INTRO
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With adopting a new money it’s inevitable that some things will change. That may come through learning about the fundamentals of what makes a good money, central banking, inflation or cryptography. The main one I’d like to introduce today is about utilizing bitcoin onchain UTXO’s along with lightning (possibly liquid or mints) in a more efficient and cost effective way.
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NEW HABIT
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Here's a simple idea that bitcoin accepting retailers could do to save costs. The basic idea is that consumers overpay by sending a UTXO for the product in its entirety, and the retailer returns the change in lightning/liquid OR creates a balance of credit in that retailers mint.
Here are some of the main advantages:
- It makes good use of onchain UTXO's by not breaking them up and creating unwanted dust.
- It looks like a "self spend" to any chain analytics.
- It helps retailers balance their LN channel by creating more inbound liquidity.
- It encourages more retail adoption of LN.
- It saves block space.
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ANALOGY AND EXAMPLE
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A basic analogy for this method might be like spending cash at a local store. Buying $96.50 worth of groceries you hand over a $100 bill and receive $3.50 in change. You give the note to the cashier, then they return the change.
Let’s take an example to see how something like this might be implemented:
Lets say Start9 is selling their latest server for 900k sats. Bob wants to purchase it and selects a single 1m sat UTXO. He selects the product and arrives on a page to pay with bitcoin which has 2 options, onchain or LN. He selects onchain and gets a pop up saying something like "overpay up to X and receive change in LN". So Bob pays the 1m sat UTXO, 50k is paid for the network fee, and there is now a 50k "credit" Bob can claim in LN. Start9 recognizes that the received onchain BTC is more than the product and asks Bob to generate a 50k sat LN invoice.
Bob’s 1m sat UTXO
server cost - 900k sats
network TX fee - 50k sats
change - 50k sats
WHAT JUST HAPPENED?
In the current environment Bob would receive a 50k change output that he will need to pay a large percentage of it on fees in the future. He could consolidate with other small UTXO’s if he believes fees will come down at some point, but this would link and reveal all his other purchases. With introducing this new habit, Bob now has 50k sats that he can spend on smaller purchases or zapping. Start9 receives a larger UTXO and has created more inbound liquidity. Lastly the onchain transaction looks like a self spend and therefore is more difficult to analyse (depending on other preceding factors of course).
Its really win win all around!
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AUTOMATION
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The good thing is that this works now. I could go to my local butcher and say something like: “I have this 400k sat UTXO, can I pay onchain and receive the change in lightning?” Both parties are more than likely to be in agreement. For retailers, lightning is a one way street (as in money comes in).
This might be ok amongst bitcoiners that have been using the technology for a while, but it would be better if the app/web page/PoS could simply automate this. As soon as the onchain payment is received, the price of the good is subtracted from the UTXO and the buyer is asked to generate an invoice for this amount. OR as another option for the merchant to retain customers, they could offer credit on their next purchase through individual accounts with the product/service.
I’m sure there are more advanced ways that we can bring this habit into working with LN holding invoices or ecash mints. This might take more time to be tested and built out though.
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FEES
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There has been a lot of talk and debate about onchain fees since stamps/ordinal/inscriptions/BRC-20 tokens last year. Whatever your position is on this, we all know fees will rise regardless. Whatever percentage of bitcoin ends up as dust or in large institution custody, we still need to continue to keep “our” bitcoin use efficient, cost effective and as private as possible for this segment of the p2p network to truely flourish.
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OLD IDEA?
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First of all, this idea probably exists somewhere in the bitcoin space. I think it's a good one so I'm certain it's likely out there somewhere. I did see that electrum had a recent release where the change from a UTXO can be added to your lightning channel. This requires that you have both onchain BTC and a LN channel open in the same electrum wallet though. Also, I’d take a guess that it could be an API to swap with boltz.
Of course swap services like boltz are working today. Using a desktop wallet we can direct the change output into a swap with liquid, lightning or ecash. My problem with this currently is that in a high fee environment a lot of that gets eaten away by either the network or the service provider. From our example if boltz were to accept the 50k sat UTXO they need to charge for a future cost to consolidate. If it costs a single input/output 50k sats, then there is no point (economically irrational). Liquid services like sideswap or aqua charge fees too, but the federation would have to pay that future consolidation/spend and at some point (if liquid ever gains significant adoption) they will have to charge higher fees.
This is why I think it would be a beautiful improvement to how we buy things using onchain BTC today.
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LETS DO THIS!
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Educating and building new habits is inherently part of this new form of money. While we’re still in the early stages we need to encourage best practices for the users of the bitcoin network. So while we are still building out the ideal money network, let’s simply ask the next time we buy something using onchain BTC if we can get our small change in lightning and keep our UTXO’s large.
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REFERENCES
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