Danny Scott, CEO & Founder of CoinCorner, discusses how Bitcoin can be used as a payment infrastructure, highlighting both its challenges and benefits.
Bitcoin, introduced by Satoshi Nakamoto in 2009, was designed as a peer-to-peer (P2P) electronic cash system. Its primary goal was to allow anybody in the world to send money to anyone while removing the middleman, in a completely trustless manner.
As the world's first digital currency, Bitcoin has since evolved from an experimental project to a recognised global financial asset, even attracting attention from major financial institutions like BlackRock, the world’s largest asset manager, with over USD 10 trillion of assets under management (AUM).
The first commercial Bitcoin transaction occurred on 22nd May 2010, when an early Bitcoin adopter named Laszlo Hanyecz paid 10,000 BTC for two large Papa John's pizzas. At the time, 10,000 Bitcoins were worth about USD 41, but today, it is worth hundreds of millions of dollars. Now celebrated as ‘Bitcoin Pizza Day’, this was a historical moment for Bitcoin, showing the potential capabilities of global commerce using Bitcoin. Since then, thousands of merchants, both large and small, have started accepting Bitcoin as a form of payment.
However, as the adoption of Bitcoin payments grew, the underlying infrastructure began facing significant challenges. While Bitcoin excelled as a store of value, its limitations as a payments infrastructure soon became apparent.
The Bitcoin blockchain, designed with a 1MB block size, could only handle around 7 transactions per second. In contrast, traditional payment systems like Visa process thousands of transactions per second. This scaling issue led to high transaction fees and slower processing times, hindering Bitcoin’s usability for daily payments.
To address the scaling issue, the Bitcoin community introduced the Lightning Network, which could facilitate faster and cheaper transactions on top of the Bitcoin network.
In 2017, Bitcoin's first layer 2 solution, the ‘Lightning Network’ made its first transaction. This was the next innovation for scaling Bitcoin payments, allowing almost instantaneous transactions at fractions of a penny cost per transaction.
Today, there are over 12,000 Lightning nodes (people running the Lightning software on top of Bitcoin) with more than USD 300 million in capacity available (the amount of Bitcoin held in the Lightning nodes available to transfer around the world instantaneously).
Despite its advantages, the Lightning Network has faced criticism regarding its scalability for global, non-custodial use, as it still requires Bitcoin to scale for opening a channel (a Bitcoin transaction to add your node to the Lightning network).
However, we are seeing ongoing improvements on both Bitcoin and Lightning, such as the development of additional layer 2 solutions like Ark, which is aimed at enhancing scalability. As with any emerging technology, similarly to what we saw with the Internet, it scales in layers and technological improvements over years, if not decades.
What we have seen over the last few years is the Bitcoin Lightning Network potentially becoming more of a settlement layer between companies around the world - similar to something like SWIFT that banks use to send global payments, but in an open and permissionless, much cheaper and much faster network.
Improvements have been made to the Lightning Network to allow for a communication layer between companies all around the world. This allows the companies to send and receive payments without ever needing to communicate with one another, putting the power back in their hands and removing control from a central entity, e.g. a bank, that could prevent them from joining their network.
An example of this could be a company in Spain sending a Bitcoin payment to a company in the UK. This could be done instantly, without ever needing to communicate with one another, nor having a central entity like SWIFT blocking the payment. They could use a Lightning Address, which is a simple way of sending and receiving Bitcoin between companies. A Lightning Address looks like an email address - e.g. dannyscott@coincorner.com - however, any company that supports it could send Bitcoin to me (similar to that of an IBAN that banks offer) but in a more user-friendly approach, simplifying global payments.
Like with all new and emerging technologies, Bitcoin still has many years ahead of improvements and barriers to overcome, but with the simplicity, speed, flexibility, cost and inclusivity that the Lightning Network offers, Bitcoin will no doubt disrupt the likes of SWIFT and other global payment companies over the next decade.
About Danny Scott
Danny Scott is an entrepreneurial software developer, and co-founder and CEO of CoinCorner - a leading Bitcoin company that provides brokerage and custody services to 400,000+ clients globally. Founded in 2014, CoinCorner is one of the longest-running Bitcoin exchanges in the world.
About CoinCorner
CoinCorner is a British Bitcoin company that has built a reputation as a trusted platform for buying, selling, sending, receiving, and storing Bitcoin. Founded in 2014, CoinCorner has more than a decade of experience helping individuals, businesses, family offices, and trusts buy Bitcoin.
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