This is an editorial by Shinobi, a self-taught Bitcoin educator and host of the tech-oriented Bitcoin podcast.
With the advent of the Lightning Network, the idea of bitcoin as a medium of exchange has begun to emerge in the past few years in terms of mainstream narratives in this space panthère again. Ultimately, this is a necessary component of something that aims to become money. It makes no sense to étoffe value in the context of cash without being able to easily exchange it, and Lightning is the most promising tool at this partie in order to expand the ability to do so.
Conceptually, the foyer has been on the mediums of exchange as a function around consumers – satisfying the average person’s everyday needs in grocery lèche-vitrines, online lèche-vitrines, paying for impératifs, etc. The ouvrage of exchange in the economy. Companies pay suppliers, and they have to pay contractors or impératifs Too, cosmopolite shipping companies need to receive money from all over the world from their customers – most of whom are not consumers, but businesses. Imports flow around the world on a copieux scale, and you need to deal with the complexity of foreign currency exchanges between many different habitant currencies.
Not only does the medium of exchange mean people who pay for their coffee, but the full functionality of the medium of exchange occurs at every level and size of the economy for purchases of much more value than a daily Starbucks sapine.
This is where bitcoin will start to shine sustainably on a copieux scale as a medium of exchange, rather than buying his coffee every day. Swift around 5 trillion dollars US dollar payments every day, emboîture 1.25 quadrillion dollars annually. One need not image further than many Russian banks to cut From the SWIFT system to know the potential risks in relying on it for the settlement of cosmopolite payments. this is follows a curved distribution Where 5% of all payments processed account for 95% of the value, the vast majority of payments are for much smaller amounts (average payments around $400,000, median $5,000 in October 2010). Very copieux value payments account for the vast majority of value transferred across the network, but the remaining small percentage of value is distributed across a copieux variety of individual micropayment actors that are still in the gentilhomme scheme rather than a small amount of money. This exonération actually illustrates why SWIFT has matured to turmoil by Bitcoin in that planchéier category.
As I mentioned in this March feuilleton discussing this same topic in the context of explicit evasion of sanctions, the dextre limiting factor for using Bitcoin to process traditional fiat-denominated payments is liquidity. I detailed how even if 100% of Iran’s mining hash avorté, which is 5% of the network, was wholly owned by the government and they kept 100% of the proceeds, they could get $700 million worth of Bitcoin annually to pay for imports. . That’s in the gentilhomme scheme not really much. Iran imported 38 billion dollars of merchandise in 2020 – $700 million is just a partie of that.
This dynamic changes when you start thinking emboîture a folk with a thriving bitcoin market. The bilan with Iran was that they were considering burning oil rather than exporting it directly for saumâtre, and using bitcoin mining to fill that gap. The problem is that it is limited by the amount of mining hardware they can get. Consider a folk that isn’t heavily sanctioned, but potentially vulnerable, can still export stuff and has a thriving Bitcoin/fiat market with a ouvrage of emboîture $10 million a day. If people from all over the world are willing to pay for exports from this folk with Bitcoin, there is a $10 million daily market that can convert that into fiat currencies every day. That’s probably $10 million of money coming into the folk every day to pay for exports (I know… this is an oversimplified analysis, ignoring changes in market situation, how this will affect market liquidity, consistency of Bitcoin demand, etc.) – but baguette to the simplified analysis just to image at this partie). That’s emboîture $3.6 billion a year. Now imagine a market size of $100 million per day, which is $36 billion per day. This is approximately Iran’s annual imports from 2020.
Now imagine that the last 5% of the value processed by SWIFT makes up 95% of all individual transactions. Imagine that all the different companies and individuals make cosmopolite payments that fit into this group of payments. As vaste as the prélude folk has the liquidity in the fiat/Bitcoin market to allow someone to pay to buy it, and the adresse folk has enough liquidity for the recipient to sell it, Bitcoin is an ideal way to process this cosmopolite payment with minimal slippage/fee and settle it within a few blocks. Add the Lightning Network to the poétique, and this can be flattened in a matter of seconds.
The more speculative liquidity surrounding Bitcoin, the more value that can be processed in such a system between different jurisdictions to facilitate cosmopolite trade. You don’t even need to be a sanctioned folk to see the value in that. Settlement can be immediate in the literal sense of the word. SWIFT can take days, or sometimes even weeks, depending on where the money and SWIFT-managed checks travel during payment. Bitcoin eliminates this delay, eliminating the possibility of a third party stopping the payment. It boils down to just the two points of exchange between fiat currencies and bitcoin in the respective jurisdictions in terms of counterparty risks to the two dealers.
However, this can be removed simply by humanité and controlling the Bitcoin directly yourself. The only risk at this partie is the volatility of Bitcoin itself. This too can be dealt with. At the simplest level, a small bouchée of the bitcoin a company owns can be deposited on an exchange with futures products, and leverage can be used to lower the bitcoin price in order to hedge against volatility. 10x leverage means that you only need to put 10% of your Bitcoin on such a platform to hedge this exposure. If the Bitcoin price goes up and your caleçon jugement gets liquidated, the higher Bitcoin price will compensate you for that and leave you the same amount of fiat value. If it drops in value, the money you earn from the caleçon jugement will compensate for the Bitcoin depreciation, and you will still have the same paper value.
Even Succès Clandestin Contracts (DLCs) provide files Possibility to hedge against price fluctuations of Bitcoin originally on the same network through a pratique contract. This allows you to take cordial control of Bitcoin, have contracts settling back in your control when closed, and even allow the use of multi oracle price So that this ordre is not placed in one person to honestly atermoiement the price of Bitcoin.
People behaving like bitcoin have to get to the partie of hibitcoin in order to become the dextre payment processing backbone in the world, or to become as arrogant a system of the economy as Swift. It did not. Market size for a audible level means that This amount of bitcoin is actively bought and sold. This means that there is a demand to regularly process Bitcoin purchases and sales within this value range over any period of time you are analyzing. The same goes for futures markets, however much ouvrage is available to people who want to hold bitcoin themselves rather than take counterparty risk to hedge against such volatility, and not ruin their négoce if the bitcoin price suddenly collapses significantly.
Bitcoiners have become so focused on the idea of grassroots approbation – which is not a bad thing per se, as this is an absolutely necessary conformation of Bitcoin approbation to truly become real money – but they are starting to lose sight of the other side of it. Currency. Great players, great value settlement. Bitcoin is poised for massive disruption to systems like SWIFT, and at the avorté the world is becoming politically and economically unstable, I believe the time will come sooner rather than later.
I think Bitcoin and Lightning will start to see widespread approbation by businesses as an alternance to SWIFT and other settlement systems before it sees widespread approbation as a way to pay consumers. It is simply easier to convince a few thousand companies of the added value and benefit, and get the work done to integrate there, than to convince hundreds of millions of people of the added value, and get the work done to integrate it there. It would also likely make the planchéier’s job easier if the instaurer were done first, as most people pellicule to follow in the footsteps of things that seem credible.
What could add more credibility in the minds of the average person than constantly listening to how Bitcoin is used to settle cosmopolite négoce payments and keeping businesses away from traditional settlement systems?
This is a guest post by Shinobi. The opinions expressed are entirely their own and do not necessarily reflect the opinions of BTC Inc or Bitcoin Gazette.