get a bit of activity on their chain and all of a sudden the cheap transactions are now 1000 times more expensive, maybe still relatively cheap. But as you're bringing more transactions to a network, we've seen this happen with things like we've seen it happen with Ethereum, we've seen it happen with Solana. As you bring more activity to a network, you can congest it. And the blockchain structure doesn't scale in the same way that Lightning does. So the people who are saying we can do free and instant transactions on a blockchain on some other token are often the ones saying really? That their tokens that go to town and no one's using it because when people do use it, reduce the fees.

Didier Borel - 00:42:02:

Jump up, okay, it's fast on their network because nobody's using it. Everybody I know in blockchain thinks that if you want to scale and be fast, you necessarily have to go to a second layer solution. And that makes sense because basically you're taking a lot of activity off the chain and you're just reporting back to the base layer on that difference. And so you can take off chain a lot of activity, you can add a lot of conditions to the payments. And then when you want to close the channel or close that relationship, you just bring back another difference that might represent 10,000 transactions in the background. So for me it just seems natural and logical that you want scaling and speed. You necessarily have to go do a second layer solution. So then it's what asset you want to use and what's the best second layer solution. Okay, so my next question, you could claim that bitcoin was never made itself, the base layer was never made for speed nor for privacy. Would you claim, or can we say that on the other hand, Lightning was made for speed and privacy. However, then my question is when I go from the TCP/IP layer to a Lightning node, do you think I can be sniffed out and discovered?

Kevin Rooke - 00:43:20:

Yeah. So I have to caveat this by saying I'm not a developer, I'm not a privacy expert. You're right that bitcoin is not the base layer of bitcoin is not the fastest and it's not the most private system out there. And Lightning does improve on these things. Lightning is far faster. It's practically instant. In terms of privacy, it is more private. But I don't want to give anyone the impression that there's any silver bullet of, like, you can use this one system and no one can ever see anything about you. There's nuances here, and there are different methods by which people can kind of like, figure out what balances certain nodes have under their channels. There's probing that's going on in the network to try and determine where payments are flowing to and from. I don't know what the results of that have yielded that probing activity, but I think generally it's fair to say that Lightning is a more private method transacting than on the Bitcoin based blockchain.

Didier Borel - 00:44:32:

Okay, what kind of centralization are you seeing on Lightning? And how centralized do you think it will be? Because as I think Roy from Brisbane said, and others, of course, the main sort of juggernaut on Lightning is having liquidity between the nodes and incoming liquidity towards you. And so a well funded routing node becomes an asset, and that becomes one of the things that you need to speed up Lightning. So that leads to and fees are very competitive. Routing fees are very competitive. So basically that seems to lead towards centralization. Do you think Lightning is becoming more centralized? Will become more centralized? How do you see it or do you see it? Yes, it will become more centralized, but they'll always be an easy, unsalted version. In other words, if you and me want to make a direct payment, we each run our node. We could each just basically set up a channel between you and me and nobody sees it. And then we're not centralized at all. How do you see that playing out?

Kevin Rooke - 00:45:36:

Yeah, so there's a lot of different ways to measure centralization or decentralization. We can look at at it the app layer. If everyone was using just one wallet, we would call that centralized. If everyone was routing through one node on the network, we would call that centralized. Both are not the case today. In fact, I think one of the most compelling arguments for Lightning being more decentralized is that there are about 20,000 active Lightning nodes today. And that's something that you just don't see or you don't hear about in other crypto projects. There's no push towards running a node in Lightning, and there's a lot of activity happening on these, like, personal servers, this personal server movement kind of taking off. We have people like Umbrel and Start 9 that are building devices, building software so that anyone can kind of like, manage their data from their node. And this is Bitcoin and Lightning, but this could also be file hosting and passwords and photos and things like that. You can do all sorts of things from your own node, which I think is something that people on Lightning, respect and are interested in and are really picking up and something that I haven't seen anyone else, any other projects adopt. You talk to people building other projects outside of the Bitcoin ecosystem and you ask how many people are running nodes? And it's often a very small number of people. And I think at the end of the day, a lot of this technology is really designed to make like the whole point of this stuff is to eliminate middlemen and to have peer to peer money, peer to peer payments, right. Peer to peer activity. How do you do that? If there's someone in the middle? You got to be running a node or something that resembles a node to have this actual peer to peer interaction. And so that's something that I think Lightning does very well. There's obviously room for improvement and I think there's going to be more people that use nodes and onboard and become kind of like self sovereign in the way their data is centered on the Internet. But I think Lightning is probably one of the most decentralized projects in the crypto space today. There is an argument to be made that the liquidity on Lightning is centralizing. Meaning that is kind of like headed towards we're starting to see some large hubs of liquidity appear on the network. I know lnbig has about 900 bitcoin of public capacity spread across, I think, 26 of their nodes. We have Bitfinex has about 800 bitcoin of liquidity spread across two of their nodes. And then I believe the next one, next largest would be river, about 250 bitcoin cracking with just under 200 bitcoin on their nodes. And so collectively, when you look at just exchanges, so excluding LNBig just exchanges right now it's about 36% to 37% of the Lightning liquidity public capacity that is held on these exchange nodes. So that may be something that over time becomes concerning. If there's 90 plus percent, all of public capacity is being held on these exchange nodes and no one else wants to run in a node, there could be some concerns there. But I think the interesting thing about Lightning is that you always have the option because it's a peer to peer network. You and I can connect on Lightning and we can send payments back and forth without any of the other big nodes even knowing that we have a connection, we don't have to connect to them. We can build like subgraphs in the Lightning Network that just have connections between certain nodes. There's no requirement to use these large routers. So I think that's another bonus that.

Didier Borel - 00:50:04:

Lightning has for sure. Do you have many guests on your show? So what would you say you have learned from your guests?

Kevin Rooke - 00:50:12:

I think one of the biggest things that learned is how many incredibly smart people are building on this technology and how much innovation is happening in the Lightning space. When I first started the show, I first started it because I actually invested in Fountain, and I wanted to try out their platform. They're the podcasting platform, right? So I wanted to experience podcasting. 20 Lightning. Podcasting. I wanted to see the feeling of sending and receiving sats. I started this show, wasn't really sure what I was getting into, and I kind of thought that I'd get through a dozen episodes and I would kind of have spoken to everyone in the Lightning ecosystem and then at that point, maybe branch out into more bitcoin stuff. I don't know. I didn't have much of a plan, but I quickly realized that as I kept going through episode, episode, and episode, I was learning about new people, building new projects. And here I am, like 50, pushing 60 episodes in, and I still haven't talked to all the people in Lightning. It's a much bigger ecosystem than I thought it was, and it's growing faster than ever. It seems like every day if you're on, if you check out Stacker News, you'll find some new project that was announced or some new update that was released. There's a lot of activity happening, a lot of innovation, and I didn't recognize that. I didn't see it a year ago. And I think it's growing so fast that it's only a matter of time before the rest of the crypto ecosystem picks up on the hidden gem of crypto. I think it's Lightning.

Didier Borel - 00:51:53:

Okay, great. Thank you very much. So you also invest in companies that are developing things on Lightning. So what criteria do you use to determine whether you want to make an investment?

Kevin Rooke - 00:52:08:

So I don't have a fact sheet or like a step by step guide or anything. I think at the earliest stages well, actually, let me frame this in a different way, I think because Lightning is this underappreciated, misunderstood network that people tend to overlook, because all the reasons we talked about in this show, people don't quite understand how much value is going through it. It doesn't seem like there's many people building on it, or it didn't last year, at least, I think because there's this underappreciated asset. I looked at that and thought, that's a place where if people are wrong about Lightning, I have an edge. I have upside there. So that's the reason why the companies I've invested in have all been Lightning companies, because I believe this is an underappreciated segment. And so I think already I have a bit of an edge in that regard, and that will go away over time. Maybe it already is starting to go away as people start to appreciate Lightning for what it can do. But I believe that when I was making those investments in the last year or so, I had this edge. And I was looking around at the crypto ecosystem, and I'd see people raising money on 30, 50, 100 million dollar valuations for projects that hadn't launched and maybe had one or two people working on them. And I'm seeing similar projects on Lightning. I was seeing projects raising at like three, five and $7 million valuations. And you can argue about the addressable market size. I think though, that Lightning may prove to be as large or a larger addressable market than what a lot of the other kind of crypto projects are pursuing. So I just looked at all that and I thought, this is the industry that I want to invest in. Then from there, it's been the task of just reaching out to all the teams, figuring out what they're building, trying to get to know the founders. I think all through my investing, the underlying theme here is what we talked about earning bitcoin. And so I've got a particular, like, a tendency towards some of the apps that let you earn bitcoin. Fountain, Stacker News, Mash. And I think they're going to have a lot of success because they let people earn bitcoin because they open up this Lightning economy to more people. So that's what I'm excited about. I think at later stages, it's important to start to understand business models and cash flows and get really in depth into making quantitative predictions on how much revenue this company is going to generate. But at the earliest stages, it's finding out who are the innovators, who are the people that are bringing this industry to life, who are the people that are going to help millions and billions earn bitcoin? And I think it's going to be the teams building the Lightning.

Didier Borel - 00:55:33:

As Tim Draper once said, his most successful VC investments were always the one that fell under the category, other the ones that you couldn't put in a free defined category. Okay, yeah, thank you. I certainly think, well, I agree with you a lot of what you said on Lightning. So we'll see. And like I said to you beforehand, VCs in the past have been shown that they are very bad at predicting total addressable market. And sometimes it's much bigger than they think, and sometimes it's smaller than they think. And certainly I would tend to agree with you that this case will probably be bigger than most people think. Yes, but probably a lot of the great inventions still need to come. But I'm sure they will be coming because, as you say, a lot of great people are here, and that creates a lot of great people are here and there's a lot of big community. In other words, you have a much greater chance of having breakthrough applications when you have a big community as opposed to two people alone in the corner. When you have a lot of people who are involved and a lot of exchange, you have a much greater probability of having something really take off. That's very good.

Kevin Rooke - 00:56:46:

One more final point I think, is just on the addressable market here. I think that I look around today and I don't see anyone talking about Lightning overtaking the fiat financial system. I see a lot of discussion about bitcoin overtaking it as store value or bitcoin replacing gold bitcoin as bitcoin is now, I guess today, maybe 400 billion dollar asset at one point over a trillion dollar asset. It was reasonable for people to start making these predictions and to start looking towards a future where bitcoin is a 10 trillion or 100 trillion dollar asset. I don't think anyone is at the stage yet where they're making predictions about Lightning doing facilitating trillions of dollars of payments per day or a week or per month, whatever it is. I don't think we're at that stage yet. I think people are still looking at this as a very experimental project, and it is, but it's built on bitcoin. And so the natural assumption is, like, if bitcoin does succeed and if Lightning is the scaling solution that we think it is, and I believe it is, then it's natural for this store of value to eventually develop payment properties and be used as a medium of exchange. And so I think, like, it follows that if bitcoin is going to succeed, if Lightning is the right scaling solution, we're going to see a flood of volume of activity happening on Lightning over time. And I think maybe we're just a couple of years before the rest of the world recognizes it. And I think at that point, there's not a whole lot of that arbitrage opportunity may be much smaller than it is today.

Didier Borel - 00:58:46:

Okay.

Didier Borel - 00:58:46:

Thanks very much, Kevin.

Didier Borel - 00:58:48:

So I'll put a link in the show notes to your Medium article, and if people want to contact you, what's the best way for them to hook up with you?

Kevin Rooke - 00:58:56:

Yeah, sure. So the best way you can find me is on my website, Kevin Rooke.com, or on my podcast, The Kevin Rooke Show, and then on Twitter, I'm @kerooke.

Didier Borel - 00:59:10:

Okay. All right, great. Thank you very much. Kevin.

Kevin Rooke - 00:59:14:

Thanks for asking. This is awesome.

Didier Borel - 00:59:17:

If you enjoyed the episode and want to help the podcast, you can do this in several ways. You can share the link up to the episode on social media, whichever social media you are most active on. Also, you can subscribe in your favorite podcast player or watch it on YouTube and click the subscribe button there. You can also contribute directly to the podcast by visiting the website theswissroadtocrypto.com and clicking on the link on the homepage and donating either in sats or on PayPal. Finally, if you want to become an early adopter of the Lightning Network, you can listen to this podcast on a Lightning enabled podcast player. Currently, I am aware of three such podcast players the Breez app, which is also a Lightning wallet, Sphinx, and Fountain app. You will need to have some sats in a Lightning Wallet. Thanks, and don't hesitate to give me your feedback either by email that you'll find on the website theswissroadtocrypto.com or on social media get all the messages.

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Didier Borel - 00:00:06: Welcome to The Swiss Road to Crypto monthly review for the month of August 2022. I'm joined, as usual, by Alex Poltorak, co-founder of Hodling SA and by Mauro Cappiello, co-fo