A common question that gets asked is “What is the use case for Bitcoin”. Most of the interactions I have with the bitcoin community is via twitter and the libertarians will tell you that it’s all about taking back power from governments and central banks; the human rights advocates will emphasise the anonymity properties that can be gained and censorship resistance of transactions; and then there is the economic crowd that will tell you that its digital gold and a safe haven as a form of sound money.
There has been a migration away from traditional sales methods for enterprise software where in the past, customers would buy a piece of software and support package for it. Persistent licences for this software turned into recurring licenses and then remodelled to cap on ‘clicks’, as the industry morphed to a SaaS model where the customers don’t even need to install the software themselves. We now see the industry moving towards containerised micro-applications that can be deployed in seconds and billed by the minute.
Throughout this transition, the challenge of how to take payment for the services has grown. Businesses have increased costs and risk in managing contracts and credit for customers as well as providing the service that they are selling. Changes in usage often need renegotiation and adjustment to billing adding more costs to the day to day running costs. The ability to remove the need for credit seems a long way off using existing providers.
Payments over the internet have become common place but through providers who act as an intermediary between your bank and the vendor. Despite the processing power of the providers, the demand on transactions is growing and to reach levels required for micropayments would require a sea change.
Since it’s conception in 2009, the Bitcoin network has grown into a mature platform for digitally transferring value across borders and with little friction. One of the aspirations of the community working on the network was to be able to handle transaction volumes currently processed by Visa or MasterCard but in a trustless way. The reality was however that it would never be able to scale to that level without compromising the decentralised nature of the network.
All that was to change though, after 9 years a new technology arrived on the scene from that used the scriptable functionality of Bitcoin to enable virtually instant peer to peer transactions over the internet. The so called lightning network was quickly adopted by a growing number of developers and researches working on the Bitcoin network and grew rapidly over the first two years. Soon showcase applications started to appear, showing the power and versatility of the network.
Satoshi’s Place was one of the first major proof of concepts using the lightning network and gives users the ability to purchase individual pixels in Bitcoin at a price equivalent to $0.0001 and settle within seconds. All of the payment requests were routed and processed by the lightning software running on a raspberry pi in the developers closet.
The HyperText Transfer Protocol (HTTP) was designed with payments in mind, in the initial publication of HTTP1.1 in 1997 shows a status code of 402 to be used for ‘Payment Required’ that clearly shows this intent.
Bitcoin with the Lightning Network has proved that micro transactions are possible and the door has been opened for paywalls on API’s or pay as you watch video streaming. Integrating payments processing and handling can now be implemented directly into enterprise software to considerably reduce risk and enable revenue structures that have not been possible using traditional channels.