Blogs & Articles: The Maturation of Lightning: Growing Up by Going Vertical 🔗 1 year ago

It’s almost tautologically true that specialization within a social system increases with sophistication. In fact, increasing specialization could be one way to define social sophistication.

Example 1:

Our global society is pretty sophisticated. I know how to create products, ace a trivia contest about “The Wire,” and find the best shawarma joints in Tel-Aviv, but I have no idea how to knit, design an efficient photovoltaic cell, or where to go rock climbing around Maputo. We’re all experts at something, learning more and more about less and less.

Compare that with hunter-gatherer societies, where everyone can basically do everything. Everyone can weave a basket, catch a fish, light a fire, sing a song, recite the rules of the tribe, make a shelter, etc. Though their worlds are complex, their societies are simple, with very little internal differentiation or specialization.

Example 2:

In the early days of the Web, companies like CompuServe and AOL were basically one-stop online shops. They were ISPs providing basic connectivity; email; social media (i.e. chat rooms); content in the form of news, weather and so on; and search, often in the form of an actual curated directory.

As the Web has become much more complex, we engage with multiple companies for each of those functions. Including all the writing, editing, commenting, revising, and so on, even a simple post like this one will involve the services of a few ISPs, a few email providers, a few cloud storage platforms, a few cloud text editors, a few image repositories, and who knows how many background services.

And now it’s happening to Lightning. Like any social system, our network is constantly evolving, and it looks very different now compared to how it looked in the beginning. Activity related to Lightning is becoming more specialized, and that specialization is both a symptom of and catalyst for the growth of the network.

What the invention of the first net must have looked like. How far we’ve come… (Image: Hans Splinter)

And Then There Was Lightning; And It Was Good

Back in the early days of Lightning (we’re talking, like, 2018), there were basically only two kinds of company. First were the infrastructure companies that built the early implementations of the network. Lightning Labs got started early with lnd. Further north on the same coast, Blockstream was working on c-lightning, which they’ve since rebranded as Core Lightning. Half a world and a hop or two away, Eclair was emerging in France.

Then there were the “wallets,” which came in roughly three flavors. The early custodial wallets, like Wallet of Satoshi and BlueWallet, offered relatively simple UXs, but they took custody of users’ funds. The early non-custodial wallets, like Eclair, Zap, and SBW, presented the opposite tradeoff: full user custody with a sometimes rocky UX. Fortunately, the second-generation wallets, like Phoenix and Breez followed close behind, and they started treating the user experience holistically, considering both users’ desire to self-custody their bitcoin and to move it without manually opening, funding, and balancing channels.

This was Lightning’s proof-of-concept phase. We proponents of Lightning were claiming that it was peer-to-peer money — bitcoin for everyday purchases — and these were the basic technologies needed to transfer bitcoin from one peer to another over the network. If the wallets and protocol implementations had proved unfeasible, there would have been little point in continuing. (If you’re wondering how the proof of concept went, read on and check out our Lightning in the Wild series about businesses and people who use Lightning as a matter of course.)

In effect, it was a community of dozens, maybe hundreds of people, everyone knew everyone else, and we were all working on the same, relatively fundamental problems. It was a simple social system, and there was little internal differentiation. We hunted. We gathered.

Domesticating the Nodes

Around 10,000 years ago, our hunter-gatherer ancestors got sick of chasing the animals and plants they needed to survive. And who could blame them? Talk about exhausting. So they switched tack and started domesticating plants and animals to have them closer to home. It must have been a great idea because it happened independently in several locations around the world. And this change had momentous consequences: the steepest growth in population ever, the advent of civilization (in the sense of a city-based society), and an explosion of technologies from the wheel and architecture to centralized political systems and writing.

The basic idea is that when people tame their environments, they have more time to work on complicated things like tax codes, fad diets, and open protocols.

Lightning users’ environment consists of nodes because nodes mediate all the inter/transactions on the network. Domesticating them was the next step in Lightning’s evolution.

Once you start domesticating, it’s hard to stop — incidentally another case of vertical specialization. (Image: Cinty Ionescu)

Just as those early wallets were picking up steam, node-management tech for full nodes started to appear. Some, like ThunderHub, Ride the Lightning, among others were effectively second-layer node-management tech, helping users execute operations and adjust the configuration of their nodes. Others, like RaspiBlitz and Umbrel, were designed to help users install and configure nodes.

Such node-management tech is easy to overlook in the evolution of Lightning, but it’s important because it fosters decentralization, which is a value in itself and a vital means of maintaining the network’s robustness.

And the next phase of that evolution has already emerged. Voltage, for example, offers scalable, enterprise-grade cloud nodes. Instead of a handy tool to run a node, companies can now rent a fully operational node with the capacity and connectivity they need on demand.

Note that the benefits of node-management tech are largely unintended. Just like whoever invented the wheel did not have high-speed rail and Swiss watches in mind, those who started working on node-management tech probably just wanted more features for their own use. However, they’re facilitating new network features that are vital to Lightning’s robustness and growth — liquidity triangles, LSPs –, not to mention how they flatten the learning curve for incoming users.

Just like hunter-gatherers achieved a quantitative and qualitative leap in the complexity of their societies when they tamed the things their societies depended on — plants and animals –, the second phase in the evolution of Lightning was a process of domesticating the nodes upon which our network depends.

Going Vertical

Early in the agrarian revolution, farmers actually refined their own products (and some still do). That is, a shepherd family might make and sell yarn, leather, milk, cheese, meat, sausages, and so on that they made themselves. Generally though, the best sausage maker and the best cheese maker specialized to better serve their respective markets. After a few generations, neither can shear a sheep, but together they can compose a charcuterie board that would have shocked their ancestors with its decadence and refinement.

The fruits (and meats! and cheeses!) of vertical differentiation and specialization. (Image: Shelby L. Bell)

After a few more generations, we have the current scenario where I cannot make cheese or sausage, but I can debug in seven different languages.

Just as civilization inevitably underwent (and is always undergoing) a process of vertical differentiation and specialization, which makes it more sophisticated, the current, expected, and vital trend in Lightning is that companies are specializing in ever-smaller niches to provide ever-better user experiences. These niches are both functional and geographical.

For example, OpenNode quickly added a Lightning point-of-sale mode to their existing on-chain offering. We followed soon after with our non-custodial point-of-sale mode back in early 2020, and a few months later there was a small cadre of point-of-sale solutions for merchants who wanted to accept bitcoin over Lightning.

After a little more specialization, the second phase of building infrastructure began, and ever more infrastructure companies arose in ever more vertical niches. For example, some offer POS with fiat on-ramps (e.g. Strike) and fiat off-ramps (e.g. CryptoConvert, IBEX, etc.). There are also self-hosted bitcoin-only, POS solutions operated locally (e.g. lnbits, BTCPay, LNPay, etc.).

To serve the variable amounts of liquidity merchants and users might need (think Spirit Halloween in April vs. September), liquidity marketplaces have opened up. Bitrefill’s Thor began selling channels quite early on. Now, liquidity management and channel funding have become a cottage industry in their own right, counting such participants as lightning network+, Magma from Amboss, and Lightning Pool. Synonym’s Blocktank is on track to become a multi-purpose LSP with a broad palette of services.

The same thing is happening to:

• Gaming (e.g. Zebedee, THNDR Games)
• Streaming media (e.g. Breez, Wavlake, Fountain)
• Financial trading (e.g. LN Markets, Kollider, Loft)
• Chat & social media (e.g. Sphinx, Zion, Starbackr)
• News & commentary (e.g. Stacker News)

Beyond the functional differentiation, there is also geographical specialization, which makes sense given regulatory differences and localization needs. Bitcoin Beach, though not exactly a company, famously helped to foster the adoption of bitcoin as legal tender in El Salvador by priming the local circular economy in El Zonte. Bitnob is helping Africans stack sats and accept remittances. Vietnam is leading the world in bitcoin adoption for the second year in a row, and one reason is that Neutronpay has been feeding the market with Lightning-based solutions. Also in South East Asia, Pouch.ph has been bringing Lightning to the Filipino masses.

So where is this trend of increasing specialization leading?

It’s no exaggeration to say that there are now more vertical markets, each containing several companies, in the Lightning ecosystem than there were Lightning companies only five years ago. As a social system — a technology and organizational structure through which we interact with each other –, Lightning is becoming far more sophisticated.

The Future of Functional Differentiation

Specialization is so widespread in social structures because it increases efficiency and productivity, which in turn fosters growth. Although the Web of 1995 was structurally far simpler than the Web of 2005 or 2015, it became easier to use with each passing decade. As a result, the pool of 16M early adapters grew by an even billion in a decade, and now nearly 70% of the world’s population use it regularly.

It might sound counterintuitive, but greater specialization and sophistication feed growth.

Proliferating verticals and functional differentiation are necessary because her problems are not my problems, but we *both* need Lightning. (Image: Arian Zwegers)

And it’s how Lightning will grow too. As more and more experts from more and more different fields of activity discover Lightning and integrate it into the solutions they’re providing anyway, more and more users will be onboarded — often without even knowing about it.

Take Synota for example. They connect Lightning payment apps to smart meters to help make energy payments instantaneous, final, and based on real-time prices. Gas and electricity flow in one direction, sats flow in the other. It’s a great idea whatever means of exchange it uses, and it just happens to make more sense with Lightning. If they can deliver efficiency gains to their users, then they’ll be onboarding people onto the network who may have never heard of Lightning and not care in the least about multipath payments or anchor channels.

For us on the Lightning side, the challenge is going to be making adoption easy without sacrificing the technological integrity of our solutions and to keep the barriers as low as possible for all incoming users, be they LSPs, merchants, consumers, Lightning wizards, or complete n00bs. Of course, one way to meet this challenge is with more specialization — different offerings for different user groups. If we get this right, growth will come organically, naturally, and inevitably.

The Maturation of Lightning: Growing Up by Going Vertical was originally published in Breez Technology on Medium, where people are continuing the conversation by highlighting and responding to this story.