Why Bitcoin Lightning is So Exciting

The original promise of Bitcoin was a “Peer-to-Peer Electronic Cash System.” 

It was meant to enable sending online payments directly from one party to another without having to route through a trusted third party. 

In the physical world, we can pay each other without needing to trust some third party using cash. When we use Venmo, Paypal, or any other non-crypto online service, we trust that service to protect our money and reimburse us for it later. 

We haven’t been able to make peer-to-peer payments online since there’s no digital analog for giving someone cash. You could promise to mail them the cash, but it would be hard to build a business on that trust and delayed payment time. So instead, we use services like Stripe and VISA to handle the payments for us and pay them around 3% of every transaction for the service. 

In its infancy, Bitcoin functioned well as a form of digital cash. Payments were cheap, and settlement happened in around 10 minutes instead of the two days it takes a credit card transaction to settle. 

But as the network gained popularity, those transaction fees increased, and now it’s far too expensive to use the Bitcoin network for anything besides large transactions. Sending a BTC payment to someone today would cost $65, so unless you’re buying something in the thousands of dollars, the payment processing fees from VISA or Stripe, or other third-party services are much more reasonable. 

That doesn’t mean the promise of a Peer-to-Peer Electronic Cash system is dead, though. The network just needs to adapt. The main Bitcoin network may have failed to provide a low-cost payment infrastructure for small transactions. Still, it created the most robust, stable security system for a decentralized payments infrastructure. 

And now that the security and stability of Bitcoin’s base layer are well established, other layers can be built on top of it, similar to the Layer 2 networks being built on top of Ethereum.