We Study Billionaires - The Investor’s Podcast Network - BTC220: US dollars on Bitcoin Lightning w/ Luke Gromen (Bitcoin Podcast)

Starting point is 00:00:00 You're listening to TIP. Hey, everyone, welcome to this Wednesday's release of the Bitcoin Fundamentals podcast. So this is a very non-standard show. On Thursday of last week, the 30th of January 2025, Tether, the company that issues the USDT stable coin made a big announcement down in El Salvador that they were going to be issuing their stable coin over the Bitcoin Lightning Network via the Taproot Asset Protocol. After the announcement, I got a text message from my good friend, Luke Groman, who's a repeat guest on the show in which we typically talk about macro. Well, the text messages started to get

Starting point is 00:00:34 long back and forth between the two of us. And I just shot him a message. I said, why don't we just do a Zoom call? And we can just talk about this in a lot more detail. So we started having the Zoom call and quickly, it was just like, okay, I need to hit the record button because I think that some of this conversation, this very candid conversation between Luke and I, could be maybe useful for people that are just really kind of wanting to understand what the announcement is all about, what it means for payments and settlement and all sorts of things. And I have to warn you, I was not using my podcast microphone. I just had some ear pods in whenever I was talking with Luke. So this is completely unscripted. There were no planned questions or anything. It's just

Starting point is 00:01:14 a very candid back and forth. So I hope you guys enjoy this. Celebrating 10 years, you are listening to Bitcoin Fundamentals by the Investors Podcast Network. Now for your host, Preston Pish. All right, Luke, let's talk about this Taproot Asset Protocol situation that was announced in El Salvador yesterday with Heather and Lightning Lab. We were texting and we were trying to figure out like what in the world this means. And I said, dude, let's just record something and, you know, have a candid conversation between the two of us.

Starting point is 00:01:56 So fire away your questions. I'm going to do my best I can to answer because I'm definitely not like the resident expert, but I'll try my best. No, no, no. You're going to seem like Einstein compared to me. These questions, they're going to be like five-year. old, but there's a lot of, I think, people out there that feel that way about sort of the apps within the use case, right? One of the most frequent things I hear on Bitcoin is, oh, what's

Starting point is 00:02:17 a use for? There's no use case, no use. And quietly, as you know, and as I know, there's a lot of use cases. And so last night, there was this announcement. And so why don't we start by just having you, in your words, what was that announcement and what was the significance of that announcement. So first and foremost, Bitcoin is store value technology. I think everybody understands that it's the first and most primary use case is to preserve buying power and protect against government printing of Fiat. But through the years, there's been a lot of innovation that's been done on the code base to allow it to become payment rails as well. And so what was it, 2017, You had a Segwit update to the Bitcoin 4 code that then enabled scaling on the Lightning network.

Starting point is 00:03:05 So the Lightning thing, just like how the Internet works, you got Internet protocol. And then on top of that, you have the Transmission Control Protocol, which then basically allows you to send the digital packets over the Internet very quickly. I could get into more details on that. What I would rather do is just say similar to Internet protocol and then transmission control protocol being built on top of it. You now have Bitcoin as like store value. money layer layer one and then layer two on top of it, similar to transmission control protocol

Starting point is 00:03:34 TCM, I'm sorry, TCP on top of IP, you have the Lightning Network. And what it's doing is it's basically breaking Bitcoin into these like smaller pieces that allow them to be sent very quickly all over the internet, just like TCP does for just basic data. So that update happened in 2017. So Lightning Network has grown significantly since Then right now you have 21. I looked at this setup before we started BitNodes, reports that there's 21,592 full nodes running on the network. And then what happens is these full nodes that are all over the world, anybody can run on, you can run a node for, I mean, it's basically free on the electrical cost because it doesn't require a lot of power at all to run a node. Like I run a node, it's very simple and easy to do for the most part.

Starting point is 00:04:23 The hardware will cost you anywhere from like 300 bucks to run like a Raspberry Pi. And you can run the whole code base for like $3 to $400 one time cost. And then there's no additional like electrical cost to run a full note. So these full nodes, which there's 21,000 at least there's a lot that aren't being accounted for. So I'd suggest that the number is higher than that. All distributed all over the world. And what they're doing is they're setting up channels between each other. So like I have a channel open to somebody else.

Starting point is 00:04:52 And that person has a channeled open to another node. And what have done is it's created this payments network on layer two that allow for me to send, like, you could pull out your smartphone. You have a Noster account, right? I think you do. Yeah. I could zap you dollars worth of Bitcoin over this network. And it would be that lightning network, that layer two network that's conducting the settlement

Starting point is 00:05:13 of that Bitcoin to come to you instantly at a snap of the finger. I think it's important to stop and then just highlight and then pull on that thread for a second for the uninitiated. because if I understand it correctly, what you just said there is actual physical Bitcoin is moving to move that packet of value from one node to another around the world. And I think I want to just pause there for a second because this highlights something very fundamentally important that I've noticed amongst the, we'll call them Bitcoin skeptics around the use cases and how it is different than gold, which is to say in gold, gold's price historically has been controlled in part,

Starting point is 00:05:52 because it's all centralized in a vault. And so when a payment occurs on a ledger relative to gold, basically it gets put on a cart and it gets wheeled across to the other side of the vault and a ledger is made, but it allows for a paper. It's all paper. It allows for a great deal of the expansion of unallocated paper derivatives. In contrast, what you just described, as I understand it, is basically this payment rails requires the movement of some sense.

Starting point is 00:06:22 small amount of physical Bitcoin from one node to the other. So that makes it difficult to centralize Bitcoin and run sort of the capping of Bitcoin price that a lot of people have discussed with gold, rightfully so. Look, before you go any to that, I'm sorry, go ahead. Before you go, no, before you go any further, there are similarities, but very large differences when you start talking about the record of the Bitcoin happening on layer two, to which you were describing with gold. So like you're saying the gold moves from one side of the vault to the other and it's a paper entry, but now Switzerland doesn't own it. The United States now owns it and it sits over on this side of the vault. Lightning works kind of similar to that where like, let's say you and I have a lightning

Starting point is 00:07:06 channel open to each other. I send you a hundred sets, which is 10 cents, okay? So I send you that 10 cents on this network. And all it is is there's this gossip network on the whole network that is constantly saying, hey, the update is the channel that Preston opened, the original channel on Layer 1 Bitcoin, that's important. On Layer 1 Bitcoin, the Preston opened to Luke was for $100. We're going to make a paper entry that instead of it being $100 on Preston's side and zero on Luke side. Now it's $99 and 90 cents on Preston's side and 10 cents on Luke's side. That hasn't been officially updated into layer one. It's basically, it's almost like a paper entry between you and I on layer two that we could just keep zapping these paper entries back and forth to each other and

Starting point is 00:07:56 keeping an update on the ledger. But here's the difference. When you want to make that final, You can unilaterally go back to layer one and say, I want to settle this channel right now, and I want my 10 cents, and I want Preston to have as $99 and 90. You can make that decision. And also, I can make that decision at any point. And then in the gossip, it goes to work off of their end of the banking system. It goes into stable coins or no, no, no, no. We're not even talking stable coins or any of that yet.

Starting point is 00:08:26 We're all still just Bitcoin. Basically, what happens is when either one of us make that unilateral decision to make final, we go to layer one Bitcoin where the mining is happening and the core layer, like, just like I was describing the internet protocol and TCP, Lightning will go to layer one, Bitcoin, raw Bitcoin and like make that all final and nobody can undo that transaction. And we write that into layer one. But we could keep that channel between you and I open for 10 years. And we could be transacting that $100 back and forth to each other as much as we want. And here's the other thing is let's say I'm connected.

Starting point is 00:09:02 connected to Sam and you're connected to Sally. And Sam wants to send that transaction to Sally, but they're not connected. But they're both connected to us and you and I are connected. So now you get the routing of that 10 cents from Sam to Sally that actually came through us, right? So I have 10 cents less. It's routed through you, but then you don't have that 10 cents because it went to Sally, right? So you can see how the stats just kind of pinged off of us. I have the same balance. I still have the $100. You still have zero in that scenario. But we do. routed payments to two people that aren't even connected. It's so identical to transmission control protocol where it's breaking down data packets and making them more digestible so you can send

Starting point is 00:09:41 them. There's so many similarities there with Lightning is doing. So people, if they want to like research or study that more, I would tell them to look at that and then look at how lightning channels work. And again, we're not even to the big news event, which is what we still need to talk about. Right. Let me build one more on top of that. If I understand it properly, it sets us up for that big news event and its implications for our discussion. But that is implied here, since we're talking about since 2017 and the rapid growth in the Lightning Network, what you're creating is, A, how fast does Lightning Network grow? It doesn't have to be exactly.

Starting point is 00:10:14 You and I both know it's a huge number. I don't know off the top of my head. You know better than me, I'm sure. A, what's that growth? And then B, does that imply essentially that you're creating, given finite number of Bitcoin at the base layer, you're, as you're using this. more and more as payment rails, you are essentially creating what is a short squeeze that cannot be papered over unlike gold, where there's more and more, ultimately, whenever those packets are

Starting point is 00:10:44 settled. Is that the right way to think about it? And then what is the growth in the network and Lightning Network bend? And what's the prospective growth? And then we can sort of talk about this news. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its 18th year bringing together activists, technologists, journalists,

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Starting point is 00:15:22 Those coins are never going back on an exchange to be sold into the market or exchange for dollars, right? So as the Lightning Network is being used, it has more and more utility. It's creating a short squeeze in dollar terms on layer one or Bitcoin that's being sold into an exchange because that Bitcoin's not there anymore. It has to be there. It is a fundamental building block to allow these rails to exist. Yes.

Starting point is 00:15:48 Okay. And is there a ratio of number one, two questions. question. Is there any ratio established between amount of Bitcoin needed relative to amount of transactions that has been established? And then what has been the growth in transactions on Lightning Network over the last seven, eight years since 2017? So what you'll find is like, let's say you were Apple and I am nobody, Prest and Pish running my own node, and I've connected to all these other people, right? And Apple starts doing a bunch of sales in Bitcoin. And Apple, Then I'm using Apple as an example because there are retailer that sold a whole lot of stuff, right?

Starting point is 00:16:27 So let's say I open up a one Bitcoin channel, a whole Bitcoin, $100,000 worth of capacity to you. And capacity is kind of an interesting way to look at this because it's almost like an electrical network, right? As far as the capacitance, the size of the cable that's running between you and me. So I open a $100,000 channel to you. That $100,000 is sitting on my side of the channel. yours is it zero, right? But I'm connected to all these other people on the network,

Starting point is 00:16:56 and all these other people are buying things from Apple. Okay. So what's happening is, is all of these transactions are flowing through me to you, and that channel, all of those coins that are sitting on my side of the channel, immediately go to your side of the channel, and it's completely used up, and there's not much more flowing from you through me back out to the rest of the world,

Starting point is 00:17:19 because you're kind of a bit of a black hole. with respect to everybody wants to pay you for your physical things at yourself. So I don't have much of an incentive to open a channel to you. Sure, I'll get all those routing fees one time as they go through you. But what I would really like to have when I'd open a lightning channel is kind of a two-way mechanism where stats are flowing through me and then they're coming from me to you and then they're coming from you back through me out to the network because that back and forth, almost like alternating currency or alternating current, is actually.

Starting point is 00:17:51 very lucrative for me because I'm getting routing fees as it's going back and forth between the two of us. But if it's a one-way street because you're Apple and you're like just selling a ton of stop, like my channel gets depleted really fast. It goes to zero on my side. It goes to a whole Bitcoin on your side. And I'm sitting there and I'm saying, I should probably just close this channel and basically unilaterally settle this, go back to layer one and open another channel to somebody else that's not going to deplete my side of the channel as quickly because I can make more routing fees that way. So there's a lot going on in like that conversation, but what it gets down to is the most optimal partner that you can have on the network is somebody that's somewhat balanced

Starting point is 00:18:32 with the amount of Bitcoin that's going to flow between you and them. And because I'm going to get the most routing fees for something like that. So then can you give some real world examples of what more of that bilateral type of interaction transactions would be relative to which you just laid out. Some real world examples, right? Okay, so it's not you buying a bunch of stuff from Apple all the time through me. It's you wanting to have a back and forth netting on those rails. What is that as simple as, you know, a retailer who is both taking in visa cards right now,

Starting point is 00:19:07 visa transactions from customers now and paying suppliers on the other side? Or does it have to be back and forth with the same people? How does that? I would just to say that today, the network is pretty robust. from just how many nodes you, I mean, like I said before, you have 21,000 nodes on the network that are doing this. So finding a path between you and another node on the network is pretty, there's some type of connection that can be found to route that payment because of how many nodes are on the network. I was talking more, if you were going to run a node and try to do it in a way

Starting point is 00:19:41 that you're collecting a lot of fees, you want to try to have balanced partners or else, Like, if you have a black hole payment, like one of the nodes on the network is just sucking. I mean, I'll give you an example. There is a wallet of Satoshi, super liquid node that you can connect to. But if you do, like, it's just going to deplete your channel really fast. You're going to want to go back to layer one to close out the channel. So when you say to complete your channel means the Bitcoin you're putting up as essentially collateral is going to zero because you're running deficits against that channel.

Starting point is 00:20:11 Yeah, against that node. But then all the people that are paying through you, you would, still have one Bitcoin on your node, right? Like, let's say I only had one Bitcoin on my node. I open a channel with you. You deplete the Bitcoin out of that channel, but I'm receiving a full Bitcoin from all these other people that are routing through me. So I still have my one Bitcoin.

Starting point is 00:20:31 I actually have a little bit more than one Bitcoin because I have the fees for routing all of it. So I go back to layer one. I close out the channel and I got 1.001 Bitcoin, right, instead of just one Bitcoin, because I routed all of that Bitcoin. You. So I get paid if that was your fee, you were getting paid as a fee in Bitcoin. That's right. Now, some people aren't even running fees. Some people are just doing it because they want to make the network stronger. So they're not even charging a fee. And so then the

Starting point is 00:20:57 routing is going through these paths where nobody's even charging a fee today, right? 10 years from now might be very different. But today it's getting routed through nodes that aren't even charging a fee. And so the Bitcoin, as I close that out on layer one, I'm paying a fee to close it out on layer one and, you know, very de minimis, I would tell you right now, practically nothing. It might be 20 cents to close it out on layer one. And that full Bitcoin is still there. But that channel between you and me, I closed it out because it's just been inundated because you're such a popular vendor on the network. So, but there's, we don't know the ratio per se, but there is a, it's fair to say there's a positive correlation between the growth in volume on the lightning

Starting point is 00:21:38 network and the amount of Bitcoin, we'll call collateral, that you've got to put up in order to facilitate the volume on that network. Yes? Yeah. Yes. Correct. And I don't know how many Bitcoin. Let me see something real fast. I'll just search this. Yeah. Okay. We'll see what AI tells us here on like how many Bitcoin have been loaded into the Lightning Network. I don't know how accurate this is this answer is going to be, but it'll kind of give you a sense for what it is. Now, Here's where this is where this new news is really, there's a lot coming on here. So yesterday, down in El Salvador, you had Tether, Pollo from Tether, made the announcement. And just for context, Tether was more profitable than Black Rock in the last year with the amount

Starting point is 00:22:25 of money they're making off the coupons of all the treasuries that they're sitting on for all of the dollar tokens that they have issued against those treasurer. just to put thing, like we're talking, it's billions, billions and billions of dollars. So this guy who's running this company that's basically tokenizing U.S. treasuries, short duration treasuries, he only buys the short duration stuff because the yields are better than the long duration stuff and he doesn't have the inflation risk, right? Okay, so here's what it's saying. Today, there's approximately 5,100 Bitcoin loaded into these channels over the Lightning Network.

Starting point is 00:23:00 Now, because it settles so quickly, it's not like. you have to have 100, 200, 400,000 Bitcoin loaded in this because it's both ways, right? Like these channels are operating both ways. And like when you get into the capacitance of what's needed as far as Bitcoin in these channels, and just for, you know, if a person wanted the research this more, they could go to river.com and they have a full, or really quality article about how much capacitance do we think is even needed in the Lightning Network because of the way payments are routed and blah, blah, blah. But going back to, sorry, I interrupted my previous point.

Starting point is 00:23:35 So Tether makes this announcement that they're going to start routing their U.S. dollar stable coin, USDT, over the Lightning Network. And they're going to use a thing called Taproot Asset Protocol. You know, this protocol is a decentralized protocol. Anybody can run it. It takes consensus to agree with the protocol. But they developed this open source protocol that allows an individual to issue tokens, USDT, in this case, on the Lightning Network and route the tokens just like we're routing Bitcoin.

Starting point is 00:24:09 Here's why this is exciting, is because the speed at which you can do this is near instantaneous. The fees to do this are practically nothing. And the reliability and the decentralized nature of this network, in my opinion, is the most decentralized network that exists. truly decentralized. And the reason I would say that it's decentralized is because, going back to the first point that I said, it costs $300 to buy a raspberry pie and participate in this network and the electrical cost is basically like a Gusei. It's like nothing. It's the minimis. So, for example, competitors that this is currently being routed on, call it Solana or Ethereum,

Starting point is 00:24:53 for you to conduct an Ethereum transaction of USDT today, you're going to pay 50 cents to a dollar and maybe even more to transact. So that means if I wanted to send you a dollar, or better yet, 10 cents in U.S. dollar stable coins, USDT, that 10 cents would cost me 50 cents to send it to you on Ethereum or more, maybe a dollar, maybe $2 to send the 10 cents. So you can quickly see how that's not. The incentives are very bad relative to this new way of doing it over the Bitcoin like network.

Starting point is 00:25:27 Okay, so Solana, which would also be another competitor, the fees are very low. But I would argue that running a Solana full node cost, are you ready for this number, anywhere from like $3,000 to $5,000 per month to run the node. So do you think that that's actually decentralized or do you think that Solana itself is running all the nodes? Like everybody's got their own opinion, but I'm sorry.

Starting point is 00:25:54 I don't know too many people that are going to go spend $3,000 to $5,000 to run a node just to route amends, not to make a number. mention, I think they have to have 10 Solanas in order to have voting rights and all these other. Like, that network, in my humble opinion, is completely centralized. Yeah, we just saw that, right? With Deep Seek versus Open AI, right? You're seeing the open source is killing. Yes, killing.

Starting point is 00:26:16 So if it's not actually open source, if it's actually not decentralized because willing participants want to run a note on the network, is it actually decentralized and outside of government control? And I would say, absolutely not. So why would Tether want to do this? Well, I think Tether would want to do this because they don't want, and I'll argue with myself here in a second, right? I think they want to make sure that they don't ever have to worry about the Salana non-profit tapping them on the shoulder and telling them what in the world to do.

Starting point is 00:26:46 Same with Ethereum and whatnot, right? Well, Ethereum, I think, is just killing itself just through the fees alone. Like, it's, in my opinion, that thing's dead, like, super dead. Solana is the competitor to like what we're talking about. But if I'm Paulo at Tether, I don't, I want to move to a network that I know some Salana Foundation can't tell me what to do or control me. So welcome to the Bitcoin Lightning Network where nobody can tell you what, what's what, right? Now, here's where I'm going to argue with myself. Heather is still centralized, right?

Starting point is 00:27:16 The amount of treasuries that Heather is holding, like, don't think for a second that the U.S. government can't tap him on the shoulder and say, hey, we don't like the fact that so-and-so is squatting on $100 million. or a billion dollars worth of feather tokens. We want you to remove those tokens from their control. And guess what? If he's the issuer of the USDT token that's backed by US treasuries, he can kind of control those tokens, even if they're running on the Lightning Network, right? Because he's the issuer, and that's an important point.

Starting point is 00:27:49 And think about this. So why is Bitcoin different than Tether? Why is Bitcoin different than Solana? Why is it different than Ethereum? It's different because nobody can take those. Bitcoin from you. It is impossible because there's no issuer. The issuer is the protocol itself. So that's really important. Why does this long run range? What is this so right? Knowing, right, because tether is, we'll say controversial in certain circles for a number of different reasons as to

Starting point is 00:28:13 verity of reserves, et cetera. Trust me, I get asked all the time and I don't have nearly the depth of answer I should. But knowing that what you just described is the case, that he can get tapped on the shoulder, that he does have a vast majority of tether reserves in T-bills, which are liquid, by the government, etc. Is there a longer run move here? And what is it? Because it seems to me that it's a short, uninitiated person on this. It seems to be a relatively short jump from this world to rolling this out to competing with more existing payment systems. Oh yeah. Security clearing. Big fee business is done by payment processors, credit card companies, banks. And is that where this is going. And if so, how quickly does that start to be a factor for some of these kinds of industries,

Starting point is 00:29:01 do you think? Well, I would say 100% without a doubt, like all payment technologies are being disrupted like now. The next thing I would say is the fact that you have a company that probably one and a hundred people would even know exist, call a tether, is making more profit than BlackRock alone, tells you how fast this is happening. And should be the wake up call of wake up call. is that anybody on Wall Street that's not paying attention to this, the fact that you have this company like literally shalacking any other major bank in profits, I mean, that's the signal. That is the signal that this is where, and you know what, with the SAB-121 repeal, and now that the banks can basically get into the same game of over-collateralized tokenization of U.S.

Starting point is 00:29:48 securities is a super lucrative and profitable business. and now that banks can custody Bitcoin and play in this space, like you basically have the president and his administration saying, it's green light here, we want to be the leader in the space. If you're a bank and you're not trying to do what these guys are doing, you're off your rocker, you spend too much time on the golf course, and you need to wake the hell up. Let's take a quick break and hear from today's sponsors.

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Starting point is 00:33:26 fundrise.com slash income. This is a paid advertisement. All right, back to the show. So to clarify exactly just for the listeners, what we're talking about, what you're talking about, that the rollback of Sab 120 or whatever, 121 is with staff accounting bulletin from the SEC under Gensler was repealed. So these banks now can start issuing their own stable coins back issued from the bank, collateralized with T-bills, and ultimately collateral, you know, to go in and out of or help their customers go in and out of Bitcoin.

Starting point is 00:34:01 In other words, to be involved in Bitcoin. And not only that, but in the same way that, that some of these AI companies are having to invest lots of money because if they don't, it's a threat to their business, it would seem to me that these banks are going not only, it's not a choice, they're going to have to invest to compete with what Tether's doing. But where I think this race goes, so Tether is sweeping all their coupons from all these

Starting point is 00:34:25 treasuries into their corporate balance sheet and buying Bitcoin with it. That's what they're doing with all their coupons that they're getting. Where I think the competition is going next, you know, if I'm JP Morgan, or I'm one of these big banks and I actually understand all of them. What I'm going to do is I'm going to do the exact same thing that Tethers doing, but I'm going to issue with the coupons that I receive, I take, let's say I receive 5% of the underlying. Let's say I got $100 billion of treasuries backing all the coins I got on the network. That means I'm going to get $5 billion in coupons annualized for all of that. And while when I take $3 billion of that and I create and mint new coins,

Starting point is 00:35:04 and I distribute those coins to all the people that are holding the existing stock of USDT. I basically get interest payments for holding USDT, right? Then I take the other two billion that I made because I made five and I take the other two billion that I retain that on the corporate balance sheet and I buy Bitcoin with it, which then makes me even over collateralized on with coins that I'm issuing because Bitcoin has a kegger of 25 to 50% annualized, right? Which makes my coin more trusted because I'm overcollarial.

Starting point is 00:35:34 And I have this Treasury. And that's where, you know, but they don't have any competition. So they don't need to pay this dividend or coupon payment or whatever we want to call this yield that's there. But if you're going to compete with them, you have to start competing in a way that you're paying some type of yield for holding tether, which they can completely do. And this creates balance sheet capacity from the government. Why would the government want J.P. Morgan to do this is ultimately, they need buyers. Government needs balance sheet. They need balance sheet to buy treasuries. And so, and And they need preferably balance sheet that they can issue, they can financially repress. They need somebody buying their debt.

Starting point is 00:36:10 And like, this is, Tether is the number one growing buyer of U.S. debt. If you're looking at like the second derivative of like, who is really stepping up to the buying this garbage? Well, it's Tether. They're like probably top 10 at this point in the world buying U.S. debt. So like the government has to love that. They might not agree or like how it's like basically expanding the monetary units in the crypto Bitcoin ecosystem, because that's what it's really doing is it's the access and how quickly

Starting point is 00:36:38 these rails are being tied to the Bitcoin are self-reinforcing and just making it that much more powerful. And they probably don't like that. But well, I guess the new administration loves it. New administration seems to love it. You've got some balance sheet there. You've got presumably competition in the not too distant future. Because now you start getting these establishment banks in, things like Visa and MasterCard, are these types of payment monopolies or oligopolis then at risk of margin compression, if J.P. Morgan can process payments far cheaper over the Lightning Network in some period of time? Is that the right way to think about this kind of thing? Far cheaper is such an understatement. Like, you were by doing this on Lightning, right,

Starting point is 00:37:18 you are literally taking the cost of a USD transaction. It's de minimis. It's effectively zero. Yeah. Because it's less than a penny. It's way less than a penny. And the transaction size could be, $5,000, right? And it's still less than a penny for the transaction to clear. So game theory, J.P. Morgan, would want to put some Bitcoin on their balance sheet in the context of what you discussed earlier because then that will subsidize their ability to undercut the competition and move the volume on payment rails at some point down the road, in theory. And the wild thing is, we're just talking about tokenizing dollars on the Taproot asset protocol. Like, you could literally tokenize Microsoft stock or Apple stock.

Starting point is 00:38:02 are and have the same clearing mechanism. And so again, you're dematerializing in traditional finance is clearing houses. Clearing houses and custodians. Custody services, like all of it. Now, like, think about like, how does Robin Hood make their money? Well, they take your shares that you own and they lend them out like behind the scenes in a rehypothecation scheme that they collect fees on. And then whenever you like sell it, then they have to get them back.

Starting point is 00:38:31 And they're just looking at from a statistic standpoint, like, how much can we re-hypublicate without running into issues, right? That all, as in all these share, all these naive like retail and investors, they don't understand that that's happening in the background and that their shares are actually being re-hypublicated and money is being made on that. But think about if you are creating tokens of Apple and on the receiving those on my digital wallet, I actually hold those certificates. And if I want to send you a share of Apple, I can do that instantly without asking somebody for permission for the actual stock certificate. That's kind of a big deal. Potentially, a huge deal. How much has Lightning Network transactions grown over the last seven years just since its existence?

Starting point is 00:39:16 Well, it's the infinite basically. But what's it growing at now? Yeah, it's sort of a dumb phrasing of the question of 17. During the bear market, it was pretty flat. But now that it's starting to get into a bull market again, it's picking up. Let me just look real fast. Sure, sure. So how many lightning transactions happened in 2024 is the question?

Starting point is 00:39:34 And this is what, and I'm using perplexity if people want to know which AI, I'm using to kind of search this. Okay, based on the searches, though lightning showed significant growth in 2024 in August, 24, it was reported that a record-breaking 92,000 transactions through their infrastructure averaging, 3,000 transactions a day on lightning. And you got to remember, like, no, I mean, for the most part, globally, no vendors, or even, I would think that honestly, I would think the number is like way higher. I would imagine you have, because I'm a Noster, right? And like, just to give people that ideas, like how simple some of this stuff is.

Starting point is 00:40:10 Like, I can go to a person's post right here on my phone. And for people that are seeing in the video, they can see that I got this social media. I can go to this little icon, like this little lightning bolt icon. And when I click that, it's already made the payment. Like, I just paid that person 42 Satoshes, which is like four cents. And it's already cleared. It's already set. That's one transaction right there for the day on the Lightning Network.

Starting point is 00:40:34 Right. Micro transactions are happening all day long. So that's what it's saying here. Hold on one. Let me eliminate your up there. Because in the press release yesterday of this announcement, they noted that total USDT, tether volume, topped $10 trillion on chain,

Starting point is 00:40:48 rapidly closing it on Visa's annual volume of $16 trillion. Once fully integrated, users will be able to make cross-border payments with USDT on lightning that settle instantly and in a fraction of the cost of other networks. So when you frame it out that way, the volume that's on USDT is staggering. So this is that your point is perfect because what you're going to get is better reliability on this network of 21,000 decentralized nodes. You're going to get more connectivity.

Starting point is 00:41:21 You're going to get like just a more robust reliability of being able to rail payments because USDT is coming onto the line. Lightning Network, which then reinforces the reliability of the Bitcoin Network because they now want to play on that. And if you get other stable coins, let's say a company in Europe wants to do a European stable coin on the Lightning Network and have zero fees for the routing and have instant clearing through the Taproot Asset Protocol running on top of Lightning. I don't know. Like when you have an open network, everybody is strengthening it and making it stronger by participating on and making the reliability better. And the transactions that you just said are

Starting point is 00:42:01 mind-blowing in size. Yeah. And then you start getting into things like FETI, which you can use to set up any size federation and whether you're a major corporation or family and use the same network to pay in different currencies with those same types of low-cost instantaneous or near-instantaneous settlement. You start to see the network effect really build on itself. Well, I promised 11 o'clock Hard stop. I'm close. I know you got things too. I would love to continue this at some point in the future. Yeah. Because I think it's super, I mean, it is super important, but I think it's been super important in a nichey space. And I think what we're starting to see with these announcements is it's stopping being nichey and starting to really compete with or see clear to competing with

Starting point is 00:42:46 the existing big chunks of the existing financial system, some of which have been around a long time, have very entrenched positions and have very rich margins to boot. And so I think it's a really interesting moment of an acceleration in what's already a very disruptive technology. We're sure. Hang on, man. Hang on. It's totally getting crazier by the day, man.

Starting point is 00:43:10 Absolutely. Absolutely. Well, thank you very much for your time. Always a pleasure, brother. Yeah, great chatting with you. You too. Thank you for listening to TIP. Make sure to follow Bitcoin Fundamentals on your favorite.

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We Study Billionaires - The Investor’s Podcast Network - BTC220: US dollars on Bitcoin Lightning w/ Luke Gromen (Bitcoin Podcast)

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