Improving Lightning Point-of-Sale. Bitcoin Tech Talk #278

During my trip to El Salvador, I was shopping for gifts for my family on the way back. I had expected to find some things to buy in El Zonte, but they mostly just had food and beach gear. As the locals told me, the town has always been a surfing Mecca, so the goods sold there are attuned to that crowd, even if everything can now be bought in Bitcoin.

I had better luck at finding gifts at the airport, as is typical. The interesting thing about any airport is that in any country, the highest of technologies are deployed there, but it also tends to be mixed with the culture of the particular place. El Salvador was no exception. As you might expect, there were many stores which operated as a store in the US. For example the high end duty-free shops accepted cash, credit cards and because the airport is in San Salvador, also Bitcoin.

More interesting to me were the smaller shops with the local merchandise. These were stores selling local apparel, trinkets, bracelets and local crafts. I wanted to buy some and found out that they don’t take credit card. In fact, they only take two types of payments: cash and bitcoin. What was more shocking was how they processed cash. They didn’t have any sort of sophisticated Point-of-Sale system, they took your cash or Bitcoin, wrote down what you bought on a normal notepad.

This struck me as pretty crazy. I’m used to shops back home where nearly everything is automated. The Point-of-Sale systems tend to have buttons for each item, or bar code scanners to automatically determine the cost of a certain item. Instead, we had a shop that was manually writing down everything that was being sold and their cost, so they could reconcile the sales and cash against the inventory, whose count I imagine is also manual. It’s not long ago that every shop in the world ran on systems like this, but the lack of progress at the Salvadorian shop was a bit of a shock.

That led me to think about just how much is involved in the point-of-sale software and how much is automated even in something as service-heavy as retail. Besides sophisticated point-of-sale systems, many stores use RFID tags to automate inventory tracking, surveillance cameras to catch shoplifters and timed safes to handle theft. Stores today have a lot of technology that just isn’t available to a lot of people in the third world.

In that sense, Lightning is a quantum leap. For many of these businesses in El Salvador, Lightning is introducing digital accounting instead manual accounting with cash. It’s convenient, but Lightning isn’t where it needs to be to truly catch them up to what’s available to the first world.

That said, there are downsides to modern Point-of-Sale systems. There’s significantly more surveillance and a lack of privacy. Costco knows exactly what you buy, for example. Still, there are good reasons to want some of these benefits for businesses that use Bitcoin as the main Point-of-Sale system.

Lightning, in other words, needs to grow up and add more features. This isn’t at the protocol level, though I’m sure there are improvements there as well, but services that complement Lightning. Like, say, the ability to inventory things quickly. Maybe it’s bar codes, maybe it’s QR codes, maybe it’s using a camera on your smartphone and using AI to get the count of how many units there are. The fact is that it’s difficult to run a business without such things. Payments might be much easier, but there are additional technologies that are needed on top to make running such businesses easier and more profitable.

What’s exciting is that there’s potential to do things in a way that empowers consumers rather than exploits them through privacy invasion. Lightning naturally means there’s no central party that gets to know what you bought at the store, for example, so that can be an advantage. I would personally love the ability to get some structured digital list of things I’ve bought that can be fed to apps that I own, for example. Whenever I pay for something in Lightning, I would like metadata back so I can inventory as quickly as a store would. Imagine I could look up when I last bought butter was so I can restock at the store instead of having to check at home.

Lightning has this incredibly rich ability to communicate peer-to-peer, and that means that not just payment data can be exchanged. Both sides can grab the data about what’s being bought and sold to use for their own purposes. This is something that the current system of centralized payment processors doesn’t supply because there’s someone in the middle preventing this useful data exchange.

In other words, Lightning gives us the opportunity to fundamentally change the buying experience so we have a much better idea of our own habits.

Bitcoin

Ben Carmen has a new blog where he talks about FROST, among other things. FROST itself is a cool concept where you can aggregate signatures from k-of-n participants instead of MuSig’s n-of-n requirement. The interesting thing about this protocol is that it’s round-optimized. That is, the protocol tries to minimize the number of interactions between the participants and according to the paper, there are two rounds needed, though the first round can be done as an initial setup. The rest of Ben’s blog is well worth reading as he goes through Musig, Taproot and Core.

Grubles shows how you can solo-mine using Blockstream satellite. The guide goes into setting up a solo-mining operation using BFGMiner and Bitcoin Core. The probability of finding a block is astronomically low, of course, but it’s a fun experiment to run since getting the blocks to build on doesn’t even require an internet connection. The only thing missing is emitting a found block somehow to the network, which could be done via internet, SMS or something similar. While it would be amazing to be able to mine without an internet connection, the guide is more so that if your internet connection goes down, you can still continue mining and not waste precious hash rate. I suspect something like this will become really interesting as more energy sources are harvested with the minimal infrastructure connection requirements.

Kraken has implemented proof-of-reserves. The main idea is that there’s a merkle-tree of liabilities in the form of user account balances which can be compared to UTXOs on-chain which Kraken can sign. This means that each user can get proof that their account balance was included in the liabilities without knowing any other user’s balance. The post is great because there’s example code to run to prove that your particular balance was included in the merkle root.

Lightning

Simple Lightning has a nice post on lightning dust and what we can do about it. The main gist is that while there’s no lightning dust at the moment, as routing fees increase, there will be certain payments that simply won’t be economical. The post is an honest look at how “micro” the payments infrastructure can go and what the practical limitations of the economic reality are and worth thinking about.

Laisee takes the Chinese New Year red envelope concept onto the lightning network. For those that don’t celebrate Chinese New Year, gifts for this holiday are typically cash bills in a red and gold envelope. Laisee essentially lets you print out a QR code which is a LNURL for receiving some amount in your lightning wallet. It’s the old-school Bitcoin paper wallet gift, except now it works with Lightning. I love the concept and for cash-gifting societies (which is a significant portion of the world), this has amazing potential to replace cash gifts. I’d love to see something a little less centralized eventually, perhaps with a LNURL that goes to my server to redeem from a LN wallet I control.

Dono.at is a way to receive lightning payments during live-streams. The problem with receiving money during streams is that the platforms typically take 30% of the money. Dono essentially removes this platform tax and allows creators to receive the money directly to their lightning wallet. These solutions will be critical as more people move off of these platforms and take their audiences with them.

Economics, Engineering, Etc.

Nic Carter writes eloquently about the ESG misunderstandings about Bitcoin. As he points out the criticisms from the Environmentalists fundamentally misunderstand how the energy grid works and is full of misinformation. For example, the natural gas power plant in NY was demonized as using dirty coal when it’s not. The fact that this article made it into Newsweek bodes well for more subtlety and nuance in this discussion.

Mark Jeftovic comments on the Canadian Trucker/GoFundMe saga and shows how Bitcoin Fixes This. As he points out, what GoFundMe attempted to do, which was to distribute funds donated to charities of GoFundMe’s choice, is exactly what a CBDC future will be like. I would go further and say that what GoFundMe attempted to do, central banks have been doing for a long time now, stealing from people to benefit their cronies. The episode showed why Bitcoin is fundamental to monetary sovereignty and prevention of theft.

Fidelity makes the case for Bitcoin Maximalism. Well, maybe not exactly, but they come pretty close by making the very important distinction between Bitcoin and other “digital assets”. As they explain in the paper, investors are wrongly applying the technology investing framework to Bitcoin instead of the monetary investing framework. This is sadly a mistake too many newbies make and get into altcoins and all the degenerate gambling behavior that comes with it. Hopefully, a report like this can help the more traditional investors understand what makes Bitcoin different.

Marshall Long reveals that Intel is getting into the ASIC game. The design team is apparently from Austin and this is set to be a US-centric enterprise. This is a significant development as most mining equipment is currently manufactured in China. Chip manufacturing is notoriously slow and requires tremendous lead-times, so there probably won’t be anything for at least a year, but this is exciting for a multitude of reasons. We can’t eliminate the possibility that China may some day ban mining equipment manufacturing and having more vendors outside China will be really good for Bitcoin.

Dirty Bulb Media exposes the deception around celebrities buying NFTs. As they point out, Justin Bieber wasn’t going on some shopping spree with his own money as the media reported, but he was spending money that was given to him. Much like how diamond wedding rings popular, this is a marketing stunt meant to give a completely different impression than what’s actually happening. In fact there’s a flow chart of all the different obviously conflict of interest celebrity relationships in the NFT world.

LN Markets explains why AOPP was such a big deal. The intentions were good in the sense that the organizations who adopted AOPP wanted to encourage self-custody of BTC, even at the cost of some KYC, but ended up running up against the attack against permissionlessness. It’s an interesting read as the demands of imperfect self-custody traded off against the demands of permissionlessness of Bitcoin. The regulation itself is the problem and I believe resisting bad regulations is the long term play. We’ll see how the saga plays out, though.

Quick Hits

Maybe Software engineer salaries won’t go up forever.

BitFinex hacked coins are on the move.

A bipartisan bill in the House of Representatives seeks to eliminate cap gains taxes on small purchases with Bitcoin.

Texas had a sudden freeze much like last year, but this year, miners helped everyone prepare.

Another week, more centralized altcoin founders suing each other.

Another week, another altcoin has an exploit.

Events

Bitcoin and the American Dream book launch is this week in Washington DC on February 10th. Come join me and meet the authors as well as some influential DC people for the event!

I am in London for Advancing Bitcoin March 3-4. I am also going to be at Bitcoin 2022 in Miami April 6-8.

I’ll also be doing the Programming Blockchain seminars in London March 1-2 and Miami April 4-5.

Podcasts, Etc.

On this week’s Bitcoin Fixes This, I talked to Josh Young about banking services. We talked about the mortgage process in El Salvador and how Bitcoin is solving real problems.

I read through last week’s newsletter which you can find here.

Here is the latest book which is out now!

My other books are here and here.

Unchained Capital is a sponsor of this newsletter. I am an advisor and proud to be a part of a company that’s enhancing security for Bitcoin holders. If you need multisig, collaborative custody or bitcoin native financial services, learn more here.

Fiat delenda est.