Bitcoin Lightning: Which industrial applications are there?

The Bitcoin Lightning Network has been designed as a global payments network. In contrast to conventional payment networks, however, Lightning not only involves “messaging”, i.e. the exchange of payment instructions, but also immediate, final bilateral “settlement”. Each payment via the Lightning network is therefore immediately final once it has been successfully completed and cannot be reversed. As already described in previous articles, Lightning’s technical properties make it ideal for micro and nano payments. In combination with an immediate final settlement on a global level, the Lightning network offers exciting use cases around payment processing for all industries. This article addresses important industrial use cases of Lightning. These include machine-to-machine (M2M) payments, power grid optimization, and progressive automation through smart contracts.

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

The importance of Lightning for the industry

The development of Lightning is currently still in its infancy. Nevertheless, more and more companies are entering the network. MicroStrategy is known for its Executive Chairman Michael Saylor and holds over 100,000 Bitcoin. In the summer of 2022, the company announced that it intended to make Lightning software available for industrial applications. A Lightning Research Lab has been set up at MicroStrategy for this purpose. Former board member of Facebook’s Diem (Libra) Association, David Marcus, also founded Lightspark 2022, a company that researches the use of Bitcoin as a means of payment, with a strong focus on Lightning to develop software for business applications.

The breakthrough of Lightning is the interoperability of the different use cases. As an open and distributed payment standard, various platforms and applications can be built, which are all compatible with each other at the payment level. For example, imagine a crowdfunding campaign in which payment processing takes place not only on the platform provider’s website – e.g. B. Kickstarter – but also via a social media post, a private message or even posters and flyers. And without the backer ever having to visit the Kickstarter website. In the same way, consumer applications are interoperable with the industrial applications via the Lightning network and can work together seamlessly.

Bitcoin Lightning: Use Cases for Industry

One of the most exciting properties of Lightning is the economics of nano payments, i.e. payments that can be arbitrarily small – for example in the sub-cent range. This possibility of nano-payments not only enables companies to create new business models, but above all to optimize existing business models.

In many industries, high costs arise due to downstream payment processing and financial intermediaries. Companies sometimes have to make advance payments for months or even quarters before the delivered goods or services are actually paid for. Thanks to the economics of nano-payments over the Lightning network, deliveries and payment flows can theoretically take place simultaneously. Financial inefficiencies can be massively reduced as a result. Selected use cases for industry are described in detail below.

Machine-to-machine payments

In addition to payments triggered manually by people, machines can also trigger a payment with final settlement due to the programmability of payments via Lightning. These payments can also be sent directly to other machines. When we talk about M2M payments today, we should actually be talking about M2M accounting. As a rule, machines do not have their own “accounts”, these usually run through the owners of the machines. However, the machine may be authorized to make certain payments. Thanks to the economics of nano payments via Lightning, machines can theoretically send or receive a payment with every action.

An example: You could charge your e-car at any charging station, pay for the charge via Lightning and continue driving anonymously. No registration or know-your-customer processes or human interaction would be necessary for this.

Such a process is not easy to carry out today, but will become more and more relevant with future applications such as self-driving cars or robotics. A self-driving car should work best as an autonomous taxi, which ideally can be used and paid for by the minute. In addition, the cash flows can be divided and forwarded fully automatically via Lightning. For example, the owner of an e-car charging station can forward the incoming payments per kilowatt hour directly to the lessor of the property, the electricity supplier or the maintenance company and only retain their own margin.

Power Grid Optimization

Today, the energy market in particular is plagued by financial inefficiencies. Payments are currently “flowing” for the consumption of e.g. Electricity, for example, is much slower than electricity itself. Electricity producers, traders and network operators pay in advance for months until they receive a bundled payment for the electricity from the consumer. Although electricity prices can vary widely across time and space, energy companies need to mix price calculations and hedge against the associated risk of volatility. Currently it is only possible in a few cases to pass on the short-term price fluctuations to the consumer.

In the US, for example 10 percent of the energy price to the problem of financial inefficiency be assigned. These additional costs are caused, among other things, by intermediaries in payment processing, increased administrative costs for billing and risk management. These costs can be significantly reduced if energy and money flow at the same speed and payments can be automatically forwarded to all participants in the value chain immediately. M2M payments also come into play here. Because most households already have a smart meter, which could also carry out automated payments per electricity unit.

Hyper-Automation and Smart Contracts

Thanks to the easy programmability of Bitcoin Lightning payments, companies can also extend their process automation to payment flows. In this way, they could not only relieve the staff in accounting through automation, but also reduce the susceptibility to errors. if e.g. If, for example, an ERP system were connected directly to the Lightning network, almost completely automated payments could be sent to all service providers, suppliers and partners, and incoming payments from customers could be booked directly in the system.

A nice side effect: there is a complete documentation of all incoming and outgoing payments directly in your own cloud/IT environment, without the company still needing an intermediary for payment processing. Because Bitcoin and the Lightning network make the vertical integration of financial services possible for the first time. Businesses can be their own bank, making them more independent and efficient.

Cross-Border Payments

Due to its high efficiency, the Lightning network can also be used for cross-border payments by companies, thereby addressing friction. Today we are seeing increasing interest from financial institutions in wanting to use Lightning to settle dollars or any other currency internationally with other financial institutions and service platforms around the world. Due to the volatility of Bitcoin, the payment received is exchanged directly into the local currency or the risk is hedged using contracts.

Conclusion

The Bitcoin megatrend, especially in combination with the Lightning network, has enormous disruptive potential for almost all industries. Cash flows form an elementary part of all business models. As they change in cost, size, speed, reach and participants, companies’ strategy must adapt.

Due to the diversity of industrial use cases, an initial ecosystem of special advice has already developed, which helps companies to use the potential of Bitcoin and Lightning in particular.

As part of this article, we showed that Lightning can be a promising solution for use cases such as machine-to-machine payments or cross-border payments. In the next article we will address use cases of the Bitcoin Lightning network for private end users.

About the authors

Martin Betz is Managing Director of Consulting Bitcoin. The management consultancy has specialized in the creation of company-specific strategy positions on the Bitcoin megatrend and the development of new Bitcoin-based business models. In addition to the Bitcoin effect, he is also a co-founder of the German-language Nodesignal podcast.

Daniel Wingen has been studying blockchains and cryptocurrencies since 2015. In 2019 he organized the Value of Bitcoin Conference in Munich together with the Bayerische Landesbank. He is currently the Director of Business Development at Galoy Inc., an open source enterprise software for Lightning. He is also program director for the Industry Day of the largest German-speaking Bitcoin conference in Innsbruck and co-founder of the Bitcoin grassroots movement EINUNDZWANZIG.

Daniel Wingen and Martin Betz run a German-language podcast about Bitcoin in the corporate environment. “The Bitcoin Effect” is available on all major podcast apps and on YouTube.

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 chairs the Digital Euro Association (DEA), co-hosts the podcast “Bitcoin, Fiat, & Rock’n’Roll” and is a member of the Expert Panel of the European Blockchain Observatory and Forum.

This article does not constitute financial advice, advertising or anything similar.