TL;DR
Lightning Labs has launched a new set of developer tools to support AI apps to pay for online services using Bitcoin’s Lightning network. It is a step towards autonomous AI’s. The tool uses a status code that was included in the http protocol decades ago, but never used: ‘payment required’. There are a lot of reasons why this AI-crypto marriage might gather steam in the coming months and years. And indeed, this might pump our bags. Let’s have a look at why.

Did you know that AI bots have already been paying humans to access certain applications? The role that we humans were reduced to was ticking the box ‘I am human’ in web forms that the AI needed to pass. How ironic.

Now, I don’t know if this story is true – it’s one I chose not to fact-check. But in any case, the story won’t be true much longer. Humans will be pushed to the edges in AI task flow and payment flow. For the latter, we have of course crypto. Who needs an Earthling with a JP Morgan account now that we have permissionless payment rails? Blockchain technology makes cumbersome ask-the-human workarounds unnecessary. Permissionless, digital-native money such as Bitcoin allows for transactions between machines, humans, and machines and humans. It’s the intuitive choice of money for AI agents to use.

But forget about the machines for a second. Also, we as humans would in many cases prefer paying ChatGPT-4 not a fixed monthly fee, but small sums for specific tasks. Not to mention that a credit card is not even accessible to billions of people, whereas nearly all of the popular LLM platforms require credit card information in order for users to access their premium models. So, it’s not just AI’s that face a hurdle to access certain services on the web. 

Currently, accessing AI feels like a weird blend of being stuck in the past (1950s-style plastic credit cards) and the future. Like ordering a quantum computer with gold coins.

Reasons Why AI and Crypto Are a Good Match

Payment in crypto (we’ll get into which coin would be preferred by AI’s in a second) would make sense for a few reasons. We already mentioned the permissionless aspect of crypto: an AI doesn’t need a human’s permission or intermediation to do its payments.

Second, the commodity that AI deals with lives on the internet. Data are the new gold to be mined. LLM models are extremely data-hungry and scrape websites. In response to these scouring bots, Twitter has already capped the number of tweets that can be accessed per account per day. It doesn’t want to serve as a well of free ‘training fuel’ for LLM models.

Data have value and so it only makes sense that Large Language Models like ChatGPT will at some point be requested to pay for the data they consume. Arguably, in a digital-native currency that trades outside business hours!

Another reason why especially Bitcoin/Lightning is uniquely well-suited to working with AI: you can’t pay 5 cents with a Paypal account but you can do microtransactions with Lightning. We touched on this above: why charge monthly payments if you can pay in a fine-grained manner?

Also, Lyn Alden in one of her investor letters gives a solid reason for why crypto is a better payment system than conventional ones – besides the already mentioned permissionless aspect – namely no chargebacks:

“If an API is left open to be paid via conventional means (e.g. credit cards), then the merchant opens itself up as a target for fraud. A user could spam the GPUs with thousands of uses, and then perform chargebacks on their payments. […] Lightning on the other hand is a method of bearer asset final settlement.”

Lightning transactions result in proof of payment after the transaction. The transaction is final.

The Tools Released by Lightning Labs

Now we’ve talked about the reasons why it makes sense to integrate AI and crypto, let’s look at a recent development in the Bitcoin/AI space.

Lightning Labs (Bitcoin’s Lightning Network infrastructure provider) announced in the first week of July 2023 a new set of developer tools to support the emerging bitcoin+AI marriage.

The tools they built are on the so-called L402 protocol, a Lightning native authentication mechanism, and Langchain, a library to simplify working with AI agents by adding external data to allow for more advanced functionality.

The tools will make it easier to build AI agents that can hold and spend BTC involved in completing tasks. Essentially, they give AI’s a Lightning Wallet. Lightning Labs’ CTO Olaoluwa Osuntokun explains in a thread In 2023, the bots pay you! how the protocol works.

Also, check out this Fedi developer sharing a clip where he has GPT-4 write code for him, and pays a cent per question answered using Lightning.

It’s by the way remarkable how robustly designed the http protocol was. The creators, decades ago, already reserved a status response code for native online payments. (We all are familiar with the codes 404, page not found, and 500: internal server error). The 402 code, meant at the time for future use, is the ‘Payments Required’ status code.

‘The HTTP 402 Payment Required is a nonstandard response status code that is reserved for future use. This status code was created to enable digital cash or (micro) payment systems and would indicate that the requested content is not available until the client makes a payment.’

Some Use Cases

The new Bitcoin Lightning tool for AI’s, L402, is named after this status code. L402 supports the use case of charging for services and authenticating users in distributed networks. As an example, the creators give the following:

‘As an example, an [AI] agent can deploy a containerized version of itself to the cloud via an L402 AWS API gateway, then purchase GPU hours to train a more powerful version of itself.’

Wow. And there are countless examples of online and real-world use cases of AI’s paying with crypto.

• AI’s paying other AI’s that are specialized in certain data analysis.
• AI’s paying for cloud storage.
• AI’s paying for advertising campaigns.
• A real-world example would be a self-driving car paying an app in BTC for parking space: not so far-fetched.

What Will Be AI’s Currency of Choice?

So now that we’ve seen that AI’s will be able to use Lightning, it is worth wondering if they will. What will be AI’s crypto currency of choice? In a recent essay, Arthur Hayes argues that Bitcoin will be it. 

One peculiar reason Hayes drums up is that ‘an AI will need to transact in a currency that preserves its energy purchasing power over long periods of time’.  As Bitcoin is an ‘energy derivative’ – after all, it is secured by proof-of-work – it fits the bill, according to Hayes. A bit like how the US dollar is backed by oil and keeps its purchasing power in oil – in the same way an AI bot would need to be reassured that by hodling BTC, it would keep its energy purchasing power. But couldn’t ETH become the AI’s currency of choice? Not according to Hayes, as only BTC is pure money: it doesn’t derive its value from other utility than just being money. 

I suppose the AI’s can have endless discussions amongst themselves, in the same way that we humans have had in the past decade. I think that the Bitcoin and Ethereum network will both be in heavy demand by AI’s – and their respective L2’s. I would say that what matters most to an AI is liquidity, near-instant settlement, and the option to do micropayments. It just makes sense that for that reason both BTC and ETH on their L2’s fit the bill.

Conclusion: Will This Super Narrative Pump Our Bags?

Yes, provided that the narrative catches on – the narrative that AI’s will use BTC or other coins. In that case, the AI narrative and the crypto narrative will merge, into a sort of super narrative. Both have to do with capital fleeing an old financial system or old economy and boarding a new system/economy. 

Narrative is one powerful drug – and the price action often front runs the events playing out or not. But imagine that AI’s will actually start using BTC in large numbers. That would drive up the price not just by narrative but also simply by demand.

Granted, this is all quite the shot of hopium – but now that AI is here to stay, and the applications connect BTC and AI are actually here – no longer just hopium.