Proposal: create Private LSP (Liquidity Service Providers) for businesses \ stacker news ~bitcoin

Proposal: create Private LSP (Liquidity Service Providers) for businesses

9633 sats \ 17 comments \ @DarthCoin 25 Dec 2022 bitcoin

How to provide good liquidity for a business?

This is about medium and large businesses. Businesses that would have quite a large volume of payments over LN.

The really small merchant, like "mom & pop" corner shop, could easily start with a simple solution (even a mobile LN node like Breez, Blixt, OBW, Phoenix, Electrum or custodial ones like CoinOS, lntxbot, WoS, Bluewallet etc). So we will not refer towards those. For those, I wrote a simple guide here.

Today we have the following situation:

businesses, in order to start accepting bitcoin over LN, will need good liquidity, in special if they run their own LN node.
most businesses don't know how to run an efficient liquidity for their own LN node. The learning curve is not so fast or easy, many of them are just new bitcoin users, they do not have experimented employees that can do this task.
the business LN node would need a starting point capital to open good fat channels. Some of them do not have yet this liquidity to put in the game. The whole point of a business to start accepting BTC is that they do not have it.
many node runners put their liquidity in the game, but most of them just for the gains from routing fees. This is not so efficient for a growing Bitcoin economy. These node runners don't care so much about merchants, they just want other node runners to route through their node (mostly only useless rebalancing txs) and do not help too much the ones that really creates real value on LN, real payments for goods and services. First we need to create that Bitcoin Circular Economy, helping merchants, not fucking them. Our main focus is to fuck the banksters not to fuck between each others.
yes, we have quite a lot of payment processors, offering a starting point for those who are "nodeless", taking a cut and intermediate the payments. But this is not the ideal situation. Bitcoin was created EXACTLY to avoid 3rd party intermediaries.

So as you can see, is not so easy for a new business hop to start accepting BTC over LN.

What options do we have today (end of 2022)?

Business LN node managed internally This option will require some important aspects:

A hardware for a node. And MUST be good and reliable, not shity RPis, not weak Tor only connections.
Capital. Yes, to start you would need at least 0.5BTC to put into good starting LN channels, with at least 10 good node peers.
Knowledge. Not any noob that barely knows how to save his BTC wallet seed, will be capable to understand how LN works from the day 1 he started his own LN node. Would be needed a lot of testing, reading guides, learning etc that takes time. In special with finding good routes and tune up your node.
Patience. Yes, many node runners do not have the patience necessary, or maybe their business wants a quick start accepting BTC. So this option would be only for the most passionate, most knowledgeable and reckless bitcoiners that know what they are doing. DO NOT DO IT if you are new into Bitcoin. I wrote several guides about this aspect on my substack.

Business own LN node connected to few good LSP This option do not require a lot of knowledge but at least BASICS about LN.

A good hardware node, good connection.
Basic knowledge about install, setup a node, open/close LN channels and how LN works at basic level.
Some initial capital, that can be increased in time. With 2-3 LN channels of 10M sats each is a good start.
Connect to 2-3 existing good nodes, acting as a LSP (liquidity Service Provider), with many good channels, offering good routes and looking for cheap fee routes. You can use private channels (so your node do not need to route) and all your in/out payments would go only through those LSP nodes.
You still need to choose and manage those few channels, but not focused too much on what is going on with the rest of the routes.
Loop out periodically all the income sats you get during a certain period, using the many swap services out there (Deezy, Boltz, ZigZag, FixedFloat, CoinOS, Loop, etc.). In this way your node will always have enough INBOUND liquidity necessary to receive more payments.

Private liquidity contract with big LSP This option could be with your own LN node (so you control all your funds all the time), but you are just "renting" others liquidity. Yes, we have some good big LSP out there and will be more many soon, I am sure about that. This is a good future business - "offering private liquidity to small merchant nodes".

You still need a good node hardware or even hosted with solutions like Voltage, NODL etc.
Basic knowledge about LN is still required, to open / close channels, do swaps.
Contract privately, to one or two big LSP and open big fat LN channel with each one. They can even provide this for you, without having any capital available to open your channels, they will open TOWARDS your node a channel, so they will be the ones putting the initial capital.
You will be in charge only for swaping out the received sats, periodically. You could even have an agreement with your LSP that could do for you the swap from the channel (without closing the channel), they do it internally and give you back onchain the sats. Here is a simple own hosted swap app that can be used too, between 2 private parties. Or you could just use the keysend feature from your node. You push back to your LSP the funds you want to swap out and they give you back in a onchain address, you provide.

Educate your employees or yourself (as business owner) This option is a bit tricky, you would need trust in somebody from your own organization, to be trained well to manage your business LN node. If you do not have that trusted person, than do it for yourself. Is only about how to manage the basics or advanced tools for your routing node. I don't know too much about really business educators out there, but sure they are or will be soon. Or you could just educate yourself by reading my guides from my substack and many others more. There's plenty of free education material out there, but yes, this takes time.
Business node managed and hosted by a 3rd party. This option, personally I would not recommend it. Or at least not for a production environment. Maybe for a quick start, to test the market, to see how your costumers respond to BTC acceptance etc. so you don't have to invest initially to much in hardware, capital, knowledge etc. If you delegate somebody else to manage your finances, we are back to square one, banksters running our lives. We do not want that anymore. Yes, own responsibility is the one of the biggest lessons that Bitcoin teach us. And we should not ignore it.

So basically this is it. If there are many more ideas out there, please leave your comment here, or start yourself a business based on my suggestions presented here.

Bitcoin NEEDS to go forward and the ONLY way is to help merchants to run their nodes.

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199 sats \ 0 replies \ @TonyGiorgio 25 Dec 2022

soon tm

101 sats \ 1 reply \ @muteness11 25 Dec 2022

Thanks for sharing this, really insightful and informative

I've done some research on this and the findings were similar to yours however I would take a different view. there are two types of merchants, Bitcoiners and non-Bitcoiners but are looking for new revenue streams/new customers so dont mind adding LN payments (majority are here and ill focus on this one).

Sales cycle: sometimes orange pilling them takes more time (not efficient)
Education: LN companies often do the (how-to) but there are challenges with incentives and churn. managers and staff may not be encouraged to mention to clients & employee turn-over rate leads to lost knowledge

Consultancy: Merchants dont want to manage LN stuff (liquidity, channels etc...) and they do not see he need to hire a person to do that nor do they see a need to have a consultant to manage it for them.

The above is based on observation coming from IBEX and Galoy in particular

simply they want to have something simple and efficient and that could be something that BREEZE is working on which is managing everything behind the scene OR what galoy has with its stablesats project (tackling volatility for merchants)

Both arent great solutions but that is the best I could think of

5 sats \ 0 replies \ @DarthCoin OP 25 Dec 2022

Yes, indeed I saw quite a lot merchants that don't want to deal with running nodes, liquidity etc. Even if you explain them that exactly for that Bitcoin was created (skip the intermediaries), they are still not focused on being financial sovereign, as you said are more interested into just taking another form of payment, like another paypal.

It takes time until we will change the fiat mentality, but yea, slowly with good education maybe we will get through.

I am still inclined to see more LSP offering simple solutions for merchants and in the same way they can keep some kind of sovereignty.

That's why I posted this here, I hope that more other smart guys will create such services: offer direct liquidity to merchant nodes, through a simple "pipe".

101 sats \ 1 reply \ @HYPERBITCOINZATION 25 Dec 2022

Thanks for the write up, @DarthCoin! You’ve inspired me to share my experience interacting with businesses around Bitcoin.

Over the past few months, I've spoken with businesses in Southeast Asia accepting Bitcoin or interested in accepting Bitcoin as payment—bars, restaurants, motorcycle rentals, money transfer operators, precious metal sellers, and import/export businesses. Two of them had self-sovereign BTCPay Server setups, but the rest of them were using solutions like opennode, or just had fully custodial solutions.

The way I see it, the problem around accepting Bitcoin as payment boils down to knowledge and perception. The more knowledge the business owner had around Bitcoin, the more likely they were to accept Bitcoin as payment and adopt a self-custodial solution. The less knowledge they had, the more likely they were to simply rely on some custodial solution to handle all of their funds (or be wary around accepting or using Bitcoin at all).

However, the one unifying thread all of these businesses had was that none of them were comfortable with anything remotely technical (and I mean the most general definition of technical). Asking these people if they were open to learning more around lightning and "simple" operating procedures (like using the command line, doing anything on linux, learning about lightning processes like opening/closing channels, etc) to run a node felt like asking a third grader if they were open to learning about how to construct a homomorphism from S3 to D3. Only the most adventurous wouldn't shy away from the challenge; most don't even understand what the question entails. They're all consumed with the day-to-day grind that comes with running a business, and trying to get them to learn outside of that will really take a lot of hand-holding.

That being said, the future is bright for Bitcoiners and these businesses! The fact that so many businesses are interested in accepting Bitcoin, or are already finding solutions that enable them to do so is immensely bullish. Bitcoiners who already are familiar with operating a node can jump on this opportunity and provide that opsec education and hand-holding service for a fee! You provide merchants with the technology, and the right amount of knowledge to securely operate that technology. And then you get out of the picture (until they call you back if they need your help).

I spoke with Jos and Martin from Znip who are doing just that in the Netherlands—working full-time on onboarding businesses to self-sovereign Bitcoin and Lightning setups through Bitcoin and Lightning security education, and setting up nodes for businesses. And they’re making good money doing that! Each business pays them a one-time fee of a few hundred euros (or more, not entirely sure of the pricing structure) to get them set up with everything, and to teach the business owners or their employees about basic Bitcoin opsec. And then they’re on their own, left with a self-sovereign setup secured under the laws of cryptography and some basic Bitcoin opsec knowledge so they don't fumble their bags. It reminds me of freelancers building and deploying websites for businesses. As the trend for Bitcoin adoption continues, so will this market opportunity.

I feel like until the UX around running a lightning node truly becomes akin to how Umbrel advertised (a one-click node that just works, which is what we're get towards at Birkeland with our automation software), knowledgeable and industrious Bitcoiners can perform this intellectual arbitrage and help businesses onboard to Bitcoin. It takes the headache of learning new tech away from the businesses themselves, solves their problem of wanting to safely accept Bitcoin and Lightning payments, and it enables more Bitcoiners to turn their passion for Bitcoin into a full-blown business!

110 sats \ 0 replies \ @DarthCoin OP 25 Dec 2022

The more knowledge the business owner had around Bitcoin, the more likely they were to accept Bitcoin as payment and adopt a self-custodial solution. The less knowledge they had, the more likely they were to simply rely on some custodial solution to handle all of their funds (or be wary around accepting or using Bitcoin at all).

Well said. It is like that indeed. I am not against a simple custodial solution, in the beginning of acceptance. In this way the merchant can see how it works, see how much volume could have, train well his personnel using BTC/LN etc.

Once is ready to do the step forward to a more sovereign solution, even the same payment processor provider could offer another solution, just providing the liquidity to his new own node.

The biggest problem is the liquidity management and understand how it works. A custodial solution as "frontdesk" sometimes is even better, as I described in this guide, because you can always move the funds at end of the day to your own wallets. mand in this way you are not exposing your final destination of your income to all the public.

But, yes, education is the key and is a long process.

10 sats \ 0 replies \ @swmtr 30 Dec 2022

A very well written helpful post. Well done. Thank you for this treasure trove of knowledge from your experience.

That being said, I feel that usually when we speak about onboarding businesses, we are looking at it from tech point of view. This is important, but only a part of the story. I do not hear any discussions on what it acutally brings to the merchant and how many customers use BTC as payment option after they implement it.

The reality is that a merchant is interested in profit and implementing a new "hip and cool" solution for payments might not end up the way they think it will.

With so many people onboarding new businesses, we are missing the other part of the equation. The actual effect of the payment solution it has on the business.

I understand that it is very much dependent who and where are the merchant's customers, but this information would also be very useful to have in order to orange pill new merchants or would at least help in selection of what type of merchants do well and put the focus there when selecting them for onboarding.

For example: I have heard that a certain bitcoin influencer, providing useful content on weekly basis to his community who has an eshop with merch to support his efforts sees less than 10% of online payments done via BTC. The rest is still fiat. Since you can assume that the niche customer here is interested in Bitcoin or wants to learn about Bitcoin, it seems quite a small %.

Does anybody have any other similar type of statistics from various industries which could help to get more perspective for us? Thanks much in advance

0 sats \ 10 replies \ @Judge 25 Dec 2022

Auto taxation calculations would also be valuable. ie capital gains tax implications for each transaction etc

immediate settlement to fiat would mitigate some of these tax implications.

10 sats \ 1 reply \ @DarthCoin OP 25 Dec 2022

So you want me to believe that all the taxes are for "our own good" and we should still pay them? ARE YOU OUT OF YOUR FUCKING MIND? Taxation is theft in any shape or form. PERIOD. If you still pay taxes you are a fucking moron that deserve to be a slave.

1 sat \ 0 replies \ @muteness11 26 Dec 2022

Speaking about Tax .... almost everything was taxed from wine, beards, dogs, etc...

here is a fantastic book

https://www.amazon.com/Daylight-Robbery-Shaped-Change-Future/dp/0241360862

0 sats \ 7 replies \ @DarthCoin OP 25 Dec 2022

LOL why do you have to ruin everything with "taxation"? What have to do taxation (theft) with LN liquidity?

Geeze these statists ruin everything with their bullshit. GTFO from your shity fiat slavery world.

1454 sats \ 4 replies \ @1fatmess 25 Dec 2022

Err… I mean I’m as much of a bitcoiner as you, but the average merchant isn’t interested in destroying the state or risking fines/jail time for tax evasion. Your takedown here isn’t as helpful as the rest of your amazing work.

0 sats \ 3 replies \ @DarthCoin OP 25 Dec 2022

You never ask yourself: If the state can print endless money, why do you still pay taxes? For fuck sake, isn't that so obvious that taxation is theft and we have many more options to build a better world, but NOT obeying the state orders?

Who is in the end "the state"? Why we can't just live as we like without the fucking state? Why people have to be so fucking SLAVES and statists?

1233 sats \ 2 replies \ @1fatmess 25 Dec 2022

I’m not saying I disagree with you, but that doesn’t mean a merchant is going to sympathise; 9 times out of 10 they’re going to ask what to do about tax. If they run 100% on bitcoin and remain in business, the state is going to come and ask for its cut. It’s a fair question to ask. It doesn’t merit a childish response.

0 sats \ 1 reply \ @DarthCoin OP 25 Dec 2022

But what have to do this whole thing of liquidity with taxes? Why we can't talk about many things WITHOUT bring up all this shit?

16 sats \ 0 replies \ @1fatmess 25 Dec 2022

Why can't life be simple? I hear you.

0 sats \ 1 reply \ @Judge 26 Dec 2022

I agree with you in spirit. But the reality I have faced with trying to onboard retail stores onto lightning/bitcoin payments is that they don't want to implement it because of the tax reporting burden.

these are multi million dollar franchises that don't want to risk a cavity search by the tax authorities over fast food lightning payments by 1% of their customers, if that.

making the tax issue easy for them to understand and report for each transaction is a significant opportunity out there for someone to simplify for these end user retailers (and it's not even that hard, the formulas are out there).

I understand if that's not your interest, its a terrible compromise of many libertarian ethics, just know it's a real issue faced by the normie retail store fronts who see it as a barrier to implementing Bitcoin/Lightning acceptance in their store fronts.

10 sats \ 0 replies \ @swmtr 30 Dec 2022

Exactly. The illusion of free and open society is just that at this stage. If we want others to start using Bitcoin and potentially our kids be free of slavery, the change needs to be gradual.

Businesses pay taxes (whether it is fair or not, is a different discussion), so if accepting Bitcoin makes it harder for them, it will be their main issue. which cannot be dismissed

If very small amount of customers use Bitcoin to pay for their services, it will also be a problem for them and we need to do a good job explaining why it does not matter at this stage and they still should make the jump.