BTC209: Bitcoin Lightning Balancing MoE and SoV w/ Roy Sheinfeld (Bitcoin Podcast)

You're listening to TIP. Hey, everyone. Welcome to this Wednesday's release of the Bitcoin Fundamentals podcast. This episode is brought to you by River, the place that I personally go to securely invest in Bitcoin with confidence and with zero fees. On today's show, I have one of the most talented developers in the Bitcoin space with Mr. Roy Seinfeld.

Roy is the CEO and founder of Breeze, which is the premier business enabling the interface of the Bitcoin lightning economy. During our show today, we talk about Roy's point of view that in order for Bitcoin to remain truly decentralized and open, it not only needs to deliver on its store of value properties, but it also needs to be used as day to day money. This is an important conversation and one that helps the listener truly understand the importance of the lightning network sitting at the center of gravity for the Bitcoin network. So without further delay, here's my chat with Roy.

celebrating 10 years. You are listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Preston Pish.

Roy, so if people don't know you, I'm just gonna, I'm gonna shoot them straight here. In my opinion, I think you're one of the best developers in the entire space. I've had numerous opportunities to talk with you in person and every time I just kind of walk away with just how clear you were thinking is. There's a couple developers out there, engineers that aren't just talented devs, but are great at explaining things and kind of seeing a vision of where a lot of this stuff is moving in the future. So where I wanna start off,

You have a company called Breeze, and it's on the Lightning Network. You're doing payment processing. But the thing that I want you to kind of start off talking to the audience about is really your vision. Like, where is this all going? We talk about the Lightning Network all the time on the show, but

From a payments processing standpoint, how are vendors going to interact with this? There's been a lot of comments and debates as to the how robust and reliable the lightning network is. So somebody that's building in this space, where do you see this kind of moving and evolving in the coming five to 10 years with respect to the lightning network? And then you as an entrepreneur and builder with Breeze, talk a little bit about the mission of Breeze.

Okay, it's a question to start me off. There's a lot to unpack. So let's take a step back and kind of try to understand what is that Brazil is trying to achieve. And it's really about evolving Bitcoin to be a global currency. That's basically our mission. If we talk about in this time sense that you're talking about like 10, even 20, 30 years, let's talk about 100 years. What will happen in 100 years?

We think there are two options, basically. We think the world will have a global currency, but there are two options on the global currency that will be used in the world. One option is CBDC, one global currency that is controlled by an entity. We don't know.

Which exactly is going to be the ruling entity but there will be an entity that govern this currency and the second option is decentralized currency we think Bitcoin has the best chance of being this decentralized currency.

So when you talk about vision the breeze mission is basically to help Bitcoin evolve to be in a place that it will be able to perform the task of a global currency and that's where we had it and everything that we do in breeze is to make sure Bitcoin is capable in performing the task of being a global currency and it's not easy because

on the blockchain the Bitcoin technology is based on the blockchain and blockchains in general don't scale so how can you evolve Bitcoin to replace that it

a lot of people kind of confuse the medium of a change with the merchant adoption. I think already Bitcoin is a tremendous medium of a change. But in order to get to a point where it's widely accepted by merchant, we need to scale Bitcoin in order for Bitcoin to be used by at least two orders of magnitude

that it's being used right now. We started a breeze six years ago with the lighting net with the emergence of the lighting network because we think the best way to scale Bitcoin is by using Bitcoin, meaning the lighting network is an extension of Bitcoin. It uses Bitcoin as a very asset and it provides a level of scalability that can be achieved on the Bitcoin main net, on the Bitcoin chain.

and it works. There are challenges, as you've mentioned, and there are inherent problems to the lighting network that hinder the user experience, mainly what we call the inbound liquidity problem. We can talk about that if you want to expand on that later, but another point of friction is also the fact that it does interact with the change.

from time to time, meaning in order to onboard to the Lightning Network, you need an on-chain transaction to happen. And sometimes channels get closed. And when channels go closed, you need to interact with the chain. And every time users interact with the mention, it's a cause of friction because the chains are slow and the chain are costly. So if fees are high, it means that there is a

There's a cost to be paid. I think we've done a lot specifically at Greece, but generally also in the lighting ecosystem in the past six years. I don't know if people remember how lightning looked like six years ago, but I remember myself like in the Bitcoin conference in Berlin trying to pay for a beer and using lightning. And it took on average, it took us 30 times to get a payment. Thirty tries. Thirty tries. Yeah.

I think it was one of 30 or 150 tries to get the beer spilling in this hacky Bitcoin conference. And today you don't see that. No, we're not in a place where we have 99% reliability. We have around 90% to 95% payment reliability, which by no means is good enough, but it's widely used by millions of people. The largest exchanges in the world already support

We're talking about Coinbase and Binance and Kraken. All the major exchanges support Lightning. I think Coinbase even released some statistics a few months ago that 6.8% from all the Bitcoin deposits are done using Lightning. Oh, wow. And it's Coinbase. Yeah, that's so hard. So we're talking about definitely a significant number. There are other statistics. I think OKX are reporting 70K of active Lightning users on their exchange.

So, yes, lightning didn't took the wall, but I think one of the mistakes that some people have done years ago is to set the wrong expectations of what lightning is. I think nevertheless, we've been achieved the next level in the foundation, like we've built lightning as a foundation, which is remarkable, and millions of people are using lightning, and I think we're ready to use lightning as a way to

scale Bitcoin and bring to the next level. And the way I see now, and I think I have a different vision than the vision that I started with, I think liking is going to be the common language between end users enterprises.

and subnetworks, meaning we're starting to see subnetworks evolve that brings Bitcoin to end users, what we call the last mile solution. So we see solutions like FEDI and we are seeing solutions like EKASH, based solution like cash use, and we're starting to see ARK evolve and we're starting to see many Bitcoin layers too. I think all of these subnets works are going to speak like me. I mean, you're going to be the interoperable

language between all the sub networks. So lightning is here to stay. Yeah, I really like that last point. And I think that last point is sometimes lost on people because they see e-cash or they see FETI or any of these other ones that you're talking about. And they might not understand that those other networks are dependent on lightning being the second layer. If you want to call those third layers or whatever, I don't know what the correct terminology would be, but

They're really dependent on lightning being that middle ground between where they're at acting in a very high frequency kind of way, but requiring more trust and Bitcoin layer one, which is store of value, settles every 10 minutes, a lot more robust security setup required and all those things. So I think that that's such a key point before we go any further.

You have this amazing article that you recently wrote. This went out on Bitcoin magazine. The name of this article was Bitcoin's false dichotomy between store value and medium of exchange. You were using a term. I want to clear up some terminology for people that are listening to this. You were saying the term currency. And when I think currency, I typically equate it with paper money or something that's happening at a very high frequency. Like the money that you would have in your wallet is a currency. It's, you know, we can get into the backing, which gets

really mutilated in the difference between currency and money. Because these are the two terms that I think are really important for people to wrap their head around. And when we're talking about money, typically we're talking about something that has some type of proof of work or some type of backing to it, call it gold. I think nobody would disagree that gold is money.

Whether it's actually saleable and you can use it as a form of currency and you wrote a little bit about this in the article, it gets a lot harder because in order to make it more saleable, you really need to kind of write a paper currency on top of it because it's just so scarce. Yeah, it's not portable. That's a better way to put it.

But these two terms, currency, which is high frequency representation of money, and then you have money itself, which is this proof of work back. And with Bitcoin, we have something that has the potential and is both of these things simultaneously with respect to being able to spend it at a very high frequency way. But we get into the technical challenges of doing it, which I find really interesting because it's a representation of what we've seen throughout human history.

that history, right? And even though we've moved completely into the digital realm, these things that existed in the physical realm of, you know, it's really hard to make gold saleable. It's really hard to do. And it's just mind-blowing to me that Bitcoin has the exact same challenges, even though at the base layer, it's still digital. So 100%.

Talk us through so like people are hearing that and they're saying well how is that even possible like what are you talking about okay so how do we explain this and you do this in your article and you do a lot more in the article too but let's start there to explain like why is it still so hard to make it saleable in a secure way and like all that nuance.

Okay, again, a lot of one back here. I think comparing to gold, for example, gold didn't become gold as a sellable asset until people started minting gold coins. Now, the question is, in my mind, has Bitcoin reached the point where we meet Bitcoin as a coin? Meaning, is it easy enough, convenient enough to exchange

in a portable, divisible, fungible way. So let's take a step back and talk about store of value and medium of exchange because basically these are the properties that we're talking about when we talk about money. And then that question that you proposed, I think needs just a touch more to it, which is can you do that

on your own without some type of custodian or assistance from somebody else, right? Can you transact in a way that it's just you doing it? Or are you reliant on some other person to provide a service for you to do it? So when I talk about Bitcoin, I talk about Bitcoin.

is self custodial Bitcoin, meaning you own the keys, you own the Bitcoin, you're not relying on the third party or an interpreter to do the exchange for you. When I say Bitcoin, I inherently and implicitly say self custodial Bitcoin. And I know it's maybe that's not the way people are using the term Bitcoin and people are equating the term Bitcoin would

because that encapsulates the value proposition of Bitcoin, which is basically two pillars to the value proposition of Bitcoin. One is the scarcity of Bitcoin, the fact that we only will have 21 million coins, and secondly, the fact that you can do an exchange without relying on a third party or another entity or individual to perform the task for you, the exchange of value.

I'm not an historian and I'm not an economic scholar, I'm just a flip. But when I say store value and when people say store value, the word value exists in the sentence store of value, meaning people want two things when they use something as a store of value. They want something that is durable and they want to use something that will retain value. But the word value means

a future change. You don't want to store something for nothing. You want to store something

the asset later on, it can be years, it can be decades, you might not even sell it. But it means that you have the ability to sell something in the future. Again, there are different theories of value. There's the labor theory of value that value reflects the work that you put into something. That's kind of the Marxist theory of value. And there's a frequently used term, interesting value. There's like an inherent value or something.

Very warm buffet like.

Yeah, I don't think there's something, I don't think that like, I think people use it without understanding there's no value without context, meaning a barrel of water in the desert worth like all the gold in the world in a very specific context. So all value is contextual. Once you understand that all value is contextual, you understand there's nothing like the intrinsic value doesn't really exist. Like you don't use gold because you have the ability to

make it to a jewelry, let's take a quick break and hear from today's sponsors.

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All right, back to the show.

It's dependent on the situations. So some people, some people want an apple, the other person wants an orange. And if you have a bunch of apples and I have a bunch of oranges and we, you know, the value proposition, even though if you're looking at the energy that was required for you to harvest that and for me to harvest, it was maybe the same amount of energy because of where we sit. And because of the circumstances of our environment, the value changes dynamically for each one of us. And this is this idea of coincidence. Yeah.

Exactly, exactly. If all value is contextual, the only way to determine value is to exchange the asset for something else. Price discovery is inherent to a store value.

because if you have value and the value is contextual and you want to trade it some day in the future, you need an exchange to happen in order to discover the price of your store value. And you see that with Bitcoin right now. But all the time, Bitcoin is being exchanged for fiat value. And we know the price of Bitcoin as the store value because of its exchange with other fiat currencies.

And if you flip the coin to the medium of a change site, you understand there's no medium of exchange without some portion of being able to retain value. If you have a good medium of exchange, it's an asset that you can exchange for goods and services. But if it doesn't retain value, it's a bad medium of exchange. You wouldn't use, I don't know, like, what, the boulevard? Yeah.

So from the first, I love this idea. So from a first principle standpoint, going back to what we were talking about with the apple and an orange, right? If I exchange, let's say I have the apple and I give it to you as soon as it passes out of my hand and it hits your hand, let's just imagine that it immediately becomes rotten and you can't eat it or use it for anything immediately upon arrival.

Because it didn't have some type of store of value properties, it then becomes worthless immediately. Exactly. Exactly. Exactly. In our cases, by the way, where it happens, for example, in Africa, I give it an example of cigarettes in prisons. It's something that is very, it's not durable. Like they can, they perish after one or two weeks, but they use this immediate exchange of

if you context. Of course, it doesn't extend outside of the prison walls because it's a very, very poor store value. So if you do kind of in your head, you do the Venn diagram of the medium of exchange on one hand and store value on the other hand, you see most of the assets that we

use are actually both are both store value and there are medium-level change and Bitcoin I got tired of the discourse like I got a sick of hearing the sailor talk about Bitcoin as capital and people trying kind of to push the ETF narratives and their own stocks in order for you to buy Bitcoin via proxy so and they use kind of the the store value medium-level exchange narrative in order to say listen be

to Bitcoin. So if it's a store value, you can buy it via proxy because you're not going to sell it anytime soon. Maybe, but it doesn't mean Bitcoin isn't a medium efficient. Bitcoin is a very good medium of a change. Bitcoin is being traded in the trillions, tens of trillions of dollars every year. And if you compare it to the market cap of Bitcoin, it's one or two of them.

I wanted to say my piece and be done with it and if people don't get it, let them continue with this narrative. Bitcoin is a great store value and Bitcoin is a great medium of exchange. Now let's go back to your

of exchange why it's not being widely adopted by all the merchants and why aren't we transacting Bitcoin in our day-to-day lives and that's basically why I started to freeze and that's

gold coin moment where we kind of transform gold from something that is used in ceremonies and for in rituals to something that can be easily exchanged and transferred. The lacking network is one piece of the puzzle. We definitely made a lot of progress in that regard, but there are still hurdles. Some of the hurdles are technical orders.

Some of the hurdles are kind of macro related to the wider acceptance of Bitcoin as a currency and the fight that we're still having with regulatory entities to accept Bitcoin as a currency. From a U.S. standpoint, I think will be there soon. You asked me about the five to 10 years vision. I think we'll get there sooner than that.

I think it would become very, very easy to transact in Bitcoin even without the pain points of lightning, which is the interaction with the main chain and the fees that incur as a result of interacting with the chain.

So we get there very soon. You can already see solutions like FEDD and solutions like Cashews and solutions like Arc and solutions like what we are doing with Liquid. We're basically using other blockchains in order to scale the Bitcoin blockchain.

And so I think you'll see a proliferation of solutions that are kind of targeting in solving the last mile issues. And we're very, very close, which the one, the one that I just want for the audience to understand the context of that last comment. So Blockstream has the liquid network, which is a federated. Just like we were talking about Fedi earlier, this is another federation that you can peg in, peg out. It comes with its own security challenges or whatever, like any federated system does.

It's a different trust profile. I think when you're talking about scaling Bitcoin, you're basically talking about compromising in the trust profile. And then once you accept another trust profile and even lightning kind of has some constraint that you need to subscribe to, not in the terms of kind of the consensus, but in terms of you need to be online, you know, to valid to check your channels and to make sure that you're not being bothered. It's a different trust

profile than using the main chain. And in fact, you accept that the guardians, you need to trust the guardians and you want, you need to trust the guardians will won't collude to to take your money. With liquid, we're talking about currently, it's a federation of 15 organizations and you need 11 out of 15 functionaries to sign in order for them kind of to steal your money. Next year, we're going to scale the federation to in an

other order of magnitude, so the transfer profile gonna improve. With solutions like Cashew, you're talking about the minter, you need to trust the minter not to steal your funds. In art, you're talking about an ASP, like the art node, you need to trust the art node in some regards. So every last my solution, including, by the way, other Bitcoin layer two, I'm using layer two in a very, very free form right now, because there's

It's a very controversial term, what is a layer 2, but I'm including for the sake of simplicity. I'm including all the layer 2s here, even layer 2s that don't have unilateral exit from the chain. You basically trust another federation, another consensus algorithm that is different from the Bitcoin main chain. Once you do that, we solve the last mile solution in a different way that is solved using the Lightning Network.

But let me just talk about my own personal experience of running my own node, opening a bunch of channels, taking a self custody wallet and linking it to my, you know, my node and where I had all this liquidity that I created and then going out and conducting transactions on, you know, layer two lightning Bitcoin. And you had talked about earlier about the reliability being like 90 to 95% of the transactions going through on layer two today based off of, you know, just global metrics.

And what I found personally was that it was a little slow. It was slow relative to just trying to find a pathway, right, when I was doing literally all the technical side. And by the way, this was no task that I would ever want my mother to do or my father. It doesn't scale. It doesn't scale.

Like, could I do it? Yep. Did it take a whole lot of effort? It didn't take a terrible amount of effort, but I feel like I'm somewhat technically inclined. And so I was able to do it. The reliability wasn't great. Was I able to conduct trends? Of course it was like I had a pretty good success rate, but then I go out there and then other people were providing this service.

On my behalf call it a wallet of Satoshi or I download the primal app and there's a native wallet in there that I you know is using strike back end and like all these other things that just really make it easy to do and I'm like I'll just load a hundred dollars worth of sats on to this you know wallet that somebody else is holding where was I at I was in Mexico last week.

And I was buying something and the person literally had, you know, we accept bitcoin here and I went and I scanned it. I downloaded the primal app or I had the primal app already on my phone. I scanned it went straight through no issue and probably the transaction settled in a second or last first try.

So I think from a user standpoint, having gone through everything that I had done before to then seeing that, you can see how a bunch of people just want to basically outsource this. I'm not too concerned if I lose $100. There's $100 on the wallet. If I ran out of money, I could just load it up with another $100 worth of Bitcoin and just kind of use it in this manner.

Is this a concern that this is the way that this is going to go? What are your thoughts on this being how medium of exchange, maybe the natural market forces are pushing us in this way? Talk us through your thoughts around all of this.

First, I don't argue with the market. The market does what the market does and it's a good deal. Again, a lot to unpack. But what we've done with BRIS is to create this notion of an LSD, a Latin service provider, meaning when you download the self custodial wallet of BRIS, you are connected to a professional and know that that is very professionally maintained and very tuned to make sure that your payments are going through

one of the reasons that lightning matured and became more and more reliable is because we no longer had this command here that you ran your own node, probably on your umbrella or whatever. But you were part of the reason that the network was flaky. So the less obvious we have as node runners, the more professional the network becomes. And part of the reason that the lightning

payment success rate increase in the past fully veer is because we went through this phase of a hobby from obvious to yeah to

evolution in the evolution of like the more professionals, the more money they have, the more liquidity they have, the likelihood of the payment to go through these increases by a lot. So that's one thing. I think the network needs to become more professionals. I think LSP is a notion that we brought to market and it's now widely adopted when you use the Phoenix when you use a breeze when you use it. There are other zoos or other

of custodial work, you're immediately connected to a professional LSE, which helps you in the success rate of the payments and solves the involvement.

you were talking about a custodial meaning when you use primal you said correctly you're using strike at the back end when you use blink when you use it i don't know big no big africa or pouch in in the Philippines you're basically using a custodial service my concern about custodial services is twofold one they can't say

It's a Bitcoin bank and a Bitcoin bank won't operate globally because all of their regulatory hurdles and there's no way to use this solution globally. There's no fiat payment that works globally. And if we want to provide the service to all of the people in the world, we can't rely on a custodial.

all service because that won't happen. We have 26,000 fiat payment networks. There's no single fiat network that works globally. So the only way for Bitcoin to be widely and globally accepted is maintaining its peer-to-peer characteristics. That's one thing. Secondly, I think that if we'll continue

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All right, back to the show. Roy, I think this is a really important topic because what you're really what you're effectively saying is there's a potential to bifurcate the lightning network into a KY seed network and a non KY seed network. Am I stating this correctly as far as a concern? Yes.

Letting network is just an implementation detail of Bitcoin. Bitcoin in general can be very, you can have white and black Bitcoin in the future. You already have that, which analysis and other products are kind of using to differentiate between different types of Bitcoins, but definitely it can happen. By the way, it's already happening. If in the early days of

every node was able to connect to another node in the network. You can't do that right now. If you're trying to connect to the cache node, for example, you can't. Only regulated entities in the US can connect

next to the cash app as an example. Do you think that this is is so is policy driving that is the the past administration that we're moving away from one of the reasons why cash app was very hesitant to just allow anybody to connect with them? And do you see that changing potentially if we get more friendly policies? Where do you think that this is hanging?

I think a cashup is a part of a blog which is a public company. You can take the risks that that company can take. Definitely being in the US, you need to be concerned about the risk and the regulatory landscape as we saw with the Samurai trial and in other occasions.

I definitely think that a more open administration can lead to less risk factors. Nevertheless, I think we all need to keep in mind that you can't avoid the inherent issue here. If you let someone else take care of your money, that entity is going to be heavily regulated, and that regulation

It's going to have user experience implications, meaning as a user, you will have to KYC and AML every time you make a transaction. And there's risks in preventing you access to the network in the future. It happens in fiat.

force in the future. The only way to circumvent that, again, we start this conversation by taking kind of the 100 years vision of one single CBDC versus a peer-to-peer. The only way to circumvent that is by everyone

owning their own money and executing peer-to-peer transaction. That's why we're so focused on the peer-to-peer aspects of Bitcoin. And the technology improvement, I'm a technology student, you start by saying that I'm a developer. Yeah, I believe in technology. I believe in the ability of us to evolve and improve technology. I think we'll get to a point where peer-to-peer transactions are.

Super easy and not just for us, the Bitcoiners, but for every mainstream users. And if everyone of us will be able to make peer-to-peer transaction, there's no reason that peer-to-peer won't be an alternative to banks.

One of the interesting things that you get when you start talking about federated systems or like cashew is you get way more privacy with the movement of the coins because of the way that federations work. Do you think that this technology and I know we called it layer three earlier would you agree that it's called a layer three or like what would be the correct terminology for these types of technologies?

I think cashew isn't really a layer three because it's not built on Bitcoin at all. I think I don't like to add another layer. Layer two is enough. It's complicated enough. Let's end the discussion on what's a layer two and then move to a layer three. I don't think it's point we need to add another. So the reason I bring this up is because it almost seems like this technology that people are just starting to build on here in the last year and a half,

is going to be instrumental in almost being a tailwind to non KY seed lightning and allowing these properties to allow it to continue to propagate where not everything has to be KY seed. And when we look at that five, 10, 15 year horizon,

Is this the thing that maybe actually allows and enables Bitcoin to remain the freedom tech that we all, you know, see it being because at grassroots and instrumental level of just like a $1 payment or a, you know, a cup of coffee type payment that you can do it with call it cashew or a feta mint or something that or these like tokens that have an enormous amount of privacy to them? Because once you get down and I also find this interesting and I'm sorry to me and are all over the place.

that layer one Bitcoin where it's really being used as store of value has a ton of issues with respect to privacy. But as you go further and further away from it in the really high frequency, low value per transaction size, that you get way more privacy once you push down on that part of the spectrum. And I find that really fascinating, right? That that's kind of how it's naturally pointed out.

One easy way to explain it is that as the chain keeps track, it's a global ledger and it keeps tracks on all of the transaction. And once you start building on layers, you no longer have to persist a global state. And if you don't

need to persist a global state, then inherently, you can more privacy. You have that in lightning, by the way, as well, because there's no global state. The state is persisted in the node. And if you are executing transaction, basically, the data is persist in the channel, which means it needs to persist by two parties. But there's no global

global state in lightning as well. Only if you open the channel or close the channel, then the state kind of resurfaced in the chain. So there's no ledger, there's no public ledger of the lightning transaction. I always laugh when people give me statistics about the adoption of lightning because the only thing that they can see is how much public liquidity is locked in lightning. They don't see the private

And they don't see the velocity. Yeah, the frequency of the payment the frequency of the payment So you can have a solution like Ellen markets And if you take a look for from an outside review you take a look at their note I don't know how like how big is the know that 30 40 Bitcoin something like that But I think people will be shocked when they realize how like what's the velocity how many payments Ellen markets are actually processing and what's the throughput of this

payments and I say that because this information is not encapsulated in the chain like you don't know you have no way to retrieve this information only if you go and inspect the specific node which of course naturally we don't have access to very specific nodes.

Well, this is an interesting difference from physical reality to the digital realm of money, where I think of it in terms of electrical engineering. When you open these channels and you're running frequency through the line, you need the wire to be really large if you're putting a lot of current through the line, or there's a lot of alternating current going through the line, the line would heat up and it would melt down. With this, that's not necessarily the case. You could have a massive channel and you could be using it very seldomly. Or not. It'll still, yeah.

It'll still carry the communication of the money transfer. The line could actually be really small because I think the frequency is unlimited because you're in the digital realm. It just doesn't matter. This is really fascinating that you're right. I guess all we can look at are the sizes of the lines connecting the network. That doesn't necessarily tell you how much the network is being utilized or what the frequency of that exchange is. Very fascinating.

Just taking a step back. I guess I'm just like, as an engineer, I'm looking at certain things that just like, make me say, wow, like, how is this happening in the digital realm? And it's so in parallel to the physical and then some other aspects that are just, you know, slightly different. But yeah, anyway, saying you have a one gigabyte connection at your home. So you can watch movies that are larger than that.

That's not the case, like you're downloading gigabytes or maybe terabytes of data on a very small channel. And the same happens in the network. It's actually counterintuitive.

more efficient lighting node if you get the ratio right between lock liquidity to frequency. Meaning you need to be very efficient with your liquidity and the more you can route using less liquidity, the more money and that's the incentives of the lighting network. The ratio between the velocity and the throughput of the channels divided by the channel size, that is the calculation.

for the profitability of the channel and the node.

So the less liquidity you look, but you're still able to process the payment that's going through your node, the more efficient, the more economical, the more money you make as a lucky node. Yeah. And many node operators are making the very beginners, like noobs, mistake of putting a lot of liquidity early on. Yeah. And that's it. They don't need to.

Their channels are just going to get exhausted. Well, their channels will just get exhausted to the edge node of where all the buying is taking place, right? Even if they're going to be used at all. That's it. Yeah.

Exhaustion means there's frequency. There's payments coming through. It's a good sign. If your channel is exhausted, again, it depends on the time spent. But if your channel has been exhausted, it means that you were able to successfully route payments, which is a good thing. There's a lot of notes, if you look at the Latin terminal or Ambos or other Latins for

You immediately identify the nodes that allocate tons of liquidity. There's something be cautious about these nodes because either they want to artificially capture traffic or they simply don't know what they're doing. Yeah, which in my case was exactly what it was.

you're still running your I still run my no but the channel capacity and all that I've just you know it was just too much effort and too much hassle but I learned a ton by doing it like I learned an absolute and according to you now that now the network can run a little bit more efficiently because amateur press isn't there clogging things up

Let's talk about your software development kit. So Breeze has an SDK. That's what that stands for. It's very popular amongst developers that are building on Lightning. Explain to the audience what this is, why it's important, what value it really provides to vendors or people that are building businesses on Lightning. Yeah. Allow me to take a step back again, because we talked a lot about Bitcoin. Bitcoin is a global currency.

Bitcoin, I don't think Bitcoin, I don't think merchant adoption, there's a lot of discourse about merchant adoption. I don't think Bitcoin right now provides enough value for people to use it in the context of buying physical goods or even digital goods. I don't think that's kind of the play where we're going to see

Bitcoin adoption. So what we want to do, we want to bring Bitcoin to every application and service out there in this kind of concept of creating Bitcoin or setting Bitcoin as a global currency. So imagine you're using TikTok and you want to kind of to a TikTok or as a TikTok or you want to earn

Monday, we want Bitcoin to be the currency that you do that. We want Bitcoin to facilitate these digital interactions. But the barrier of entry for developers today to embed Bitcoin payments into their solutions is super high. In order to, before the breezes decay, if you wanted to add lightning payments to your solution or your application, you had to have dedicated lightning team working on this project for two or

three years and basically what we do with the lightning SDK with the breeze SDK is lowering the barrier of entry and we're continuing to lower every day for you as a developer to integrate big on payment into your application or

solution. It takes days and we haven't had developers integrating like in hours. So we're continuing to to kind of lower the pair of entry of the embedding bit companions into apps and services. And basically that's our role. Our role is kind of to provide the best developer experience out there for embedding bit companions in applications and solutions. We have two flavors of our

SDK. We have a native implementation, which is built on top of green light by Blockstream. We learned a lot from the Brazil that in the work that we've done on lightning over the years. And we've managed to simplify everything, for example, by running nodes in the cloud using the green light infrastructure, providing automated lightning liquidity services, providing automated on-chain interoperability services. And everything is encapsulated

simple API. You have one API to send the payment, one API to receive a payment and all the heavy lifting is done on the backend. And we recently added a very popular to go much faster than I expected. We created a nodeless implementation. And in the nodeless implementation of our SDK, users

don't even need to run lightning nodes because the underlying technology is liquid. So people hold their funds in liquid, but the interface is still a lightning interface. We talked about lightning as the current language, basically the SDK

but it uses a different side chain in order to preserve the funds and people. In that scenario, and sorry to interrupt you, so you're outsourcing somebody else running the node, which means there's private keys associated with that node that's interacting with layer one Bitcoin. Is that correct? Or are you... So in the nodeless architecture, you still hold your funds and you hold the keys, but you hold it in the liquid wallet.

And when you want to do a lightning transaction, you basically do an atomic swap, a submarine swap between liquid to lightning. So you're always in custody over your phone and there's no way for an intermediary or third party to steal your phone even in

that implementation in the notice implementation. But there's no need for an LSP and there's no need for on-chain fees to occur because you're not interfacing with lightning using lightning channels. You're interfacing with lightning using atomic swaps. Got it. So while while you'd be holding funds in liquid, that's where you're trusting the federation liquid federation. Okay, thank you.

So if you compare the native SDK implementation to the nodeless SDK implementation,

In the native implementation, you just trust the chain. In the nodeless implementation, you trust the liquid federation. But it comes with... Yeah, it comes with the benefits. Not running your own node and doing all the technical, swoopy things that I talked about earlier being so challenging. Well, in the native application, you don't do that as well because everything is covered by the LSP. Basically, the LSP. Open channels, the LSP managed the liquidity, the LSP. What's the payment? The difference is

is that you don't have channel management fees. Basically, you don't need to pay an on-chain fee in order to onboard to Lightning, and there's no friction when it comes to closing channels or anything like that, because one of the functions of the LSE is to

allocate liquidity to reallocate liquidity. So it means that if you don't use the channel, the LFP needs to take your liquidity and use it for other users. And that means that they effectively will either close your channels or decrease your inbound liquidity. And that creates friction because next time you want to receive a payment, then another on-chain fee will occur. And you don't have that with another implementation. So from a developer experience, it's much easier to

integrate in all the implementation because you don't know. You're not dealing with anything other than you're not dealing with opening or closing channels and fees. But yes, you need to kind of subscribe to the liquid trust profile.

When I look at all these technical solutions and I see how robust all of it is, I'm starting to like up until now. I think if we went back four years ago, you were talking about how poor the reliability was, you know, when you were at the conference in Atlanta or wherever you were at. And today I think that we're really, we're quickly moving away from that where the barriers or the challenges for a vendor to start being onboarding and paying in Bitcoin

I don't think it's originating necessarily from technical challenges anymore. What it seems to me is if I'm a vendor and all of my bills are denominated in dollars and I'm receiving payments coming through the door, then let's say my top line is $100 and my expenses are $90 and they're denominated in dollars. That means I have free cash flows of $10, which I can then sweep into Bitcoin if I want to, you know, preserve that buying power and put it into something that's going to continue to grow.

And I think this is how everybody is functioning today. This is how I'm operating as a business today. And in many others that I know, micro strategies may be a little bit fancier with how they're implementing this. But at the end of the day, as long as that $90 of expense structure exists, and I mean, this could be a mama, just stool gas station for all we could be talking about, right? As long as those bills are all denominated in dollars,

A lot of them don't want to be accepting Bitcoin payments because then they effectively, you know, if I get $1 worth of Bitcoin into as a payment, I almost have to immediately take 90% of that based on the math that was just describing immediately turn it into dollars and then I can keep the other 10% still in Bitcoin because my bills at the end of the month are in dollars and I need to remove that variance of the price action versus, you know, between Bitcoin and dollars.

And you go to developing nations, let's say we're going somewhere where the inflation rate somewhere else is 50% annualized. They're having to deal with this volatility in their underlying currency and their expenses still being denominated in dollars or that underlying currency. And it just creates massive challenges for them to really want to accept this as a form of payment.

Do you think that that's the number one thing? Number one thing holding us upwards or something? Yeah. I think the capital gain tax is definitely a huge barrier and volatility. Yes. Although I think that volatility can also be a feature.

not a bug, meaning if you're a Bitcoiner and you understand the Bitcoin trajectory and you understand that the number goes up, you want volatility basically because the volatility is going your end if you can kind of retain the fund and not use it for instance. So let's take a company like the atom.

For example, the shoe company that accepts Bitcoin. Yes, not all the customers of Atom use Bitcoin or to purchase shoes. But let's say you have 10, 20% that do use Bitcoin or to purchase shoes. And they put it immediately into their treasury. It's the same app. Yeah, it's the same app. It's the same. Yeah.

Exactly. So volatility goes both way. Yes, of course, if you're in a survival mode and you're dependent on every penny that goes into the business, you understand that you need to pay expenses or raise groceries with it. We just don't feed the model. But another thing I think is very important to understand, the more Bitcoin is used as a medium of exchange, meaning the more price discovery happens for Bitcoin,

the less volatile Bitcoin will be. Yeah. Especially compared to physical, real things, not necessarily fiat currencies, but like real physical things, exactly. But like in Nigeria and Iraq, you can't really trust it, right? Now, fluctuated 40% after day. So I think, for these things happens in fiat, less for these things happen in Bitcoin. And I think the trajectory is very clear. We're being saddened. So I think, of course, the innovators and the early adopters

the

So fascinating and i'll tell you what right from a strategic standpoint just kind of understanding where so much of this is going you have always been just so helpful for me personally.

I've just cherished the conversations we've had in Nashville and other locations where we've had an opportunity to just kind of talk in person and this is like all of those other conversations. So I thank you so much for your time and coming on. Is there anything else that you want to highlight to the audience or throw out there that you guys are working on? I did want to say this with respect to the SDK that we were talking about earlier. I know you have this Yupaki case study that happened in Mexico recently. I don't know if you want to talk about that or anything else that you want to highlight to the audience. Sure.

The note that your package is in other words that we have two live implementations of our note list integration that just came out a month ago. We have stashfay by tanker that is creating an app for freelancers to be able to accept Bitcoin and your back is the second.

implementation it's a mexican and new bank it's a fascinating app by the way it shows you your package a good example to show you how much the things are and applications are not rush like it everything is so emotional meaning you need to there's no one size fits all when it comes to

to money. You need to speak in the language of your users. And your package is a great example for that, because something like fall, and I love Google and I love fall, but something like fall won't work in Mexico because there's no cultural affiliation to fall in your pocket. For example, they have a feature called the lotoria. Lotoria is something that is very common in Mexico.

like a Mexican raffle. And they brought the same feature to their app, and they're speaking the language of their users. And that's one of the things I like to see with the Prizes Decay. One of the reasons I was always kind of pushing to build something like the Prizes Decay is because there's no one-size-fits-all. And we need to have hundreds, thousands, and tens of thousands of applications fulfilling different requirements, speaking different languages, addressing different use cases.

So we're starting to see the first and no less integration coming to market. I think you'll be surprised next year to see how many existing applications, not new applications, existing applications, adopting lightning using the breezes decay. And even tens of millions of users using traditional fintech product pusher. We already see that with Kesha, but you're going to see other fintech solutions like Robinhood and others supporting lightning. So exciting times. Amazing.

Where can people learn more about Breeze? I'm everywhere and Breeze is everywhere. I think our medium is a good entry point medium.com slash Breeze technology and our Twitter X whatever I'm on LinkedIn. I'm easy to find. Awesome. We'll have links to all of that in the show notes. Roy, thank you so much for making time and coming on the show today. Thank you, Preston. Thank you so much.

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