The Breakdown - Making the Lightning Network Noncustodial with Spiral's Steve Lee [Bitcoin Builders Excerpt]

Episode Date: April 28, 2023

Bitcoin Builders is The Breakdown Network's new show about the Cambrian explosion of creativity and entrepreneurial energy around Bitcoin and Lightning. In this excerpt from my recent interview with Spiral's Steve Lee, Steve discusses their work on the Lightning Developer Kit and their approach to making Lightning easier to use in a non custodial way.  To follow and subscribe to Bitcoin Builders, find it wherever you listen to podcasts: https://pod.link/1680067216

The clip you're about to hear comes from my interview with Spiral Steve Lee on Bitcoin Builders. Bitcoin Builders, as you guys know, is my new show that's all about this Cambrian explosion of creativity and entrepreneurship happening in and around Bitcoin and Lightning. And Steve is right at the center of that. Spiral is the division of Block that's totally focused on helping Bitcoin grow in whatever ways they see fit. It has a grants program and it works on individual initiatives such as the Lightning Developer Kit. In this clip, Steve and I discuss how lightning can be and needs to be more non-custodial and what it'll take to get there. If you enjoy this clip, please go check out Bitcoin Builders. You can find it anywhere you listen to podcasts.

Matt O'Dell tweeted recently, something like the mental burden of using lightning in a sovereign way is exhausting compared to on-chain Bitcoin. Managing Lightning nodes makes me appreciate Bitcoin so much more. I think you guys quote tweeted that and said, On It. But I thought that was a great framing for this, for this challenge. He's exactly right. Lightning is tremendously more complicated than Bitcoin itself. It's a complicated protocol. And it's to a point now where the user experience for Lightning is pretty darn good if you're using a custodial wallet.

But non-custodial still remains a big hurdle. There are some examples like the Phoenix wallet on mobile, which is non-custodial. And it's a pretty good user experience. They've done a really good job with that product. But if you compare it to like an app. pay or a Visa credit card or Square or Cash App or Venmo, any sort of modern fintech solutions, there's still gaps on the user experience. And I'm a firm believer.

We can close those gaps. We can even exceed the user experience of existing technology and have all the benefits of Bitcoin behind it and Bitcoin has money. So when we've seen, you know, it feels like there's been a total flurry of lightning development over, you know, call it the last year. especially. A lot of that is in this sort of more custodial realm, right? These are these are projects that are building out better infrastructure, but still kind of, you know, not fully getting the true kind of pure to pure decentralized version. Is that accurate? That's accurate. I think cash app and wallet of

Satoshi are two really popular lightning wallets and they're both custodial. They do offer pretty good user experience and people are using them, adopting them. There's not a lot of hurdles, but they're custodial. And then for people who have started using Nostra and different Nostra clients, one thing that excites that early adopter crowd for Nostra is this feature called Zaps, which, you know, there's one Nostra client called Damos. It's a Twitter-like experience. In an addition to, like, being able to like a post or a tweet or a note, you can zap it, which just simply means, it's like a microtransaction. So like if you post something that I, find compelling or want to promote, you know, I can, I can zap it, I can tap it 100

Satoches or or 100,000 Satoches or any, any amount I want. And it's not a perfect user experience yet, but it's, it's pretty slick. So it is seeing usage. And it's just fun to have like a P2 dish and experimentation platform of using Bitcoin as money, introducing new people who maybe didn't even own Bitcoin before or know much about it, but they like that experience. That's all great. But the, so it's very good that that's the, happening, but the technology behind those ZAPs is using LNURL, which is a technology to facilitate payments. It has a number of benefits to it, including enabling this use case people are liking, but it also, you know, it's used, it's basically only works with custodial solutions,

unless a user hosts their own LNURL server themselves. So, you know, so again, if you're, if you're like a techie or a hobbyist, maybe you do that. But for normal users, it's only going to work custodially. But the good news is there's solutions in the works. A lot of it, you know, spirals working on, but there's other other organizations working on being able to facilitate all these great user experiences, scaling, et cetera, but do it in a self-sovereign way as possible. It sounds like the emergence of Nostra in particular, but the sort of set of things that

are bringing people into contact with Lightning specifically and Bitcoin more broadly, are both great from the standpoint of kind of driving new people in and creating more energy and excitement around the space, but also reinforcing the sort of goals that you had already had in terms of wanting to have this other set of non-custodial solutions in place so that those, these new experiences that people are having and are creating aren't default custodial just by virtue of what's available. Yeah, I agree with that. And, you know, someone did the analysis on Zaps, and it was 95% of them are from custodial wallets. So that's not really where we want to be. I mean, I'm personally, I'm not anti-custodial wallets. I think it's totally fine with custodial

wallets. They're just simply tradeoffs. But if Bitcoin evolves where non-custodial wallets are just too hard to use experience for people to use, and there's like this massive widening gap in user experience, then that's not healthy for Bitcoin. And pretty much everyone using Bitcoin, then would use custodial. And I think that's, at minimum, it's a world in which Bitcoin is, we don't really realize most of the benefits of Bitcoin. And arguably, it would be the death of Bitcoin long term. Because if everything's custodial, I think it would just like result in just a few global

custodians, which are easy chook points. I'm a strong believer, firm believer in, we need to do everything in our power to work on the technology and the design to close the gap on non-custodial. experiences and get as many people using it as possible and making it a realistic option, even for those that are using custodial, that they can gravitate towards or transition to non-custodial without a lot of pain. Yeah. I mean, listen, I wholeheartedly agree. And I also think that it's not hard to kind of watch the last few months of U.S. regulatory engagement with the wider crypto sector and have even more of an instinct to push things towards sort of non-custodial.

You know, even if the sites haven't been set on Bitcoin currently, I think it's, you know, there's plenty to be nervous about. One insight I've gained over time, like several years ago, I thought that, I mean, what I just said, I feel, I've felt for a long time now about the importance of non-custodial, but I thought the demand would come from end users. And I realized that, like, a lot of Americans at least probably don't go through life right now, thinking that that's important. So I thought the demand would come from other countries or people in different situations, but it might take a long time for that demand. But the insight I've gained,

I think that demand actually can also come from services themselves, because there'll be services that want to enable Bitcoin payments, but they don't themselves want to be a Bitcoin custodian or be regulated by the government. So for them to enable Bitcoin services without being regulated, they'll want to support non-custodial Bitcoin and not custody people's funds. So I think there'll be a lot of services out there that will be heavily investing in the technology and doing those upgrades to support non-custodial to avoid regulatory burden. Yeah, I think that that's a really good insight. And it's actually sort of a very positive, I'm almost like unexpectedly positive force

where, you know, we're so used to middlemen who want to capture more value in the middle that it sort of requires a little bit of mental rewiring to understand why there would be incentives, holding aside principles, just incentives for not wanting to sort of exist in the middle other than facilitation. But I think that that certainly the way that a lot of these, the regulations look like they're getting written in the sort of the debates when they get down into the technicals of it, there's going to be a major difference in the compliance around, you know, sanctions and AML and all that sort of stuff. You know, if you're taking possession of that big. Bitcoin or not. That's right. I want to talk a little bit about some of the specific things that you guys are

working on with the lighting development kit. I mean, it's a ton of things. You know, just like going through there's big, big graphics that people can check out that show all the things. But, you know, some of the ones that I've noticed you guys talking about a lot lately are sort of Node Mobile, making it easier to set up nodes. I've heard a lot about ASync payments. I've heard a lot about Bolt 12. So I don't know, you know, we don't have to be super comprehensive, but I'd love to just sort of dig into a few of the, a few of the things that are top of mind for you guys and what they potentially represent for the lightning space. Sure. And we just, we published a roadmap recently that people can go check out. It's, it's on the website for LDK is lightning devkit.org. If you go there,

you can find the roadmap post and read all these details. They are, they're quite technical. They're quite in the weeds. But I'll try to, I'll try to bridge it to like what it actually mean, you know, what it's trying to improve and how an end user would be impacted by it. Let's see. Let's start what you mentioned, LDK node, which we just announced. So let me first start by describing what LDK is. LDK, Lightning Development Kit. It's a full Lightning implementation, which, as I mentioned earlier, is a very complicated

protocol. There's four primary lightning implementations in the space, and, you know, each of those implementations has taken dozens of engineering years. to be built. The number of engineers in these projects range from four to seven, and it's taken each of them four plus years to mature to where they are today, and none of them are even close to being finished. There's still a lot of improvements being made. The LDK roadmap is an example of that, but each of the implementations has their own roadmaps and priorities. So it's a lot of work, and okay, so the different, you know, I was describing LDK. How does it differ from the other

Lightning implementations. The other Lightning implementations, they come in a form of a binary, a software application that you can just download as a user. Whether your business or a hobbyist or individual user, you can download and run their software. It's all packaged up into a complete application. LDK is not that. LDK is intended for developers, and it's an extensive API for developers with almost 1,000 functions in the API. So it gives developers really fine-grained control over how to build a Lightning wallet or a Lightning node. So that's a big difference between LDK and the other Lightning implementations, is giving that control and flexibility to create custom applications.