Bitcoin's Lightning Network Replacing Credit Cards
frens, some truly incredible developments are happening in the crypto space right now. I feel we may finally be at that pivotal moment in adoption.
Strike Partners with NCR, Shopify, & BlackHawk
A few days ago, news broke that Strike is bringing Bitcoin to payment systems all over the world. Through its partnership with these major payment processing companies, Strike plans to introduce Bitcoin's network as a payment rail to replace credit/debit cards. You might be thinking.. But Phill, Bitcoin is slow and transaction fees are expensive. You're correct. Bitcoin is the OG cryptocurrency that's evolved from a peer to peer digital cash system to more of a store of value.
We're not talking about walking into Starbucks and paying for your overpriced coffee with BTC and waiting in line for 10 minutes while the transaction confirms. We're talking about using Bitcoin's blockchain via Lightning Network to process the payment between the customer and the business. With Cash App's integration of the Lightning Network, this is made possible for literally anyone.
Lightning Network as a Payment Rail
As a consumer, you may not realize that when you swipe your credit or debit card... A ton of things happen in the background. The first thing that happens is that card number is read and stored. Then you enter your PIN or ZIP code and that is also stored. Once those things happen, the payment processor settles your transaction and charges the business a 3% fee. This all happens in a matter of seconds and you don't even know it happens. This is the illusion that the payment processor wants to hold up. Not only have you exposed your card number, but you've also exposed yourself to a number of other security concerns. Say the person processing your payment copies that number. Months down the line, you start noticing charges on your card. Not a great experience and it can easily be avoided now.
This integration does a number of amazing things in a matter of seconds. Let's say you have $5 in your Cash App. You go Starbucks for your overpriced coffee, open Cash App and scan the QR code on the payment terminal. Instantly, the transaction is settled and you haven't done anything more than pull out your phone. What happens in the background is that $4.50 is converted to BTC and sent instantly over the Lightning Network to the merchant. The merchant chooses whether they want to receive BTC or USD.
Wanna pay with BTC? Cool. You can and the merchant can receive whatever currency they please. What this does for the business is enables them to accept many different currencies via the Bitcoin Lightning Network without ever touching the BTC cryptocurrency if they choose not to. They also don't pay that 3% fee on ach transaction because there's no payment processor involved taking a cut. For businesses, this is huge.
But Phill, I don't care about the business having to pay 3% fee. How do I benefit from this? Well, in a number of ways. Firstly, your privacy is protected. You don't expose your credit card to potentially malicious actors. You also don't have your purchases tracked by a bank. Wanna use a VPN and Tor network to be completely anonymous when you're buying your overpriced coffee? Now you can. Wanna spend BTC in thousands of merchants instantly and free? Now you can and the merchant doesn't have to deal with a payment processor.
Maybe you're travelling internationally and only have BTC or USD in your Cash App? No worries. You can still use the same method to pay and the merchant will receive whatever local currency they choose. It really makes things easy for the business and the consumer.
When we talk about mainstream adoption, often times this is what we're referring to without realizing it. The merchant doesn't have to actually accept BTC as a currency if they don't want to. They make that decision without excluding the consumer that wants to spend their BTC. See what I mean? You'll be able to do this at thousands of different merchants around the world very soon.
Check out the full presentation by Jack Mallers at Bitcoin 2022.
Thanks for reading! Much love.
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so, you started off talking about strike. then switched to cash app with with no transition. typo?
Oops! Strike is integrated into cash app to enable payments over lightning network.
Yeah they’re taking an abundant approach to changing the financial world.
If traditional finance did that, we wouldn’t even need companies like Strike. He found a market need and is doing an amazing job of delivering It
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Absolutely. This is exactly how we can change the financial system.
oh ok
Most people miss this.. including me!
The savings that merchants will have on CC fees by using lightning network is massive. Passing that on to consumers is 100% possible through lower prices and/or some form of crypto incentive. I’m super bullish on this
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Exactly! The small scale thinking is... Well, how does it benefit the consumer? You hit the nail on the head. Potentially lower prices, discounts, and much more.
Crypto is going to radically alter all facets of financial world. There is a lot taking place. I am not sure Bitcoin ends up as the payment mechanism but we are going to see a lot of differences.
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Oh yeah, this is just a big step in that direction. Eliminate the need for the traditional system and there could be a revolution
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Well I am very optimistic about technology and the chances to success. The traditional financial system is primed for disruption. However, we see there is a lot more layers than just payments. In fact that is a small piece of the pie.
Personally I think there are challenges with Lightning network and Bitcoin as payment system. People focus upon the fees. What about Bitcoin's volatility? How would you like to suffer a 10% drop in your payments overnight when you were sleeping.
Bitcoin can easily do that. It kind of makes the fees look minimal.
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The volatility only matters if you're using BTC the crypto as the payment method. If you're paying with USD and using the Bitcoin Lightning Network for payments, volatility doesn't matter.
I think that's what I'm more interested in. Not necessarily using BTC as a currency, but using the network to process payments.
In theory, we could send HBD over Lightning Network too. So if there was enough HBD out there, we could pay for our overpriced coffee at starbucks via HBD with this integration.
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Ah okay. I see what you are saying. Yes that is true if the BTC is converted to USD and dropped in the merchants account. I dont follow it closely enough to comment on that.
However, I always wonder when they will go after BTC lightning node operators for being money transmitters without a license.
Miners of Bitcoin and Lightning are completely different and I can see a day when the regulators get a hair up their you know what about that.
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I guess that's where it gets tricky. I have no idea what falls under the money transmitter licenses.
Supposedly, Strike is working closely with regulators on this but you know, the tax man always wants his cut.
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Well we know the node operators will say no. The alphabet government agencies, I have a feeling they will have a different view of things.
I think the Beatles made a statement about that at some point. LOL
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