The Bitcoin Ecosystem Moment (pt.1) ⚑️

Why I think the Bitcoin startup ecosystem will drastically accelerate in the next 12 months.
TL;DR: The infrastructure is ((almost)) here.

I don't know about you, but I can probably list all relevant Bitcoin startups in history from memory. The reason for this is 3-fold...

1. Bitcoin is not the easiest to work with.

It offers limited design space to developers due to its monolithic nature and the goal of building the world's hardest, most secure money, all by moving slowly and diligently – which is why we love it!

2. We understand money. We understand investment contracts.

We're here to build internet money, not unregistered securities. We like @Blockstream's Bitcoin Mining Notes (BMN), not because it's from our Senpai Adam.

3. We don't take the easy way out.

Does this need a token? No. Will this help scale without centralizing tradeoffs? No. Is this model sustainable? No.
We think long and hard about these things because we're potentially putting people's money at risk.

No token implies fewer VCs interested. Tougher design space implies a longer time to market.
So why do I think this is changing now?

➑️ Introducing the Lightning Network ⚑️

Lightning is the first, truly native, Bitcoin Layer-2 technology, that actually scales.
While it does have different security guarantees and a deferred settlement finality compared to on-chain Bitcoin transactions, it is fully trustless (if you do it right!)
It's not a sidechain. It doesn't use some form of Bitcoin derivatives such as WBTC, renBTC, L-BTC, or rBTC. It uses real Bitcoin UTXOs.
–> It works.

Network nodes are growing at 127% YoY. Public capacity is growing at 218% YoY. Payments (in USD) at 410% YoY.
–> The ecosystem is growing immensely.

Why will Lightning enable rapid acceleration within the Bitcoin ecosystem?

In a nutshell:
Bitcoin is a P2P protocol... based on mutual rules... securing a singular ledger. Lightning is a P2P protocol... based on mutual rules.

This implies that the design space is effectively infinitely larger than with Bitcoin.
While of course every pair of peers is incentivized to use the most common rules in order to facilitate an efficient exchange of value within the wider network – you're not limited to this.


This implies that the Lightning Network can easily transform into a network running a multitude of "Layer-2.X" technologies & rulesets, adding additional functionality – while still being incentivized to be interoperable with the wider payments network.
The most obvious examples are technologies like @lightning's TARO, or the FOSS project's #RGB and @omni_bolt, enabling token issuance on (Bitcoin &) Lightning.
A real game-changer for the Bitcoin financial stack. (Consider tokenizing stocks, debt obligations, credit, and more.)

Other ~ Layer-3'ish projects in the spirit of truly decentralizing the web (meaning P2P(!)) include:

Now... it's important to understand that these projects aiming at "decentralizing the web", don't necessarily build "on" Bitcoin.
  • @TBD54566975 anchors identities on the Bitcoin Blockchain.
  • @ImperviousAi chose to offer an API, that synergizes data transmission with Lightning connections/payments.
  • @Synonym's Slashtags doesn't use Bitcoin at all(!) but will be incorporated into their Lightning wallet.

While they technically do not "directly" have something to do with the Lightning protocol ruleset we consider the "standard", they aim at leveraging its network effects and offer solutions for developers to use lightning to its full potential.
There is no "lightning foundation" deciding what is and what is not "the" lightning network or "Layer-3" technology.
As opposed to data sovereignty & privacy, trustless & non-custodial finance is actually something people care about.
We needed a trust-minimized scaling solution for Bitcoin.
Now, we have a growing, active network, run by people & businesses who care about financial sovereignty and are strongly incentivized to run nodes in order to preserve trustlessness.
Why not leverage this network effect to push new P2P products and services that run on with Bitcoin? To me, this will be the next big wave. 🌊

Some will probably argue "noo, we need standardization", but I think it's a non-issue. People will build what they want to build. It's awesome that we have so many choices to pick from.

➑️ My point is 🎯:

For the first time in a long time, we have a technology/platform that doesn't need any consensus for people to build on & change things.
People that simply want to "move fast & break things" can now do this with Bitcoin, leveraging an existing, large, network of nodes.
I believe people immensely underestimate what effect this will have on new developers joining this industry, as well as many who chose to opt for other blockchains in the past, simply because they couldn't / didn't know how to build, what they wanted to, using Bitcoin.

–> The perfect storm! πŸŒͺ

Thanks for reading! πŸ‘€ 🀝 You probably have a completely different mental model; any feedback is highly appreciated!

  1. What's your own conceptual framework for Lightning and how the industry will evolve?
  2. Which startups building on Lightning do you find particularly interesting?

Keep an eye out for part 2, where I'll focus on where we are in terms of startup ecosystem/resources, and what's required to go the next step!

(It's been tough to make this look good using Markdown, please let me know what you would change! πŸ™)
OmniBOLT & TARO ~ essentially ready
(Commenting on TARO specifically): That's a stretch, lol. But for sure the general concept is powerful and is likely going to "bed in" after some time.
TARO realistically needs taproot adoption, and that realistically is going to come from adoption by the big LN codebases. There just isn't economic incentive to adopt taproot for ordinary wallets (like there was for segwit, because it saved tons on fees). MuSig2 is no joke to implement, even the BIP is still under development (though largely finished, but it ain't simple!).
Some interesting thoughts generally; but I'm particularly keen to see better statistics on two things: payment reliability and adoption (very hard to get right because of the not-on-chain nature of things).
Fair point, Taro needs more time... Fingers crossed it'll now move faster with all the interest in it!
However, both RGB and OmniBolt are essentially ready.
Regarding adoption: IMO it's the other way around. There wasn't a lot of incentive to adopt Segwit, because during the bear-market blocks were empty most of the time. No need to save space if there's a ton available.
With regards to taproot adoption; Honestly, for the first time, there's actually a strong incentive to adopt a token protocol because it solves a huge pain point.
Being able to send USD stablecoins around the world in an instant, and effectively for free is a tremendous product/use case. You completely kill any remittance company and save 20%+ per transaction.
Also, it's important to point out that only apps/nodes/wallets that want to use e.g. USDT need to adopt RGB/Taro/OmniBolt. All other routing nodes in-between don't need to care about this at all.
I think adoption will be faster– in places where it counts! (wallets)
(Also, Omnibolt doesn't need taproot)
There just isn't economic incentive to adopt taproot for ordinary wallets (like there was for segwit, because it saved tons on fees).
Just a crazy thought... would it be possible to stream sats to ordinary wallets to help incentivize the transition? I expect plebs would be happy to fund this - I would.
interesting sn post...
  • design space will facilitate exponential dev growth
  • plebs turning into devs this time around *few
I think the btc/ln startup ecosystem will look way different next year!
Many more startups, much improved/more resources & dev kits, dedicated bitcoin accelerators, etc...
Agreed 100%! I think we will see lots of entrepreneurs and developers drawn to lightning over the next year. Lots of great innovative startups (like popping up. Nice work - looking forward to part 2!
Nice guide. Not sure about the "next 12 months" tho, but I like your optimism!
Fingers crossed!
Love lightning so far. Still learning as much as possible and looking to get a node setup. So far I love stacker news and fountain. Two great uses of micro payments.
You get some sats for choosing the Geyser Analogy.
Lightning is a Geyser about to erupt - hence
Other ~ Layer-3'ish projects also include:
Umbrel Start9 Nostr
Good call!
Thanks for this great article. How do you see the investment opportunities in Bitcoin/Lightning playing out?
A question I've been trying to understand lately, is 'why invest in a Bitcoin/Lightning/L2 company instead of Hodling'?
IMO for 2 reasons:
  • If you are a large hodler of Bitcoin, you have a huge incentive to do a relatively small (philanthropic) investment to ensure that adoption will continue & development goes in the right directions (trustless/-minimized, non-custodial, etc.)
  • At this stage in bitcoin's monetization, we maybe have another 100x in the next 30 years, with most of the growth being in the next 5-10 years, obviously. The more mature bitcoin becomes, the more attractive equity bitcoin infrastructure companies will get.
Don't get me wrong, hodling is still the best for most people. But if you own 1000+ Bitcoin, you have an immense incentive to invest 0.1-1% of your bitcoin into infrastructure projects, and accelerate adoption, while also making great risk-adjusted returns.
Thanks, and I agree, the investments in a BTC/LN first company accelerates the investment return on any hodling/BTC savings.
Given your numbers here of a 100x return over 30 years type prospect however, it seems that any other venture backed investment return in the space would pale in comparison to simply holding bitcoin, especially given the risk correlation and the possible initial capital outlays that could accumulate more btc short term?
Does this imply that any level of venture funding in the bitcoin/lightning space almost necessitates a prior large level of bitcoin holding - in essence making the investment worth it?
Does long term capital into the space require 1 of:
  • Investment from a firm/nation state/prior business model with large btc accumulation
  • Contribution from not-strictly-monetarily motivated companies/individuals who want to push forward the adoption/mission of bitcoin?
While answering the question "VC investment vs. stacking BTC", I'd say it's certainly a function of how much net worth you have.
However, once there's more market proof demonstrating that BTC infrastructure & lightning companies can actually have profitable business models, we'll see more traditional VCs entering the space.
Their LPs are often large insurance funds, pension funds, & other systematic long-term capital that diversify into VCs for better risk-adjusted returns.
Most of those might indirectly invest in bitcoin infrastructure companies years before investing in bitcoin itself.
To recap; the chances of "old/systematic money" investing in Bitcoin startups first (instead of bitcoin), are much higher than you'd think.
Thanks for all your insight here, I appreciate it
Overall I agree. I feel like in the span of a year a lot of interest has come online and it feels like an inflection point. From my point of view, I mostly see founders and investors appearing in large number which IMO is a reliable signal given its presence in all the Web3 noise.
Apologies for your issues with working from markdown. I hope to give better formatting in time. Is there anything you had a particularly hard time with? Happy to prioritize any changes you'd like.
Yes, that's exactly the signal I noticed as well. Many more founders & devs jumping in, building with lightning. I don't think the solutions/products will fully mature in 12 months, but I do think the bitcoin/lightning startup ecosystem is going to be much more robust.
No worries!
I guess 2 changes would be awesome to facilitate nicer looking long-form content:
  • Clearly visible size difference between headers (especially H1, H2 and H3)
  • Styling of dividers "---". As of now it's simply larger spacing. A greyish line/divider would be awesome!
Great articles, wonderfully sumerizes the state of the ecosystem.
Would greatly appreciate if you could elaborate more on Web5 (as it could be a real gamechanger, yet only operates on BTC and no other tokens ) and RGB protocol (as not much is written about this and from what I understand they do allow issuance of assets on Lightning)
As for feed-back, try to use less smilies. But you get some feed-back also by not receiving many comments and also not so many sats (thanks for not doing a honeypot by sending sats to yourself from another account of yours, which would pretend there is high interest of general SN public and maybe some more would try to read this article).
I think LN is serving as a UTXO mixer for those who have too many hundreds of millions of sats. All the single-digit millionaires who started to use any kind of pre-made "interfaces" (RaspiBlitz, mynode, etc. - some of which are ad-supported and bring a lot of confusion to newcomers) just recently and have no other hands-on experience with administering UNIX-like systems seem to be looking just at the possibility of earning fees. The builder here is and that is not even a company. They also started from scratch, learning things on the way, which is fair as long as you know what you don't know (intellectual humility).
One thing that I think will not work in the new Bitcoin-economy is writing articles with the focus on changing public opinion without any real technological advances. And there is always a bunch of people who will not even waste their time reading or replying to articles like this and many other open-questions and proposals (incl. those on bitcoin-dev mailing list). Please step down back to Earth. Everyone of us have a few people in their lives who are important and it is all just our choice if we use the time we have here for thinking about how to get rich or rather focusing on the little real things we can do to influence lives of other for better.
If I could offer you one thing for the future, read the Satoshi's whitepaper (bitcoin.pdf). And then do it again. It is very easy to find it and its sha256 checksum is b1674191a88ec5cdd733e4240a81803105dc412d6c6708d53ab94fc248f4f553.
Did my essay somehow intimidate you?
I don't follow the passive-aggressive nature of your reply. Especially because you're jumping all over the place.
I noticed that Lightning 10x'ed the amount of venture capital, developers, founders, and products with decent PMF in the bitcoin space and felt the need to share my thoughts so that I can potentially motivate a couple of people to think about this more, instead of simply hodling.
I got a lot of value from what you've shared, and I'm most certainly not focused on getting rich. I'm interested in how the space is evolving and what's on the horizon - in this regard I learned a lot, so thank you.
Ah, one more thing: Use less moving pictures (GIFs). Not everyone in this world have easy time looking at moving things and they may skip this article on the first notice of such.
Yeah, maybe one or two would've sufficed, agreed.
Is that cauliflower at the bottom?
some fast path frameworks in the next 12 months