The use case of bitcoin as digital gold is more than a decade old. As a payments network, it has gained a lot of traction after the Lightning Network took off in 2021. What if this near-instant and cheap payment technology could be combined with… stablecoins? We all know that other networks have large amounts of stablecoins as we discussed here, but often the conversation misses out on Bitcoin, and this is what could bring Bitcoin to the masses. Currently, there are two projects working on bringing stablecoins on Lightning Network and in this article we’ll tell you more about both!
Why do we Need Fast & Cheap Electronic Payments with Lightning?
Well, in many places in the world people don’t have access to digital banking services. Cash is king. Sure, the big international retail chains accept credit cards everywhere, but these transactions come with a hefty fee.
So Lightning transactions are a godsend to every underbanked person on earth with a mobile phone. Especially since borders don’t exist on this network. Globally, some 800 million people are financially dependent on the 200 million family members who work abroad and send money home. The fees of the legacy system are crippling.
The State of the Lightning network
Lightning has grown explosively in 2021. The payment volume has quadrupled year-over-year. In spring 2022, an estimated 80 million people worldwide had access to Lightning payments. And they did not only use Lightning for sending bitcoin. Payment apps like Strike and Chivo are already accomplishing sending dollars through Lightning.
But are they, really? Here’s how they operate. Users in, for example El Salvador, can choose to receive their payment in either dollars or bitcoin. Let’s say they choose to receive dollars. What the app does in the background, is:
- Swap dollars for bitcoin.
- Send the bitcoin over Lightning.
- Convert the bitcoin back to dollars at the point of arrival.
It is of course nice that apps like Strike or El Salvador’s Chivo app have ‘bitcoinized’ the dollar (or should we say ‘enlightened’ the dollar). And the payments work fine. But as a user, you still rely on companies and their stash of dollars. That’s not the spirit of crypto.
Also, depending on which country you live in, you might not have access to these apps.
Fast & Cheap Stablecoin Payments: Bitcoin’s Killer App?
Enter: stablecoins on Lightning.
Whenever stablecoins will be ready to be sent ‘on top of’ Lightning, users won’t have to trust the builder of the app managing their dollar reserves properly. Not only will users benefit from Lightning’s speed and low cost (in comparison, sending stablecoins on Ethereum comes with a hefty price tag). They will also benefit from the reliability of an on-chain asset that is a stablecoin. It’s a much cleaner and more transparent process than swapping greenbacks at the entry and exit point of transactions.
But let’s not get too high on the hopium bong yet.
Stablecoins on Lightning are not here yet, by any stretch. Although, two companies are currently working on this:
- Lightning Labs – Taro: The first is Lightning Labs. Its protocol will be called Taro. It is made possible by bitcoin’s recent Taproot upgrade. To be clear, Taro is not a stablecoin but a technology for sending stablecoins. To fund the project, Lightning Labs has raised $70…
Erik started as a freelance writer around the time Satoshi was brewing on the whitepaper.
As a crypto investor, he is class of 2020. More of a holder than a trader, but never shy to experiment with new protocols.
