Episode Transcript
[00:00:00] Now that USDT and Bitcoin are natively interoperable on Lightning, the circle has gained tangents. With USDT on Lightning, each party to a payment, the payer and the recipient can choose whether to use Bitcoin or Tether on their own end. And neither depends on the other's decision.
[00:00:20] A customer can pay in Bitcoin and the merchant can receive USDT or the customer can pay in USDT and the merchant can receive Bitcoin or they can both use the same asset, it doesn't matter. Once both assets are native to Lightning, they become automatically frictionlessly interchangeable.
[00:00:41] The best in Bitcoin made Audible I am Guy Swan and this is Bitcoin Audible Foreign what is up guys? Welcome back to Bitcoin Audible I am guys one the guy who has read more about Bitcoin than anybody else you know. And we have got a read today, another one from Roy Scheinfeld.
[00:01:19] Big fan of Roy and what they're doing over with Breeze and the Breeze SDK. Misty Breeze is there their new wallet by the way. But I've always felt that particularly in a lot of the stuff that he writes, he's just always had his kind of finger on the pulse with Lightning, where things were going and what the proper trade offs were and how to think about how it was developing and where the likely kind of use cases in prominent activity would be. And he has a piece on usdt. So Tether coming to Lightning and all about the good, the bad and the unknown. So we'll get into it in just a second. A shout out to LEDN for Bitcoin backed loans. So this is a way to get Fiat without actually selling your bitcoin and without paying capital gains. You collateralize your Bitcoin? No credit check? No. I mean it takes literally a matter of hours. They do proof of reserves, they have open books every single month. This is really handy if, especially if you're on a bitcoin standard and you need access to Fiat. This is a really useful tool. Check them out and I have a special link actually where you can get a little bit less interest. Also check out PubKey app that's P u b k y dot app so there's no e. There are a handful of projects that I am watching very closely that are trying to re decentralize the web, that are trying to make all of the things that have locked us into silos usable, simple protocols and you can get an invite code for PubKey app. Synonym has built basically a proof of concept concept showing what you can do with their protocol stack. Especially if you're a builder, you got to check out what they have then get your light health right with Git Chroma I've actually got my skyportal mini which is a you can do amber or white light with it, but actually the really cool thing about it is that it's literally like portable, like it's battery powered. So like I can set it up on my mount but I can also just like take it with me and stand it up somewhere. So it's actually a great all around light, amber light, like great for, you know, keeping your circadian rhythm right. And that's really what Chroma is about, designing lights for humans. And I got a 10% discount right down in the show notes. And lastly, the hrf. The Oslo Freedom Forum is the center for bringing together freedom activists from all around the world to share stories, to share tools, to share news and information. And speaking of news, the Financial Freedom Report, also the newsletter from the HRF is one of the most information dense and best ways to keep up with everything that's happening for the fight for financial and monetary freedom around the world, including the best bitcoin tools to check out and where they are being utilized. Shout out to all of them for really just kind of the great products, the work that they do. I'm a fan and user of all of these and you got some discounts, links, goodies in the show notes and of course a huge thanks for supporting the show.
[00:04:21] All right, with that, let's get into today's read from Bitcoin Magazine and Roy Scheinfeld and it's titled USDT on Lightning, the Good, the Bad and the Unknown by Roy Scheinfeld.
[00:04:41] Everyone has heard the Chinese proverb scratch British misquote, May you live in interesting times. And how it's supposed to be a curse. It sounds deep, like a quote for edgelords over 80. But have you ever considered the alternative? According to the Anglo Saxon Chronicle, there were nearly two centuries where nothing much happened. Vivian Mercia famously called Waiting for Godot a play in which nothing happens twice, but nothing happened 191 times.
[00:05:13] I'll take interesting times any day. And that's exactly what we have now. Tether with their stablecoin USDT are coming to lightning. We've been talking a lot recently about how lightning is the common language of the bitcoin economy and how bitcoin is a medium of exchange. And it really is. Read our report.
[00:05:34] These two arguments now seem to be converging thanks to Lightning working as a common language, it makes Bitcoin interoperable with a wide range of adjacent technologies like usdt. And USDT is going to turbocharge Bitcoin into new use cases, new markets, and new challenges on a scale that the Lightning ecosystem has yet to experience.
[00:05:55] Given the choice, I'd rather dive headfirst into the unknown the then spend the afternoon on the couch. All the cool stuff is in the unknown.
[00:06:05] USDT on Lightning is terra incognita. Interesting times indeed. So let's think about what it means for USDT to join Lightning and for Lightning to move usdt.
[00:06:18] The opportunities, the risks and the wide open questions.
[00:06:23] Taproot Assets 101 Lightning was originally intended to increase the throughput of the Bitcoin blockchain, so Bitcoin was to be its only cargo.
[00:06:35] Taproot Assets is a new protocol that allows fungible assets, for example Stablecoins, to be transmitted over Lightning as hashed metadata, piggybacking on the same infrastructure used to process Bitcoin payments.
[00:06:51] The way it works is pretty simple for anyone who understands Lightning.
[00:06:55] The recipient generates an invoice that pings edge nodes, that is, the nodes connecting users to the broader network for exchange rates between Bitcoin and the asset in question, usdt. In the current case, once the user accepts an edge node's exchange rate, they generate an invoice for the payment and send it to the payer. The payer sends the asset to the edge node on their own side. The edge node converts everything into a normal looking Bitcoin payment. The payment proceeds through routing nodes along the network. As usual, the edge node on the recipient's end converts the payment back into the original asset, usdt, and forwards it to the recipient. Taproot Assets leverages the versatility of Lightning and Bitcoin to let users transfer new kinds of assets over the network using Bitcoin as the universal medium of exchange.
[00:07:46] One corollary of all the nodes speaking Lightning is is that any routing nodes between the edge nodes see only BTC in transit. Lightning tells them how to move Bitcoin, and that's all they're doing, as far as they know. Awesome. But there's more to it than just technical specs. USDT is, after all, a massive medium of exchange.
[00:08:07] Tens of billions of USDT value change hands every day, spread across millions of payments. Its daily trading volumes are in the same ballpark as the Brazilian rial and the Indian rupee.
[00:08:20] This is a big deal. So what does Lightning mean for usdt? And what does the addition of USDT mean for Lightning the good for Bitcoin so far, much of the strategy to bitcoinizing commerce has focused on orange peeling as many people as possible and growing the circular economy one user at a time.
[00:08:44] This strategy has perhaps reached the limits of its scale. The Circle has grown massively in the last decade and a half, but it's still limited and we need to think in terms of millions at a time.
[00:08:57] Now that USDT and Bitcoin are natively interoperable on Lightning, the Circle has gained tangents. With USDT on Lightning, each party to a payment, the payer and the recipient can choose whether to use Bitcoin or USDT on their own end, and neither depends on the other's decision.
[00:09:17] A customer can pay in Bitcoin and the merchant can receive usdt or the customer can pay in USDT and the merchant can receive Bitcoin, or they can both use the same asset. It doesn't matter.
[00:09:30] Once both assets are native to Lightning, they become automatically, frictionlessly interchangeable.
[00:09:37] Everyone is free to opt for Bitcoin's advantages as a medium of exchange grown from the bottom up by the users who or for USDT's advantages as an asset whose price is as stable as the U.S. monetary Policy and tethers Liquid reserves.
[00:09:52] Lightning and by extension Bitcoin stand to gain millions of users and billions of dollars worth of spending power. It's a qualitative extension of Bitcoin's utility. The new use cases will do more good for Bitcoin than a boatload of orange pills. It's also potentially a quantitative explosion for Lightning.
[00:10:13] Many of those new users might not even know that they're using Lightning, thanks to its efficacy as the common language of the bitcoin economy.
[00:10:20] But we old school Lightning vets know this is what we've been building towards.
[00:10:26] And since we just mentioned how Lightning would make USDT easier for American users to access, USDT will also make it easier for them to use Lightning. American tax regulation treats Bitcoin like an equity, making each payment a potentially complex concatenation of tax events. But if US users can access Lightning with an asset that never incurs capital gains, then they'll have access to many of Lightning's advantages without one of its particular regulatory drawbacks.
[00:10:57] Good for tether Tether typically issues USDT on proven blockchains that have achieved significant market traction, and they have no interest in launching their own. USDT is currently available on Algorand, Celo, Cosmos, Ethereum, eos, Liquid Network, Solana, Tezos, Ton, and Tron. Note that these are all proof of stake blockchains except Liquid, which uses a federation, so they're necessarily more centralized than Bitcoin. These blockchains also face different trade offs. Ethereum is relatively decentralized for a proof of stake blockchain, but its transaction fees are notoriously high.
[00:11:37] Tron is cheaper. Perhaps that's why, according to one estimate, nearly seven times more monthly active retail USDT users opt for Tron over Ethereum and send eight times more retail volume over Tron. But Tron is notoriously centralized, making it a choke point for usdt.
[00:11:56] If Tron were to fail, Tether would lose something like half of its total capacity across all blockchains.
[00:12:04] Ouch. By allowing USDT to be transacted over Lightning, which is inherently decentralized, Tether mitigates their dependency on cheap centralized blockchains.
[00:12:17] Further, Lightning could make USDT much more convenient to use in the US Market.
[00:12:23] US Exchanges sometimes limit USDT transactions to certain blockchains. For example, Coinbase says Coinbase only supports USDT on the Ethereum blockchain as an ERC20. Do not send USDT on any other blockchain to Coinbase.
[00:12:38] Lightning gives big exchanges like Binance, Coinbase, and Kraken, which already support Lightning today, a decentralized alternative for USDT payments to offer their users the bad.
[00:12:53] The new American administration has mooted onshoring the entire stablecoin industry and suggested that regulating it is their quote unquote first priority. In other words, they'll be paying very close attention to every development.
[00:13:08] As long as stablecoins like USDT are pegged to the dollar, those who control the dollar and profit from it will want to control the stablecoins too.
[00:13:19] Regulators think they can even improve on freedom by regulating it. They can't help it. It's in their nature. But it follows that as Tether gains utility on Lightning and Lightning gains utility as a means to move Tether, we're all going to be attracting greater scrutiny from regulators. It's hard to say how much they'll actually be able to do or what they're going to try, but it won't be any fun. Regulation is always friction.
[00:13:47] One area that's likely to attract regulatory scrutiny is the edge nodes. Conventional centralized exchanges tend to be subject to KYC AML rules in many jurisdictions, if the edge nodes will be automatically exchanging USDT and Bitcoin and forwarding payments, they might also look a lot like conventional exchanges to regulators, who tend not to like decentralization.
[00:14:12] The Unknown what's it cost and what's it Worth?
[00:14:18] While Lightning does offer users and USDT some significant benefits, it's not obviously the best all around solution. For every payment involving usdt Lightning users expect low fees. So do tethered users who use centralized blockchains and custodial exchanges. But adding a second asset to Lightning adds some financial considerations that everyone, routing nodes, users and especially edge nodes will have to reckon with.
[00:14:45] First, the edge nodes are providing the typical tasks of LSPs, keeping users connected to the network with enough channels and enough liquidity to keep those payments moving. In addition to converting between assets. That conversion is a valuable service that deserves compensation, and it can also be risky. Second, USDT is likely to increase transaction volume considerably, which means that LSPs and routing nodes will have to keep more liquidity on the network to forward those payments.
[00:15:17] They don't take the same shortcut as custodial exchanges, which just have to update their internal ledgers. The economics of liquidity allocation still apply, only more so will Lightning be able to compete with centralized blockchains like Tron for USDT payments? The answer will probably resemble the answer to most questions about matching technologies with use cases.
[00:15:40] Each technology will have certain strengths and weaknesses that recommend it for certain use cases and not others. As usual, the market will figure it out. However, since the technology wasn't tailored to this particular use case, price discovery will be a process of trial and error, which takes time.
[00:16:00] Free Call Options uh oh.
[00:16:03] Edge nodes face the risk of the free call option problem, which is interesting enough to merit its own discussion here.
[00:16:11] There is a new risk, and it's inherent to any situation involving two assets in a single Lightning payment.
[00:16:18] Lightning payments need to be completed within a certain time in order to be settled or the invoice cancels automatically.
[00:16:25] That time is the T in hashed time locked contracts. When the edge nodes bid with their exchange rates for USDT to bitcoin payment, they calculate their bids based on parameters like their current liquidity situation and the spot price.
[00:16:43] But the users have a window between accepting the edge node's bid and the expiration of the HTLC in which to settle the payment. Prices can move in that window. If I initiate a USDT payment at one rate, then I can wait until the rate moves in my favor before I release the preimage to settle it. If the rate moves against me, I simply don't release the preimage. In that case, the edge node might initiate a channel closure to redeem their funds, but that's a slow and therefore costly process. If it moves in my favor. The edge node is on the hook for the difference. Heads I lose nothing. Tails, I fleece the edge node.
[00:17:25] Payments involving any combination of assets on Lightning give the user a call option Traditional financial institutions manage their downside risk in selling call options by adding the risk to the price. These options can get very expensive for unprepared edge nodes. Just ask Hillian and Michael at Boltz, who originally brought this whole issue to my attention and had the class to describe it for all of us in the ecosystem. The alternative is for the edge nodes to price the call option into their quotes, just like traditional financial institutions.
[00:17:58] Intertemporal arbitrage is great work if you can get it.
[00:18:03] Users aren't the only source of concern for edge nodes either. If a routing node fails to forward the preimage, whether through intent or malfunction, the edge node could still be on the hook. At least with routing nodes, it might be possible to implement some form of reputation system to help choose the route. However, a reputation system for end users might not be feasible as new users will be constantly joining the network.
[00:18:29] The free call options have never been a problem for Lightning until now because the network has only dealt with a single asset, Bitcoin. If the free option problem becomes serious enough, one could imagine multiple parallel single currency Lightning networks emerging. One for Bitcoin, one for usdt, another for if Bitcoin gets cut out of the loop, we will lose the benefit of Bitcoin interoperability.
[00:18:55] We might even wind up regretting bringing USDT onto Lightning in the first place.
[00:19:01] We're in it for the interesting times.
[00:19:05] Bitcoin was always meant to be revolutionary. Disrupting broken fiat is the whole point and always has been. We're in it for the revolution. We know that change and disruption was never going to be a smooth process, but change is a good thing.
[00:19:21] Progress is just a kind of change that people welcome. We welcome USDT on Lightning because we see the opportunity it can represent. Progress for USDT users, for Lightning and for Bitcoin. Like any change though, it's going to require careful thought, preparation, sharp instincts and quick reactions. You don't go into uncharted territory without the right gear and a few skills.
[00:19:47] Anyone in the Lightning liquidity business is going to face some new challenges, but also stands to make some big gains.
[00:19:53] Tether stands to gain an economical, decentralized distribution network and better access to the vital US market.
[00:20:02] Lightning stands to gain a massive infusion of liquidity and users. Bitcoin will be natively interoperable with USDT that's why there's so much excitement.
[00:20:14] But regulators are watching and Edge Nodes will only offer the indispensable conversion services if doing so is profitable, not ruinous. So let's approach this change as we do all new developments in lightning by thinking hard, designing carefully, hardening our code, preparing the market and never losing sight of our ultimate goal, which is to realize the universal Bitcoin economy.
[00:20:42] If you're going to use a service that custodies your bitcoin in any way, never use one that has not survived a bear market and a wave of bankruptcies and ensure that you can actually see your coins. This is why Ledn Ledn Leden IO is one of basically two companies that I will actually recommend to people for doing bitcoin backed loans. We also did a chat episode with one of the co founders before we had even talked about any sponsorship or anything. Just because I mean that episode was fascinating if you haven't watched that one, just to get his perspective and the story of how this all came about. It's a really, really good one. It's chat 135. Do one thing and do it right. But the bitcoin backed loans at Leaden could not be simpler.
[00:21:28] It's. It's an easy way to get a loan without a credit check. All of the kind of nightmare of traditional finance and thinking around loans is just made easy and straightforward. So, so check them out. They're open about everything. They actually have open books every month. And I got a special link down for you in the show notes. You know I think one of the best things about this article is that the recognition like there are unknowns. We don't know exactly how this is going to play out but it's very likely that many things or directions that we take. Bitcoin could have downsides, could have negatives, maybe even have negatives that outweigh the benefits.
[00:22:09] But I'm in it for the interesting times. You know, there's no way to know exactly what the outcome is going to be for anything. And the there's the interesting idea on like there's definitely trade offs when it comes to tether on lightning but the really big thing is the fact that these two would be so interoperable is that you'd nearly eliminate the idea of an exchange at all. You would be able to swap between bitcoin and lightning just as a matter of the invoice, like how do you pay the invoice and the liquidity to swap between them would be so great.
[00:22:52] This would amount to essentially a giant global open order book for exchanging between dollars and bitcoin. This would be exactly the sort of thing that created enormous amounts of stability in the bitcoin price because of just the liquidity to get in and out. Because you would be able to quote, unquote, sell or buy bitcoin or dollars without actually going to a place to sell or buy on an open order book, you would literally just be doing it through an exchange over the lightning network. It would just be a liquidity swap in the, in a payment network. Now the free call option thing is definitely an element that could make this end up making this not super economical where that kind of like perfect future of just movement between the dollar and bitcoin is so unbelievably easy that you have this sense where exchanges are almost kind of irrelevant, at least for any small sums. You know, obviously large sums, you would still need like, you know, some sort of like large infrastructure and enormous pool of capital to actually go in and out. When it comes to billions of dollars, you're not going to pay a billion dollar lightning invoice, but that it would completely change the nature and the need for like a dedicated bitcoin exchange for small players and small payments. And that sort of thing. Like this is very, very similar to what happened with strike is when strike first came out.
[00:24:25] I, I was using it regularly, quote unquote to buy bitcoin because if you had bitcoin in your balance on strike, you can just pay a lightning invoice. People are like, oh well, you can't buy bitcoin and strike yet. Well, obviously they added that. And then you can like do, you know, auto purchase every hour and day and all that stuff. They have like a bunch of their buy bitcoin features and they have a bitcoin balance. But you could pay a lightning invoice and use your dollar balance as a, as a means of purchasing something, as a means of just fulfilling a payment on, you know, the bitcoin company or fold for like a gift card or bit refill or shake and steak and shake, anywhere that accepts bitcoin. And this is awesome. But what I would use it for more than anything else was I would literally, I was trying to get myself into good habits and stuff. So when I would tell myself I wasn't going to, you know, eat this thing that I probably shouldn't eat, or go out and buy something or go out and do something that. And I just save money instead, what I would do is I would take the equivalent that I was about to spend out at the coffee shop. Like let's say I make coffee at home instead of going out to the coffee shop. Well, what was going to cost me to do my, my crazy coffee with extra shot and you know, coconut milk or whatever the crap it was. It's like, okay, that was gonna be a freaking nine dollar coffee.
[00:25:48] Well, I'm going to buy nine dollars worth of bitcoin and what I would just do is I would create an invoice to my own lightning node and I would just pay the invoice from my dollar balance on strike and then I had $9 worth of Bitcoin. But from the strike side it was just a payment. Like I was just fulfilling an invoice. So from their side, I don't really have any of the regulatory stuff. It's not like I'm buying an asset. Like it's all just like they have no liability or obligation to know what I'm paying for. I've just made my own invoice and they are running a payment processor that allows you to fulfill a lightning invoice. So there's no capital gains in this. You're going from dollar to dollar invoice. And obviously this is the lowest fee way to buy bitcoin and especially when you're talking about small amounts over and over and over again. And it was a great way to stack. I mean it still is. I just haven't done it in a while just because I end up doing everything through folds. Because it's just one place, it's nice to have everything in one place. But we could end up in a situation where tether, lightning and bitcoin work together nearly as seamlessly, where the movement and swap between these is so easy that buying lightning payment sized amounts of bitcoin and using USDT basically at merchants or in order to swap between bitcoin could be so, could just be so simple that it's seamless. It's almost like you're, you're using the exact same thing. And there's already different wallets that can utilize both of these as well. So one of the things about Aqua Wallet is that you can actually have tether own liquid. And literally the only that I can't say this enough because I really think people discount just because it's fiat. They're like, oh, you know, fiat's the devil. So it's like you can't, there can't be any sort of progress that involves fiat at all. But if anybody wants to take a sober look at what this entire space has developed. The two dominant use cases, the two things that actually have staying power and actually have meaningful use cases and bring positive value to millions of people. Hundreds, hundreds of millions of people, potentially billions all around the world.
[00:28:11] The only two are Bitcoin and US dollar stablecoins. And understand the US dollar is the king of a giant pile of crap. It is the best of a bunch of garbage, which means that the whole world actually benefits from being able to use better crap than the crap, the crappy, crappier crap that they are currently stuck with.
[00:28:37] And dollars without rail restrictions, dollars without limitations as to where you can use them, dollars without jurisdictional boundaries, dollars without having to connect and get an account with a bank that you can just use with an app on your phone. Using keys is a massive step in the right direction. It's good for the dollar, but systemically it is undermining the concept of fiat because it is moving fiat onto Bitcoin on cryptographic Rails, which means that an entire generation, multiple generations of people will interact with the dollar and may only ever interact with the dollar using the exact same system. The behaviors, the habits, and the concept of how you run it or how you pay for it and like how you make a transaction and how you store it and keep it safe. That is exactly the same as Bitcoin. And what it does is it consolidates fiat before the fiat system is actually completely replaced. And it actually makes sense that those would happen at the same time that you would have a consolidation, you'd have a fallaway of all of the weak fiat, where the dominant fiat actually took advantage of how the new infrastructure works to be accessible to everybody. And so you'd have, you know, 200 different fiats collapse down into just two or three at the exact same time that you have Bitcoin rebuilding and redesigning the idea of global financial and monetary infrastructure at all, until basically Bitcoin is the dominant and only real source of. It's the source of liquidity around the world. But it all depends on your timeline. It all depends on your timeline. And I still think this is, this is a 50 year shift. Like monetary shifts just take a long time. And we're looking at a technological and a monetary shift happening at the exact same time. And obviously the technological, the infrastructure shift is going to occur first because technology is faster than monetary than trust. Technology moves faster than trust.
[00:30:50] Now going back to the idea, so where, where would this idea fall apart or where is the big drawback? And the idea of a free call option is you can get a call option and if it doesn't work in your favor, it costs you nothing. Like you can just fulfill it. And if it does work in your favor, you can, you can benefit, you can exit it. And the enormous risk that edge nodes take by doing this. Well, let's say we take it in the context of LSPs, right, is that everybody has their own lightning node and they're getting tether assets on lightning and all of this stuff. So, and so everybody has like a channel.
[00:31:30] Well, I doubt that it actually goes that way just because of how we've seen the, the space play out. I think so far it's likely we will see more of it. But I think the edge cases or the edge nodes will likely be custodial services.
[00:31:48] We will still end up with predominant custodial wallets and that's a much easier situation to pay. I mean just, just because we're going to be predominant custodial wallets anyway. You're always going to have the option for sovereignty. But custody, like a service provider is always going to be more widely used than the decentralized hold your own keys alternative. It is now and it has been basically for Bitcoin's entire history, going back to when custody just wasn't even an option, like there didn't exist a service. So just generally with that out of the way, I think probably the most likely way that people will interact with this is some end service kind of like strike that fulfills a payment via Bitcoin or USDT based on what the recipient wants. And in that situation you have a much more kind of like known and trusted relationship between entities because your edge node is fulfilling the two various payments with some entities, a business entity or someone who's going to be doing a lot more volume and is just kind of easier to know they aren't going to cheat you and has a longer term relationship with you. Whereas when you're looking at end users connected to an LSP and you don't know who any of the users are going to be, that's an inherent risk.
[00:33:16] And from the context of like sovereignty, I think it actually makes sense to have a bit of a caveat, like some sort of a secondary or fallback mechanism.
[00:33:28] Kind of like how you have the bitcoin backed loan, things like I think there's Firefish and Debify. No, maybe Debify as a service, I don't know.
[00:33:42] I think there's at least one network that is built on just finding peers together and then doing a multi SIG and doing like loans based on like just an agreed upon price, you just kind of have like an open market for it. Now if you're using a service, like a dedicated service like Unchained or Leden, that is literally getting the liquidity from somewhere and then setting their own price, it's different. But if you're in an open market, you have to have a trust minimized model because you don't have an entity that you're trusting for setting up the price or for setting up the market or your agreement, you know, whatever it is, you have to have some sort of a trust minimized thing. If you're doing kind of like the Airbnb model, right, is you're just finding a provider and you're finding a customer and you're trying to connect them together, that's a little bit more like the LSP model, is that you're actually just, you know, you could be on the hook if you have somebody in your Airbnb who has no rating and they just come in and they trash the place and they just leave and there's nothing you can do, there's no recourse. This is a little bit like the open call option. Problem is that someone can use your htlc, somebody can use your routing and swapping between a, between two different assets as a way to game the system so that you can get an outsized benefit. You can basically get a discount while the cost is borne by the edge node.
[00:35:13] Which is why I think it makes sense for, in the case of a sovereign user, in the case of somebody who's opening up channels and doesn't have a long term relationship and hasn't done a bunch of payments or whatever to have some sort of a kind of like a hold htlc, like a setting aside of funds. So like, let's say I am doing this, I'm. I'm using USDT and I am paying you for an invoice. You don't actually, the edge node doesn't necessarily have to charge me 10% if there's a risk of losing 10% if I'm being malicious. I mean, let's say there's like $1, I'm trying to send $10, right?
[00:35:51] They can actually just hold. We can make an agreement to hold a dollar for any variance in the next hour or whatever. The HTLC timeout is the expected variance so that we can quote unquote. Agree. So basically I just can't use it like that. And something like that might be simple enough to Mitigate the trust or mitigate the risk for new users when you can't have a reputation system and still make it so that the cost the UX on like how much it costs to send a payment so you're not adding, you know, a potential like kind of. It's like credit cards, right? If you buy bitcoin with credit cards it costs like 8% or 10% or something stupid like that at some of the, like, some of the, like I've been to one of the Bitcoin ATMs or whatever and literally the price is just out of this world. Like you're buying bitcoin at like 145,000 or something right now. Just, just an insane fee on some of these.
[00:36:57] And the apparent thing that they're exploiting is the fact that people come in trying to buy it because they hear about it and they just don't know anything about it. And they just seen the bitcoin ATM or something and so they're just completely clueless as to what's going on.
[00:37:12] Essentially it feels like it's an exploit on ignorance because it's still like it's horrible. Kyc like all of the setup, the whole bitcoin ATM thing so in so many different situations just feels like a total mess. I'm sure there are good ones out there, but most of the ones that I've seen, I've just been like, this is, this is bonkers. Who does this? Again, exploits ignorance as people who just don't know a different way to do it, in my opinion. But let's say that system does work is the swapping in and out. And you know, anybody can use Bitcoin or Tether or any stablecoin with the edge node and they don't have to think about what's happening over the lightning network.
[00:37:52] While it does bring a lot of regulatory scrutiny, it also makes. It's a huge thing for basically limiting the consolidation tendency of the dollar stablecoin network.
[00:38:09] Everybody I, I love that Tether is doing this or pushing this because it's actually bad for tether's quote unquote monopoly in the stablecoin industry. Essentially. It would actually be incredibly good for every other stablecoin issuer or anybody who wants to be a part of the stablecoin market and you know, issue a dollar stable coin. It is to their benefit to push this as hard as they can because it means that there is no. It shuts down so much of the network lock in. And a perfect example is that coinbase the whole Coinbase, Binance, Kraken examples who accept lightning is that if they accept lightning they can accept USDT or you can send usdt and importantly is you can send USDT and just have it fulfill a bitcoin invoice.
[00:39:00] Real quick, before we close this out, I just want to thank LEDN Bitcoin Backed Loans for having a great service and also for supporting the show, the HRF for the massive support that they've showed me and the incredible work that they do. Check out their newsletter, the Financial Freedom Report of course synonym and the stack that they are building to re decentralize the web. Check out pub key P u b k y dot app and then get chroma for lights designed for humans. Get your hormones right, get your circadian rhythm right, you will not regret it. And a 10% discount is hard to turn down. Bitcoin audible all one word links and details in the show notes, you can essentially use USDT at those exchanges without them even knowing in a sense. Now granted, if you're not using them as the exchange, I don't quite know why you would do that, but there are reasons. Just like my strike example where I would send out US from a US dollar balance and then I would have bitcoin, I'm essentially buying bitcoin. Well, you can do the same thing in reverse with somebody who accepts Lightning and or if you have USDT and you want to use USDT but somebody's like I only accept coinbase dollars or I only accept this stablecoin token because a lot of them do and it's really annoying and stupid. Well that restriction falls away now. They can't tell you that you can only use Tether or that you're only allowed to use USDC because you can have USDC or you can have Tether and you can just pay in with Bitcoin. And I think the potential benefit of that and the massive, massive boon that this would be for lightning liquidity I think is well worth the risk in my opinion. And even if it ends up being largely a USDT lightning network and a Bitcoin lightning network as separate things, there will inevitably be a huge number of bridge nodes that you can use. Because the thing is is that it's permissionless, anybody can set it up. And I think in the end no matter what happens, you'll still kind of end up getting this best of both worlds in some context, because if you have liquidity on both networks, it's just going to be too easy to bridge them.
[00:41:17] Case in point is liquid And Bitcoin have different fee structures, they have different block times. You know, they, they're liquid, is literally a federation. So the coins are literally locked over there and withdrawing. It is a completely different setup. But I have multiple wallets that will talk both coin OS aqua. I have these things where I can easily swap back and forth. And they are separate networks. They're quote unquote separate lightning networks. But because I'm using a bridge, it's stupid easy to get from one to the other that's going to be present. Even if we end up where most USDT travels on a USDT Lightning network and most Bitcoin travels on the Bitcoin lightning network and they are separate entities. I still feel like the, the ease of setting up a swap, of setting up a bridge and the potential benefit, the potential that you could earn from something like that, it's just going to happen. Like it's inevitably going to mean that everything is more connected, everything is more seamless. It all behaves as one thing. And whatever you're using, you just have the choice to use it. And moving in and out is the choice of one of hundreds, thousands, possibly of quote unquote service providers or wallets. Or you can do it sovereignly, you can, you know, use your own node like it just, you're just going to have the whole scope of what is available and the global financial and monetary infrastructure.
[00:42:45] So much of the friction is just going to fall away piece by piece by piece.
[00:42:50] So I say forward into the unknown. I think this is going to be a very good development and I think even with the potential drawbacks in the short term, it just puts us closer into the long term for when Bitcoin wins. And that's the world I want to be in. Shout out to the supporters the audio nauts. I will catch you on the next episode. And until then, everybody, that's my two sats.
[00:43:28] When you're wrestling for possession of a sword, the man with the handle always wins.
[00:43:34] Neil Stevenson, Snow Crash.
