#2 - Bitcoin Conference 2022 Recap
Takeaways from Miami
Matt Fox - April 24, 2022
Introduction
Bitcoin Magazine’s 2022 Conference brought over 25,000 attendees to Miami, making it the largest bitcoin gathering in history. The conference spread over 3 days, from April 6th-9th, with four general focuses:
· The Lightning Network
· Bitcoin Mining
· Bitcoin Protocol Development
· Bitcoin’s Cultural Relevance
This piece will provide high level takeaways from Bitcoin 2022, primarily focused on the Lightning Network and bitcoin’s cultural relevance. Discussions of mining and protocol development will potentially be subjects of future memos. Links to relevant speeches and product announcements from the conference will be referenced throughout.
Apologies to readers who are not already familiar with the Lightning Network (“LN”). A comprehensive overview of how LN works, how it compares to other scaling models in “crypto,” and NGU’s investment thesis on LN will be the subject of a memo that will be published in a few days. For those readers, it may make sense to read that memo first.
The Bending Arc of Bitcoin’s Progress
For the last four years, the arc of bitcoin’s progress has been characterized by financialization. The “digital gold” narrative has gone mainstream during a period of elevated inflation concerns, and futures, institutional custody and other infrastructure have made regulatory-compliant price exposure widely available. The investment case for bitcoin is, of course, driven by its functional properties (scarcity, censorship resistance, etc..), but those properties enable bitcoin to serve as much more than digital gold. While financialization has been helpful in cementing the investment case for bitcoin in the public psyche, it has largely ignored these expanded use cases.
Financialization has dominated the public discourse because bitcoin’s functionality has seen relatively little improvement during this period. All blockchains face inherent scalability challenges, and to ensure the continued reliability of the protocol, the bitcoin ecosystem has decided to pursue functional improvements off the main chain, on “Layer 2” networks that sit on top of the bitcoin protocol. For the last four years, the ecosystem has been waiting for the maturation of the Lightning Network (the most promising Layer 2 solution on bitcoin) to improve scalability and drive incremental functionality.
During this time, Web 3 protocols have been able to unlock immediate scalability improvements by making Layer 1 trade-offs (at the cost of assurances on various vectors of decentralization that we discussed in our Why Bitcoin piece). This allowed Web 3 to capture mindshare from developers, users, and investors, as it was viewed as the center of innovation in the “crypto” space, while bitcoin was characterized as simply digital gold.
However, Bitcoin 2022 sent a clear signal that this narrative is about to shift. From announcements of Lightning Network integrations by numerous major companies (Robinhood, BitGo, BitPay, and incremental LN-enabled features from CashApp), to a bevy of new companies built and innovating on LN, the clearest takeaway from Bitcoin 2022 was that the Lightning Network has arrived. With it has come a new era of bitcoin’s progress – a wave of technological and functional advancement. While we are still in the early days of LN, it has already enabled (i) a radically improved payment experience with bitcoin and (ii) an environment of compounding innovation on top of bitcoin.
In the simplest sense, the Lightning Network enables the Medium of Exchange (MoE) functionality on top of bitcoin that has for so long been its major criticism. This categorically improves bitcoin’s value proposition and brings it one step closer to being an open, global monetary network. Bitcoin is already a superior store of value, and BTC/LN is a superior global MoE in the internet age. The mental model here is that BTC/LN offers the ability to reduce an array of financial services (provided by quasi-governmental institutions relying on an onerous regulatory framework) to simple software / APIs (provided by open source software and relying on cryptographic guarantees). An example of this can be seen with Lightning Escrow, which uses BTC/LN to enable escrow without counterparty risk. Companies like Lightning Escrow are the beginning of a seismic shift that will dominate fintech for years to come.
Not only does BTC/LN disrupt legacy financial services, but it also enables other industries to drastically improve their offering through becoming “bitcoin-enabled.” Bitcoin is already natively global, digital, and programmable, and LN further unlocks those benefits by enabling instant, cheap and private bitcoin payments. Low-value payments with instant settlement, on a natively interoperable monetary network will redefine the possibilities frontier across a number of industries. Gaming, already a digitally native industry, is a clear early use case, with Zebedee serving as a great example. Zebedee enables game developers to, in under a week, substitute their current reward / value transfer mechanism with BTC/LN payments. Users can earn in-game rewards worth “real money,” and bitcoin’s programmability enables value transfer (such as audience tips to streamers) to be programmed to have an impact on the game itself, potentially revolutionizing the gaming experience. Zebedee fits very neatly into NGU’s thesis (to be fleshed out in our upcoming memo) that the path of “crypto” adoption will not come from large swathes of computation / online activity happening directly on a blockchain, but rather from one specific activity (value transfer) being done on top of bitcoin and plugged in to an expanding range of products.
Finally, and perhaps most importantly, LN enables a much more experimental environment for bitcoin development, by moving the epicenter of innovation up off the bitcoin protocol (Layer 1) itself. It is clear that LN’s impact will reach far beyond bitcoin payments, and we are already starting to see the beginning of compounding innovation on top of LN. A few examples include:
· Lightning Addresses: Builds on the LNURL standard, essentially enables bitcoin payments to be plugged directly into the internet. It does this by continuing to move bitcoin payments up the stack, from On-chain à Lightning Network à HTTP. Lightning Addresses offer an email-like identifier for receiving bitcoin payments over LN. This greatly eases the onboarding process for new users, as payments can be reduced to a UX that everyone is familiar with (an email address).
· Taro: A new protocol for issuing / transferring assets on BTC/LN, from Lightning Labs. Though still just a proposal, Taro would enable developers to create tokens supported by bitcoin’s security and powered by LN’s scalability. Potential use cases extend from stable coins to NFT’s on BTC/LN.
· Impervious Browser: Impervious.ai announced the launch of what they are calling “Layer 3” on top of BTC/LN, the tools and infrastructure for a peer-to-peer internet. Early features include essentially a version of the google suite, with video and text messaging, document collaboration, and payments all in an entirely peer-to-peer environment. This offers tremendous potential to counter the surveillance and censorship that dominate the internet today.
In summation, LN has arrived, and with it comes a new era for bitcoin. BTC/LN will challenge existing financial infrastructure, revolutionize a number of tangential industries, and consume a significant portion of the “crypto” ecosystem.
BTC/LN Adoption and Equalizing Force
Another strong impression coming out of Bitcoin 2022 was the advanced BTC/LN adoption in developing countries, specifically in Latin America and Africa. This development is imminently logical, from the perspectives of both the citizens (bottom-up) and governments (top-down). It is often difficult for people living in developed countries in the “West” to appreciate bitcoin’s value add, as they enjoy generally strong rule of law. The advantages of a truly rules-based economic system that requires just a mobile phone to access are appreciated much more by people living in countries with a history of hyperinflation, capital controls, high populations of unbanked, weak property and civil rights, and corrupt governments. A reality that was highlighted by the Building Bitcoin Communities panel in Miami is the severe opportunity gap faced by citizens of these countries, where political barriers inhibit economic access and participation. By providing key infrastructure for broad economic activity on top of bitcoin, LN crucially levels the playing field of economic participation. BTC/LN is shaping up to serve as a great equalizing force on the global economic landscape, with those who are currently disadvantaged by inescapable political factors being some of the first people building on this new, open, level playing field.
From a top-down perspective, it is also extremely logical that the first countries to embrace BTC/LN will not be world superpowers. There are two main elements to any government’s assessment of BTC/LN, internal and external factors. The first internal consideration is the balance between freedom and government power. Bitcoin is undeniably a positive force for individual freedom (perhaps one of the strongest in human history), as it brings a free and open market structure to the institution of money, and enables globally seamless economic interaction. However, the software age has also provided governments with tools of control over their citizens (perhaps the strongest in human history), as it enables scalable surveillance and implicit control over their finances (recently seen in Canada). In the internal calculus is also the opportunity for economic growth that BTC/LN presents. It makes sense that countries starved for economic growth, with high populations of unbanked, would be more favorably disposed and show more urgency towards a pro-bitcoin agenda.
The second element in the government calculus relates not to internal pressures, but external considerations. The power over money, and the financial system broadly, has been a major source of power for developed countries during the period of globalization. We discussed in our Why Bitcoin memo how these tools have increasingly become key levers in global politics. To the extent that bitcoin’s open monetary network continues to gain traction, global powers may see a decreasing ability to use the current walled gardens to protect and enhance their power on the world stage. While this factor may drive government opposition to BTC/LN from world powers, developing countries are much more likely to be ambivalent, or even positively inclined, to a disruption in the current global monetary regime. The irony is that those countries with “poor records” on rule of law have generally been excluded from a seat at the table in the current geopolitical order, so many of those with the least to lose from external factors are those who care least about their citizens’ freedom. However, we are certainly seeing exceptions to this paradox, with many countries in Latin America and Africa leading the way on embracing BTC/LN and making the astute decision to cast their lot with the world’s first open monetary network.
Bitcoin’s Cultural Relevance
While bitcoin is first and foremost a network that facilitates the transfer of value, it has always represented and had implications far beyond that. Similar to how the printing press was just a machine for mass producing text but had an indelible impact on human history (improving literacy rates and paving the way for the Renaissance and Enlightenment), bitcoin’s establishment of a new paradigm for a specific, foundational element of human life (value transfer) will reverberate across many others. We briefly discussed above the intimate link between bitcoin and freedom (perhaps the subject of a future memo), and Bitcoin 2022 hosted numerous discussions that highlighted bitcoin’s creep into politics and culture generally.
Peter Thiel called bitcoin a “revolutionary youth movement” and compared what he called “the most honest market in the world” to the existing “financial gerontocracy that runs the country through virtue signaling.” Ricardo Salinas, Mexico’s third richest man, called bitcoin the only way to escape the “intolerant…fiat religion” and the hyperinflation it will inevitably produce. Republican and Democrat candidates for congress shared a stage to discuss bitcoin as a tool of bipartisanism. Artists showed and sold their bitcoin-inspired paintings and sculptures.
These moments highlighted that bitcoin serves as a Schelling Point (an organic rallying point) – not just as a monetary tool, but for freedom generally. In the same way that the printing press empowered individual expressive activity and forced a reevaluation of legitimate governments to include the protection of freedom of speech, bitcoin empowers individual economic activity, and is trending towards forcing a similar reevaluation with respect to financial activity and internet activity generally. The increasing diversity and prominence of these speakers showed that, as time goes by, more and more people will recognize bitcoin as a potential solution to problems they observe in a world increasingly defined by political capture. The signal here is that bitcoin is a grassroots phenomenon that is not going away, and that the path forward may be characterized less by what we do to bitcoin, than by what bitcoin does to us.