Centralization in Lightning and Layer 0

Centralization in Lightning and Layer 0

A few weeks ago, I wrote an article outlining different threats to bitcoin adoption and usage through social attacks. There were tons of great ideas and solutions posed in the comment section of the post. A lot of the ideas centered around the decentralized action of individuals within their communities: from a decentralized company putting up pro-Bitcoin billboards, local community pro-Bitcoin activism, and Bitcoin education through spreading financial literacy.

I think decentralized action within communities is powerful, and it’s important for all of us to focus our energies where we can have the most impact. However, I think the power of centralized organizations to combat social attacks on Bitcoin and catalyze adoption is understated. To elaborate on this, here are my ideas on mitigating Layer 0 social attacks and catalyzing Bitcoin adoption.

Centralization Magnifies Effort

A decentralized effort of many is less effective than the centralized effort of a few. Think raindrops vs pressure washers, flashlights vs lasers. Raw sunlight can nourish plants, animals, and power solar panels; magnified, focused sunlight can spark a fire and melt metal.

Analogously, in Layer 0, centralizing efforts to catalyze bitcoin adoption can eventually lead to the formation of two different kinds of organizations: a company or an NGO. NGOs are great if there are rich donors ready to fund them at whatever cost to complete the objective. The National Endowment for Democracy, Freedom House, and the George Soros Open Society Institute are all great examples of elite-funded NGOs that specialize in color revolutions and regime change. All these NGOs have had a great impact on recent history, even though they may be lesser known and not particularly popularized by the media. Bitcoin Ekasi is a great example of a pro-Bitcoin NPO dedicated to starting a Bitcoin circular economy in a South African township. Although it would be great to have some NGOs dedicated to catalyzing Bitcoin adoption, the funding for such NGOs is sparse.

However, VC funding for startup companies is plentiful. Hence, the mantle of propagating centralized efforts for bitcoin adoption also lies in the hands of these companies. Similar to how AT&T popularized the telephone, General Electric popularized electricity, and Apple popularized the personal computer, today's Bitcoin companies are driving the Bitcoin revolution.

In other words, startup companies focused on Bitcoin will be the organizations of highly motivated individuals that drive adoption, catalysis, and change toward a hyperbitcoinized future.

History has shown time and again that the commercialization of a technology leads to the global adoption of that technology. The radio, television, and internet are all examples of technologies that came out of research laboratories and into the public consciousness through commercialization. History doesn’t repeat, but it does rhyme. Hence the path for Bitcoin to evolve from its nascency into its maturity is through commercialization.

Massive corporate expansion and growth no doubt come with its tradeoffs, and Bitcoin is no exception to this. This is why we must investigate the dual nature of power when it comes to building on top of Bitcoin.

The Dual Nature of Power: Creation and Control

The power of creation bestows the creator(s) with the power to control. This goes for everything from technology to media, to social structure. The power to create a narrative bestows the creator with the power to control it, and the power to control the narrative is only as strong as the power to create it. The power to create certain technologies bestows the power to control such technologies. As we know, Bitcoin is unique because Satoshi created a technology that even he himself could not exert control over. More specifically, Bitcoin endows its users with negative liberties.

Positive liberty is the possession of the power and resources to act in the context of the structural limitations of the broader society which impacts a person's ability to act, as opposed to negative liberty, which is freedom from external restraint on one's actions.

Bitcoin grants us negative liberties in the form of censorship resistance—nobody can stop you from sending a Bitcoin transaction. If you control the private keys to your UTXOs, you are in full control of those UTXOs without any possibility of interference from outside parties.

The value of Bitcoin lies in its censorship resistance: negative liberties are enforced through its cryptography. As long as that security model is preserved, freedom is preserved. If anything built on top of Bitcoin encroaches on those liberties, it encroaches on that security and can act as a lever of control. Gemini, Binance, Strike, and Coinbase all have utilized the benefits of centralization to catalyze Bitcoin adoption and usage, but at the cost of that censorship resistance. Freedom is not preserved in these models; instead, it is held hostage by government regulation.

By building in alignment with the freedoms protected by the Bitcoin protocol, we can utilize a centralized corporate structure for the benefit of the Lightning network. Building products that are inherently self-custodial, bringing down the bar of self-custody, or encouraging widespread competition amongst custodial products (like channel leasing for LSPs) mitigates centralization risks. By taking these steps forward, dangerous centralization vectors can be mitigated, and Bitcoin Lightning adoption is continuously catalyzed through the focus that centralization offers.

Builders are Winners

Lightning offers the opportunity for more people to consciously direct their full effort toward the creation of a society settled under Bitcoin by joining a Lightning startup. This is made possible by VCs investing in Lightning startups who will in turn potentially generate a massive return.

These enormously profitable companies are able to sustain themselves by centralizing some aspect of the payment network under their control from which they can charge rent. Centralization, like power, has a dual nature: a centralized network can have massive efficiencies at the cost of massive inequities or security risks. Such centralization will catalyze the network at the cost of its decentralization as it is the only way such companies can sustain themselves.

A great example of centralization working in alignment with this “builders are winners” principle is Lightning Labs themselves. LND is by far the most widely used Lightning network implementation simply because it has the best functionality, documentation, and feature set. Lightning node implementations have been centralized around an oligopoly of well-funded startups with LND taking the lead, and since they’re not taking custody of funds or impeding on the UTXOs of their users, I would classify their effort as a net good for the Bitcoin network overall.

On Combatting Social Attacks

Social attacks on Bitcoin are only as powerful as the institutions from which those attacks originate. The way we combat such attacks is not through directly debunking their validity—it’s by creating our own narrative through our own institutions. Debates can rage on endlessly as long as the audience is entertained. The power base for the Bitcoin network does not originate from such intellectual pondering and argument but through its genuine economic usage. Before usage comes about, people need understanding. That understanding stems from our own narratives on Bitcoin propagated through networks of trust that grow over time.

Lightning companies need to do more than just build products—they need to integrate those products into the daily life of their customers: individuals, merchants, restaurants, and any other economic agent need to be comfortable with using Bitcoin. That requires narrative to accomplish—people need to live in the story that Bitcoin is digital cash no different from other forms of money, and it’s okay to settle debts with it. For billions of people to live under that narrative, Lightning companies need to grow far larger and be able to influence far more people.

The lightbulb, car, radio, TV, and the internet didn’t reach global appeal on their engineering merits alone (nor solely through a group of passionate hobbyists), but through the dedicated work of a multitude of organizations of individuals working tirelessly to ensure that those technologies become an aspect of daily life for billions. Bitcoin is no different. It has been steadily commercialized through exchanges, mining operations, and various POS companies since its inception. The next step is more general adoption—we need people who don’t understand how it works, just that it does work for them and actually solves their problems. Hardly anyone who uses the internet understands how TCP/IP works or what an API is. They just use it because it actually solves their problems.

Lightning companies will be the force that enables worldwide adoption and usage of Bitcoin. Commercialization and corporatization are just another way of saying “an organization of people dedicating their energy and capacity towards manifesting a vision of the future.” As individuals dreaming of a freedom-filled cypherpunk future, creating or joining an organization to catalyze the adoption of Bitcoin Lightning is the best way to manifest it.

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Jamie Larson