5 ways you can use Lightning

After the first parts of the series of articles dealt with the basics of the Lightning network and industrial use cases of Bitcoin Lightning, this article addresses retail use cases for private end users. The focus is on use cases related to payments in retail, hospitality, e-commerce, as well as donations, cross-border payments and streaming payments. Financial inclusion also plays a role.

The advantages of payments via the Lightning network are primarily the high transaction speed, the direct confirmation and processing of payments, and marginal transaction fees (see Article 1). Since transactions do not go through the Bitcoin blockchain, Lightning is not only inexpensive, but also scalable. As a result, applications with small amounts (“nano-payments”) and a large number of transactions can be mapped in a technically efficient manner. In principle, users can finally transfer values ​​around the clock via the Lightning network, completely independently of banks and other intermediaries. In the following we present some of these applications as examples.

This is part five of our Lightning series of articles. This is the way to the first, second, third and fourth part of the series.

1. Retail and hospitality payments

Payment methods used in retail and hospitality must process a large number of transactions quickly and reliably at peak times – scalable payments are essential here. Payments via the Lightning network meet these requirements and, in conjunction with low transaction fees, ensure that payments with Bitcoin are increasingly in demand from retailers, restaurateurs and end customers.

This means that it is already technically possible to pay for both your morning coffee and lunch at your favorite Italian restaurant efficiently and inexpensively for retailers and customers using Lightning. However, the counterparty must also offer Lightning payments. This is not yet the case across the board. Nevertheless, news show, for example, around the Introduction of Lightning payments in the CashApp with over 40 million active users and the Lightning payments accepted in all stores of the second largest South African retailer PicknPaythat the acceptance of Lightning payments is developing dynamically.

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2. E-Commerce Payments

The payment process of online shops is now optimized to motivate customers to make a purchase. Available payment methods play an important role. Online shops are therefore very interested in offering a wide range of payment alternatives. Paying with Bitcoin appeals to new – typically younger – customer groups who already own Bitcoin today. Lightning payments are particularly noteworthy because they already offer a comparable user experience to common payment methods (e.g. credit cards).

In addition to the user experience, immediate payment confirmation is also an essential means of minimizing risk for merchants. Payments with fast payment confirmation reduce counterparty risk, ultimately resulting in low costs for the merchant and typically for the customer as well.

In addition to classic e-commerce payments, some websites (e.g substack) a Lightning paywall. This gives manufacturers the opportunity to provide access to their content in exchange for a Bitcoin Lightning payment. Such websites benefit from the monetization option from a growing number of manufacturers who want to publish content on the website. The growing supply of content, in turn, leads to more traffic being directed to the website, which can be monetized.

3. Donation Payments and Cross-Border Payments

The first international aid organizations see the acceptance of Lightning payments as an opportunity to collect donations quickly and efficiently. Lightning is used today by, among others UNICEF, SOS Children’s Village Liechtenstein and Child’s Dream Used to collect online donations.

In addition to the option of raising donations, Lightning also offers the possibility of sending funds to distant regions or crisis areas directly and around the clock. Thus, Lightning has the potential to be used on a large scale for cross-border payments in the future. According to the World Bank cross-border payments average 6 percent of the transaction amount. In addition, the payment process typically takes several days. Transactions via Lightning, on the other hand, can be made in real time almost for free.

4. Financial inclusion

Bitcoin and the Lightning Network are open systems that anyone with a smartphone and wallet (see Article 2) can participate in. Entry hurdles due to complex know-your-customer processes (“KYC”) do not exist. projects like Bitcoin Beach in El Salvador or Bitcoin Ekasi in South Africa use Bitcoin to empower socially disadvantaged people locally and to provide access to an independent financial system.

5. Streaming Payment Applications

Another Lightning use case is streaming payments. This refers to payments that are not processed once, but on a recurring basis, for example during use. This includes payments for music or video usage, measured by “Consumption”. This is in contrast to monthly flat rates such as a Netflix, Apple Music or Kindle subscription. Under the keyword “Podcasting 2.0”, Lightning payments can already be used today to support podcasts. For example, you can make value-for-value micro-payments per minute listened to while listening to a podcast. This is possible because you can efficiently make micropayments via Lightning, which is not possible with today’s payment methods.

The future with Bitcoin Lightning

The Bitcoin network is continuously being developed to enable new functionalities and applications. The project “RGB” from Pandora Core wants to enable scalable smart contracts for Bitcoin and Lightning. A bitcoin-based smart contract functionality enables decentralized financial applications. Lightning can thus be used to develop a wide range of financial services based on Bitcoin. The project “taro” from Lightning Labs is working on tokenizing digital goods on the Bitcoin blockchain, which can then be transferred via the Lightning network. For example, stablecoins – such as a digital euro on the blockchain – could be transferred as a digital good via Lightning in the future. Here, senders and recipients can benefit from the stability of the familiar (fiat) currency, the security of the Bitcoin network, as well as immediate settlement and low transaction fees from Lightning. In this case, rapid adoption for payment applications would be expected.

Conclusion

Payments via the Lightning network today offer inexpensive payments that can be sent anywhere in the world within milliseconds. They therefore provide everyday added value. The use of the Lightning network differs regionally. While the Lightning network is already being used intensively in some countries for transfers to third countries (e.g. cross-border payments), in Europe Lightning is only gradually finding its way into the daily payment process in shops or in online trade.

Adoption today takes place in two ways. On the one hand, innovative companies recognize the potential of the technology and offer their customers Lightning payments without a middleman based on freely available open source solutions. On the other hand, there are professional payment processors (so-called acquirers, such as Worldline Global) who already fully integrate payment with Lightning as a payment method for their merchants.

We assume that the adoption of the Lightning network will continue to increase in the coming years, as soon as the added value and application possibilities become aware of a broad population. At the same time, we expect – similar to the development of the Internet – that the technical complexity will be completely abstracted and the barriers to entry will be broken down through intuitive UX design.

About the authors

Denis Scheller is Senior Manager Bitcoin Suisse Pay at Bitcoin Suisse. Denis has a degree in international business administration from the Duale Hochschule Mannheim (Germany) and has been working in payment transactions and e-commerce for many years. At Bitcoin Suisse Pay, Denis helps build a crypto payment infrastructure. He is interested in macroeconomics and how Bitcoin and Lightning technology can enable a more just society.

dr Jonas Groß is Head of Digital Assets and Currencies at etonec GmbH. Jonas holds a PhD in Economics from the University of Bayreuth and his main areas of interest are digital central bank currencies, stablecoins, cryptocurrencies and monetary policy. In addition, Jonas is Chair of the Digital Euro Association (DEA), co-host of the podcast “Bitcoin, Fiat, & Rock’n’Roll” and member of the Expert Panel of the European Blockchain Observatory and Forum.

Jonathan Knoll is the founder and managing director of etonec GmbH. He has more than 25 years of experience in the payment, banking and blockchain industry and has worked for innovative companies such as Sun Microsystems, PayPal/eBay and Libra/Diem, where he was Head of Strategic Partnerships. At etonec he looks forward to developing solutions at the interface of crypto, payments and banking as well as regulation.

Yannic Fraebel is the managing director of App-Learning GmbH. He did his master’s degree in business informatics at the University of Applied Sciences in Munich. His focus is in the areas of Bitcoin, cybersecurity and economics. Yannic is also an advisor at Blockchain Founders Group AG (BFG) and a former mentor of the DeFi Talents Program.

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