When it comes to cryptocurrencies, Cody Ellingham is a self-avowed Bitcoin maximalist.
The Wellington-based design and business strategist and host of the Bitcoin-focussed podcast The Transformation of Value, sees Bitcoin and the Lightning Network second layer protocol built on top of Bitcoin and allowing instantaneous payments anywhere in the world, as the most promising alternative to bank-dominated financial services.
“Anything that's not Bitcoin is basically a distraction, or a scam,” he says.
“Ethereum, for instance, is highly centralised. It's proof of stake so there's nothing backing it. It's like the rich get richer, whereas with Bitcoin, you have to do the work,” he adds.
After a tumultuous year for the crypto sector, and with the New York trial of Sam Bankman Fried currently playing out and reminding the world of its failings, Bitcoin is in the midst of a revival.
The price of bitcoin (US$34,364) is up over 100% since the start of the year. The recent rally is largely on the back of rumours that the world’s biggest asset manager, Blackrock, is about to have its planned exchange traded fund (EFT) approved for launch.
Cheaper, faster, more secure
That would be a major step towards mainstream adoption of Bitcoin as an investment category. Meanwhile, Ellingham and a handful of Bitcoin enthusiasts are chipping away on projects aimed at spurring Bitcoin’s adoption for cheaper, faster and more secure financial payments.
The Lightning Network helps overcome Bitcoin’s scalability problem, which stems from the network’s limited ability to handle large volumes of transactions in a short period of time. The Lightning Network offers a type of transaction layer allowing micro-payments to take place instantly, with occasional settlement on the Bitcoin blockchain - similar to how banks settle transactions regularly through the day via the interbank transfer network.
“You can think of Bitcoin like a settlement layer,” Ellingham explains.
“So instead of having every coffee on the Bitcoin blockchain for eternity, we can just have the sum of our transactions.”
“That's actually a lot more efficient.”
The Bitcoin blockchain is where all transactions are ultimately recorded, and where disputes can be sorted out.
“It’s this super robust base network of money transfer ledgers that everyone can see and agree that something happened,” says Ellingham.
Piloting new lightning-based services
In many respects, the Lightning Network is a bit like how Eftpos debuted a much faster and more convenient way of paying for things in the late 1980s. Employing the lightning Network, transaction fees are much lower than credit card and bank transfers. So why hasn’t it overtaken traditional means of payment yet?
The same question could be asked about Bitcoin in general, which more than a decade after it appeared still isn’t used as a means of exchange for everyday purchases. Ellingham says interest in Bitcoin is still low because our financial system is trusted and works - albeit with the banks collecting big fees from us. Consumers in other countries don’t have the same luxury and have turned to Bitcoin to a greater degree as a result.
“Eftpos and Paywave kind of suck and are expensive. But the money still goes through, so we haven’t really got this incentive to change,” he says.
“If you go to Argentina, South Africa, Greece or El Salvador, countries that have had a financial crisis, yeah, they understand the value of sound money.”
“The next best thing they can do is US dollars. But the problem with that is it can be inflated away, and more dollars can be printed. In the current monetary system, who knows where the trillions came from?”
Anyone can set up a node on the Lightning Network, and Kiwi developers are employing it to pilot new payment services.
They include:
⚡ Lightning Pay
Queenstown-based web developer Rob Clarkson launched Lightning Pay around six months ago as an easy way for New Zealand merchants to accept bitcoin, and for customers to buy and use bitcoin via the Lightning Pay app.
Users will be able to purchase bitcoin with NZD from their bank account while merchants can accept bitcoin payments without having to actually handle the cryptocurrency themselves.
“We've simplified cryptocurrency for everyday use, allowing you to reap the benefits without the volatility and tax implications. We're here to make your business more profitable, more versatile, and ready for the future of transactions,” is the pitch on Lightning Pay’s website. Clarkson is working on enabling contactless payments over the Lightning Network.
Ellingham showed me a demo of a similar payment system that uses a Bolt bitcoin debit card and the Wallet of Satoshi, a custodial digital wallet for Bitcoin users. He just tapped the bolt card against his phone to transfer a handful of satoshis (tiny fractions of a bitcoin) to the merchant app.
The system could be used to bypass the expensive fees credit card companies charge to allow credit and debit transactions via contactless payments. Lightning Pay charges a 1% transaction fee.
“Say goodbye to high merchant fees and chargeback risks. Enjoy the simplicity of next-day NZD settlements and welcome the opportunity to tap into a global customer base,” Lightning Pay promises.
“At the moment, if I’m a merchant and I get paid in Bitcoin,I have to either hold it or liquidate it, if I want to move it on,” says Ellingham.
But Lightning Pay is really about making it cheaper and easier than Visa or MasterCard, but the merchant receives bitcoin at point of sale, and gets dollars straightaway.”
⚡ Kāri Koha
James Scaur, a Christchurch-based software engineer, is taking a different approach with Kāri Koha, which offers gift cards and vouchers to make using Bitcoin as easy for anyone as buying a phone top-up.
“With Kāri Koha’s gift card service you can buy New Zealand prepaid phone credit, supermarket and petrol refills, iTunes and Google Play vouchers, movie tickets and more,” the website claims.
Bitcoin gift cards and voucher systems that make it easy to pay for everyday items are common overseas, but aren’t easily accessible for New Zealand services yet. Kāri Koha also has a full “100% reo Māori interface” available to users pointing to a key target market - Māori users who may not have access to credit cards.
Bitcoin-based crowd-funding
Ellingham is running his own experiment with Bitcoin as a means of receiving payments from listeners of his weekly podcast, The Transformation of Value, which features experts on Bitcoin, blockchain and decentralised financial systems.
Via the Fountain podcasting app, listeners can send micro payments in satoshis to Ellingham to pay him for his efforts. He also belongs to Bitcoin news forums where contributors earn satoshis for the posts they create, rewarding their efforts for contributing to the community.
Ultimately, says Ellingham, these types of services will disrupt the payments landscape - but we are in the early days of the Lightning Network’s development.
“How many millions of dollars are wasted just chasing people for payment? Lightning can handle that, anything that requires a payment can be disrupted.”
“We are still so early in this way of doing things. I see a situation where maybe there’s a Kiwibank Lightning wallet, it's self-custodial, but they help you get started. They are a service provider, but they are not lending your money out.
He sees the Lightning Network as future financial infrastructure that companies will increasingly adopt as they see the value it offers.
“It’s a bit like internet infrastructure. Not everyone needs to be building cables under the ocean, but what we need is the Amazons and the other companies on the ends of that cable.”