Sam Wouters is a Bitcoin Research Analyst at River, where he has recently put together an in-depth report on River’s Lightning Nodes.
In our conversation we discussed Sam’s findings from studying the payments flowing through River’s node, River’s API service, and the future of payments on the Lightning Network.
→ River’s Lightning Report: https://river.com/learn/files/river-lightning-report.pdf
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00:00 - Intro
02:13 - Sam Wouters Intro
09:10 - Becoming a Better Bitcoin Educator
15:45 - Why River Published Their Lightning Report
29:53 - How Does River Decide Which Nodes To Connect To?
32:44 - How River & Chivo Are Working Together
38:28 - How Will River Make Money on the Lightning Network?
43:57 - Why Are So Many Lightning Nodes Running on Tor?
49:20 - How Important is Decentralization on Lightning?
1:04:25 - Making Large Payments on Lightning
1:17:41 - The Lightning Round
Sam Wouters - 00:00:00:
Lightning is private by design. So we were like, well, we want this network to continue to grow and develop. It just helps to have a lot of information out there for people that they can use as benchmarks that sort of give them an idea of where things are at today. People like to understand things like, does it make sense to have a lot of channels and things like, like, what are the biggest bottlenecks in running Lightning infrastructure? There's different reasons why people are on the Lightning Network, and it's good to be aware of those. So in a way, it's sort of a self balancing mechanism, I think, where as long as there's if there's money to be made, then obviously more people will naturally plot towards it and want to start spinning up their own node and do it. So there's really strong incentives there for that aspect. What could be the worst case, and this is something I've always appreciated about Bitcoin, is that the engineers always think from this perspective, not like, how can we optimize and make things as good as possible? It's, how can people break this stuff and make it really awful for everyone? Like, now suddenly people have the tools to build this kind of stuff that wasn't possible before Lightning. And that's something that's really exciting, I think, to see how does that play out and is there adoption there?
Kevin Rooke - 00:01:07:
Sam Wouters is a Bitcoin research analyst at River who has recently put together an in depth report on River Lightning nodes. In our conversation, Sam explained his findings after studying payment flows on River's Lightning nodes. We discussed River's API service, and we discussed the future of payments and routing on the Lightning Network. Sam has asked to have his share of today's show splits sent to the Human Rights Foundation. So if you enjoy this episode, the best way you can show your support is by sending in sats over the Lightning Network. Half go to myself, half go to the Human Rights Foundation. You can use any Podcasting 2.0 app, but my favorite to use is Fountain. Quick shout out before we get into the episode. Today's show is sponsored by Voltage. Voltage is the industry standard and next generation provider of Lightning Network infrastructure. Today's show is also sponsored by Stakwork. Stakwork is a Lightning powered transcription tool that takes the best of AI and humans to create better, faster, and less expensive transcripts. We'll have more from Voltage and Stakwork later in the show. Sam, welcome to the show, and thank you for taking the time to chat about the River Lightning report that you released recently. Let's start with a bit of your background. Before we get into the details of the report, can you tell listeners more about how you got into Bitcoin and why you decided to work at River and focus on Lightning?
Sam Wouters - 00:02:34:
Cool. Thanks for having me, Kevin. So I got into Bitcoin rather early on. I'd say like 2014-ish, 2013. Initially learned about it through a video game I was playing where people were exchanging the goods in the game economy for real life money. And the challenge there was, if you're exchanging virtual goods, how do you prevent chargebacks? Because you can't really prove that you have received the goods. So after a while, people started using cryptocurrencies bitcoin specifically at the time. And that got my interest for the first time, sort of. And at the same time, I was also trading in that game. I was using that economy to make money. But there were these essentially largely Venezuelan gold farmers. So they would just set up these mass, sort of bolts farms of accounts that were gathering resources in a game and then selling that for real life money. So for them, earning like $10 a day is life changing money. So they were doing this and then some of them would have probably used Bitcoin as well. But in general, that taught me about hyperinflation and about money and a lot of these things that I just previously had no concept of as I was just pretty young from those two angles, from the need to exchange money in the game for real life goods and to see what money can do if it's not properly sort of set up, let's call it that. Like if countries are messing up and printing a lot of money as the economy in that game, which is absolutely banking as a result of all of these people flocking in with their bolting. So that got me really interested in Bitcoin. Together with a friend of mine, we started learning about it. And it took me quite long to actually understand what it was all about, as back then there was very little nontechnical information and I'm not a technical person. I've tried to develop a bit here and there to learn some coding. I could do some basic things, but nothing too fancy. So it took me quite long to get it. And when I finally understood, I realized, well, if it's going to take everyone this long to understand it, maybe I'm an exception, I'm just not smart enough. But probably this is going to be too complex for a lot of people, so if it takes that long, it's never going to take off. So I thought, well, I can pursue that path of becoming a better developer and making it more accessible to people, or I can try to explain to people what I've learned and just write things, give presentations, et cetera. And that's what I started doing. Started writing a lot about Bitcoin, just got well, spent a lot of time learning. Let's start there because I just had a lot to learn at the time besides just the basics, but started giving a lot of presentations. I've probably done like 100 plus over the years for all kinds of audiences. I know Andreas Antonopoulos, who is all over YouTube and has traveled the entire world. But I tried to do what I could, sort of at a local level with some international presentations, learned a lot from doing that and then ultimately ended up at River when I saw a tweet from the CEO who was like, hey, we're looking for a Bitcoin research analyst. I live in Europe, and in Europe there aren't a lot of Bitcoin focused companies. There are some, but the scale is a bit smaller than in the US. So it was difficult for me to find a job like super specifically focused on Bitcoin and basically doing exactly what I'm doing now, the research side of things and the content side of things. So when I saw that tweet, I was like, I owe it to myself to reach out and give it a shot. And now I think I've been there for five months or so. It's been really awesome. And yeah, I recently put out the reports that we'll be talking about a bit today.
Kevin Rooke - 00:06:02:
Awesome. I want to touch on this game, first of all, that you mentioned at the beginning. What was the game called?
Sam Wouters - 00:06:08:
The game is called RuneScape. Still exists. I believe people always knew World of Warcraft, and then RuneScape was sort of like the second biggest. I think you have to start playing that with friends and then from there, everyone kind of quit. And I only kept playing it for the trading aspect of it as that was quite interesting.
Kevin Rooke - 00:06:28:
Very cool. And then to touch on your second point about being introduced to Bitcoin, not being a developer, and then trying to find a way to contribute to the ecosystem by explaining these concepts. I'd love to hear your just high level assessment on whether or not there's often this debate in areas of technical discussion with, especially in Bitcoin, people wondering, do we need more builders, we need more developers, do we need more marketers, do we need more designers? What do we need more of? And I think oftentimes the developers get prioritized because you have to build code to build these Internet apps that people are going to use to interact with Bitcoin. But I want to hear your thoughts on whether or not Bitcoin has enough marketers, enough explainers educators, enough people doing all the other rules that are involved in creating a global movement outside of programming.
Sam Wouters - 00:07:35:
Yeah, it's a great question, like one you can definitely talk quite a bit about, so I'll try to keep it somewhat brief. I think you need all of it. Obviously. The question is, to what degree do you need each? I think there are quite a lot of people who are really passionate about Bitcoin and who try to market it, let's call it that, who tried to spread the word to Evangelize. It? My reservations around. A lot of what happens is that a lot of people get so passionate about Bitcoin that they sort of overwhelm people who are somewhat open or receptive to learn about it, but they don't always bring it in the best possible way. They immediately start, they tell them, go read a book. Like you go read the bitcoin standard or something if you're even slightly interested. But how many times do you ask someone just very briefly like, hey, what is this topic? And the first thing they tell you, just go read this. I don't know, like 400 page book or something. Nobody does that. It's not a good conversion rate. It doesn't work. It turns people off from actually doing that and in some ways it's lazy. It's a lazy way for the educator to just kind of ship it off and be like, this thing really worked for me, so it should work for you and just go learn this way. So I don't know if we necessarily need more people to market it. I would just like to see more people be a bit more down to earth about the education and challenge themselves a bit to explain this properly to people. So it's more about a quality over quantity kind of discussion. I think there's a lot of good content out there, but everything resonates with everyone, I suppose.
Kevin Rooke - 00:09:09:
In your time studying and explaining bitcoin concepts, what have you learned about how to become a better educator?
Sam Wouters - 00:09:18:
So one of the things I've always done. Everyone has their own approach to it. But instead of learning this two minute pitch or something where you try to convince someone and you throw around all the aspects of money that are so important. Of hard money or just having some kind of fixed story that you tell every time. Instead of doing that. I like to ask people what they already know about Bitcoin because immediately. In just like a minute or something. You learn like how much do they actually know? Like, have they done any kind of research on this? You can immediately pick up misconceptions, just obvious things that people always repeat that are false in some kind of way. Or you can learn sort of what kind of angle they come at it from, what their position on it is. There's a lot of interesting aspects you can learn just by listening for that 1 minute rather than immediately jumping into your version of the story. And you can then process that and sort of address them from an angle that makes sense for them. So if you're talking about how Bitcoin is amazing. Like if your usual pitch is something like. Oh. Bitcoin is amazing for transactions all around the world. But you're talking to someone who lives in a first world country. Who has access to online banking. Who can pay with their plastic card everywhere. It's not going to resonate with them as well as someone who might do remittances frequently and actually need this for their personal use cases or maybe their family needs it or something like that. So just getting that first impression, like sort of, what do you know? Because at this point, almost everyone knows something about bitcoin that already sort of gets you going and allows you to what I like to do as well is not convince them that bitcoin is great for them or that it's better. Instead, I try to assess, like, are they positive on it at the moment, somewhat neutral or somewhat negative, and if they're quite positive about it, you can just easily have a nice conversation. If they're pretty neutral, then it's kind of showing them, like, there's more to it than you think. There's some potential, there some things that might be really interesting for you. And if they're negative about it, I don't try to make them positive about it. It's too much of a jump. Instead, I try to correct sort of the misconceptions that they immediately throw at me. I just point out to them in a calm way that they're wrong about these things and that there's a lot of research that can be done and to sort of challenge that, to try to get them in that neutral camp, like, okay, maybe everything I've been told isn't quite true, and I should be giving another thought about this and look into it. So that's sort of been my overall approach in general. And the second thing besides that is, has been visualizing bitcoin much more because it's so abstract. Like, you can talk on podcasts for hours, but some people just need to see things as people often talk about this magical moment of just sending your first bitcoin transaction and seeing that that does a lot to you, rather than just talking about it for an hour or two.
Kevin Rooke - 00:12:06:
So you'll have people actually like, if you're teaching someone about bitcoin, you'll actually have them send a transaction or send a dollar to them or something like that.
Sam Wouters - 00:12:13:
Yeah, these types of things. I've done courses like this in a classroom where you have 15 people and then you just go through all of the steps like, hey, this is how you set up a wallet. This is how you send a transaction. Now we can go look up that transaction in a Block Explorer. Just doing that for the first time for a lot of people is kind of crazy. But if you don't have that kind of time. Which will often be the case. It can also be the case of explaining bitcoin to someone through some visuals rather than just naming all of the elements of money and sort of talking about how governments are printing so much money and stuff. Like just showing a graph of how much money governments print already does so much more than saying that they print money. Because then people can be like. Yeah. But how big of a deal is that? Well, here are the stats. It is a big deal, right?
Kevin Rooke - 00:12:59:
That's a really interesting framework you're using there. To kind of reach people where they are rather than talking past them with your favorite talking points and rather than coming out of the gates with your two minute pitch. This is a page out of the consultants handbook, I guess, that I learned a while back when I was back in business school. The first lesson everyone says is, like, ask the questions first rather than, like, instead of coming in with all your recommendations, do this, do this, this, you got to ask figure out where that person is at, what they're in the business, setting it to figure out what their goals are and what they're trying to accomplish in the bitcoin setting. Maybe it's what do you know about bitcoin?
Sam Wouters - 00:13:48:
It gets people excited too. It makes it interactive in a way, rather than I'm just here, like, sort of narrating, like, kind of barraging you with information that's just way too much, and then occasionally asking a question, they'll respond with three words and then you go off again for five minutes. A lot of people don't enjoy that. They want to feel like they're being listened to. Like their perspective is something to consider as well. I found more sort of success in doing it that way than just kind of overwhelming them with information and then not really having a conversation.
Kevin Rooke - 00:14:23:
Yeah. And I think there's also another kind of human psychology thing in there where people love to talk about themselves more than so. Like. It can turn a conversation to your advantage in a little bit if you can let them speak about their issues and their thoughts on bitcoin and you can kind of. Like. Approach it from that angle. And then they're more receptive rather than them listening to you. A stranger they've never met before. Telling them why they need bitcoin and why everything else sucks and yeah. There's a lot of lessons in there.
Sam Wouters - 00:15:01:
I think one of the things that has really helped me is to not come across as a salesman. Like, I'm not trying to like I mentioned earlier, I'm not trying to convince them, I'm not trying to get them to buy bitcoin. You're just presenting information. You're just sharing things with them that might help them or not. No hard feelings if they don't do anything with it. But it helps a lot of people if you try to be objective. Of course you're subjective because you own bitcoin, but just looking at it from that perspective and also being open and honest about things that might be weaknesses is really important because it gives you a lot of credibility in these conversations. Whereas if you're only talking about the positives and just bumping it up and talking about price and these types of things and people are quickly a bit on edgy about it.
Kevin Rooke - 00:15:43:
Right, okay, let's get into River Lightning report. And this is with the insights from the fourth largest node on the Lightning network. The report has been widely circulated, I think on Twitter, seen on Sacker news. I'll have it in the show notes here. Let's start with I want to get an understanding of why River first decided to put out this report. The Lightning is private by design. You didn't have to put this report out. Why did you guys do that?
Sam Wouters - 00:16:10:
True. So this is really like you're kind of naming in there. Lightning is private by design. So we were like, well, if we want this network to continue to grow and develop, it just helps to have a lot of information out there for people that they can use as benchmarks that sort of give them an idea of where things are at today. Because over the last few years, Lightning has been growing, obviously, but it was also a period where it was relatively quiet in terms of, is anything happening? Is there development going on? If you know who to follow and you're familiar with the space, then you sort of keep an eye on that. But if you're not, if you're just someone who uses the main chain or who just has their bitcoin and cold storage somewhere and just reads up on it every now and then, they might be like, okay, where's Lightning at? You'd need to go search for that in some cases because there were still a lot of things that needed to be worked out in general to get it to where it is today, I suppose. So just sort of seeing all of the news around the Lightning network. There have been some good reports in general as well from, I believe, like Arcane Research, but at the State of Lightning twice now. And that's been really good to see. But when I joined the company and I realized, actually we're running some of the largest nodes by capacity, I figured there's just got to be so much valuable information in there that could help people, and there are only so many nodes that have this much information available that could share it with the network. So I figured, let's just make a first step. Obviously talks about it internally, like, what do we want to do there? How much do we want to give away, obviously. But we were like, yeah, let's do it. Let's see. There's already smaller node operators that were sharing as much data as possible as they could, which has been a huge help to, I believe, everyone around the network. But we thought, let's keep adding onto this and see. Perhaps others will follow. Perhaps we can do more collaborative research in the future where we just present stats from far more nodes than obviously we're currently doing with our two nodes. So it really came from a perspective of, can we help people out there? And it was funny because I was at the Bitcoin Amsterdam Conference, and after my talk there on the report, I went to the set stage where Gleb Naumenko was there, Aaron van Wirdum, Sergej Kotliar from Bit Refill and they were talking about Lightning and sort of scaling challenges. And then someone asked Gleb, why are payments failing today? And he's like, well, actually, I don't have a lot of insight in it because it's private. So I kind of rushed to the front. I was like, guys, we just published data on this and I hope this can start conversations and help them to figure these things out because they like, up until this point, don't always have a lot of insight and sort of the statistics behind it, like, what are the biggest causes for payment failures, of what sort of thresholds does that start, et cetera. So we can get into all of that, right?
Kevin Rooke - 00:18:57:
So I'd love to know more about why you decide to share the types of information you share. You talk a lot about the types of channels you guys like to have the strategy of not appealing to. You're not trying to build the node with the most number of channels. You're not trying to build the node that is necessarily the most profitable. You're trying to go after reliability. You talk a little bit about your routing earnings in the report. You talk about payment success rates, payment sizes. What was the process of thinking about like, what information you should include? Because to some degree this is also competitive, right? Like, yes, it can be helpful to bootstrap this network, and you want to help people get this information if it's not available. But at a certain point it becomes competitive and every node is trying to compete with all the other nodes to pass payments through. So how do you guys think about what information you should be sharing and will you continue to release these reports over time?
Sam Wouters - 00:19:59:
I think to your last question, the goal is to do it more often. And really the first sort of pass here of putting out this report was from a perspective of what would I like to know from River? What would I be interested in earning? Is obviously something that comes up there in a thing that a lot of people want to know, like, okay, what are you earning from routing? People like to understand things like, does it make sense of a lot of channels and things like what are the biggest bottlenecks and running Lightning infrastructure? So it was really from perspective of what makes sense, what would people want to know? And then you filter that down a little bit by what is actually competitive information. Like, I had a few requests for people like, oh, can't you list your most profitable channels in between? And it's like, yeah, we could, but if we put that out there, then a lot of people will just copy that same sort of route. They'll reconstruct the routes that we have and then for everyone, the profitability drops so that nobody wins in any kind of way. So that type of stuff I didn't include and wasn't even really that much of a discussion internally, like should we be doing that or not? That goes a little bit too far at this stage. I would say to put it publicly, if it's for purposes of this could help developers to figure things out to increase the reliability of the network, then it's a different discussion perhaps, but it's just a matter of being a bit selective there, but in general being as open as possible. And if we start realizing, okay, this is negatively impacting on a large scale, negatively impacting our Lightning activities, then we could always decide in the future to scale back on some of that. But for now, the Lightning Network is sort of relatively small in terms of how much money is actually flowing around it relative to bitcoin like the blockchain, for example. So for now it just makes a lot of sense to share data, I think, and get the network as reliable as possible. And once that's the case, people can compete all they want in the future, I guess, once it becomes super serious.
Kevin Rooke - 00:21:58:
Yeah. The social kind of structure of the Lightning Network is very strange right now because on the one hand, you want to be connected to all these, all these nodes on the network, especially the bigger nodes, the ones that are processing a lot of payments. You really want to have this like you want to be deeply embedded in this network, right? You want to be like central. On the other hand, you don't want to reveal your profitable strategies. You want to be as far away from everyone else as possible. You want to not have any communication about what's making you money because over time that's going to be what sustainably allows you to continue operating the node. How do you think this social kind of network is going to evolve? I think I think Jesse Shrader, when he was on from Amboss, he referred to Lightning as a social network and it was the first time I had heard someone describe it like that. But I'm now seeing more of that and I understand that a little bit more. How do you think these social agreements are going to evolve between node operators? Do you think it will become normal for people to share in closed settings? I want my liquidity push to this side. Yours is on this side. Do you think that will be a discussion people have in closed settings or more public settings or over time, are we just going to have this hyper competitive environment where people just shy away from all communication with third parties?
Sam Wouters - 00:23:32:
I think there will always be communication because there's always people seeking ways to sort of benefit more than others and people will always try to just talk to peers and see other things that we can do to sort of game the system in a way or become more competitive than some of the others that are like taking part of our profits, we believe or something. So in general, humans are this way. So I think that will continue for quite a long time. And in both in public and private settings you'll see this probably I would expect that as time progresses and there's a lot more automation in Lightning and people start figuring out the best strategies, et cetera, then this might change and sort of that landscape would be different than it is today. But at such a small stage as it is now, I would guess there will be more sort of like one to one conversations or small groups, et cetera. But in general, to your previous question as well on data sharing, one of the benefits of sharing data and making Lightning appealing to a lot of people is just increasing that set of people who have an interest in running successful routing nodes that are supporting the network and decentralizing it. So the more data sharing we have, the more people might be interested in getting involved and that also allows the network to remain decentralized and not just have like a group of say 50 to 100 people that are together just dominating a large part of all the traffic and it's really hard for anyone new to come in.
Kevin Rooke - 00:25:01:
Yes, I 100% agree there that just sharing data and having this available now, anytime someone outside of the Lightning space is looking for information, what do they see? Right now, before this report came out, the popular metrics, and still probably the most cited metrics are public capacity numbers and channels and nodes. But there's very little visibility into like payment activity and this report revealed a lot of that. But prior to that, I think the assumption a lot of people have, and I talk about this a lot on this podcast, is that I think people still think Lightning is relatively small. It's pretty private, so we can't get hard numbers. So let's just round it down to zero. Let's just call it nothing and they just kind of turn off their brains after that. And unless they're actually running a node and they're actually seeing payments go through, there is no visibility, so there's nothing to measure for them. So it's super helpful to have these reports. I agree. I want to talk a bit about your Lightning channels. One of the first parts of the report highlights that you guys aren't trying to be the most well connected node on the network. Historically, I don't know if this is I won't speak for everyone in the network, but historically I've heard a lot of people talk about how you do want to be a central hub on the network. You do want to have a lot of connections. That is a valuable thing to have. What's your take on that and where do you agree and disagree with that take?
Sam Wouters - 00:26:40:
I think we tried. To address this in a report of it as well. There's different reasons why people are on the Lightning Network and it's good to be aware of those. We try to kind of highlight this in these different types of node profiles. So to call this is just a new terminology that may or may not catch on in any way. But the idea is that some people, they join the Lightning Network for personal reasons. They want to send personal transactions to buy things, to occasionally or to transfer from into exchanges. That may happen, there will be more edge nodes rather than the well connected ones, but it's good to be aware if someone is that kind of node or not, because it may influence your decision to open a payment channel with them and to lock up any kind of liquidity. And there are lots of people who want to be routing nodes because that's where they can make money and that's just where they want to be as connected as possible and be connected to the larger nodes, as you previously mentioned. So from our perspective, we come at it from a bit of a different angle because we are also an infrastructure provider. So we're not just River first integrated Lightning in 2019, so deposits and withdrawals as one of the first brokerages/exchanges to do this. And from that point on, at some point we onboarded the Chivo wallet for their Lightning activities. We became an infrastructure provider for them. Now, when it's your own business that you're routing Lightning payments for, it's a bit different because you have that direct communication with your clients. But once you start offering infrastructure to other companies and there's any kind of issues like a payment doesn't go through for some reason, it is your problem. Even though you do not face that consumer, you'll need to tell the company, like if a payment doesn't work for some reason, this is what you need to tell them, or this is the action that you need to take. And they will look at you like, this is your problem, you've got to fix this, you've got to make sure all the transactions go through. So from that perspective, our focus is very much on reliability and so opening channels with people's noncustodial wallets that may only be online like once per week or something, or people that have a Lightning node as a hobbyist, but they're only sending like one transaction per month. It's just a bit less appealing if the focus is on reliability to create payment channels with those people and to be connected to them. So there's a bit of selectivity there and not everyone is happy about that. There have been some people complaining in the past like, oh, why aren't you opening a channel with me? Because I'd like to, I want to check this thing out. I'm sure almost all large nodes have had some complaints like this or lots of requests from people, can you open a channel with me? And sometimes there's a bit of selectivity there there. It doesn't mean that it's an elitist club where you can't get in unless you open a certain channel size or have a certain track record on the network. But as time progresses, it may become pretty relevant to have a decent reputation or to be able to show somehow to these large nodes, like, I'm going to be someone that's worth connecting to. This is my track record or what I'm planning to do with the Lightning Network. And that just helps to convince people to connect to you in a way.
Kevin Rooke - 00:29:52:
Right. How does River determine today who to connect with?
Sam Wouters - 00:29:57:
So there's a bunch of different factors. It's nothing too complicated. It's mostly just looking at is there any kind of track record of how long is this node existed? How many channels do they have? Where is this request coming from? For example, after my presentation, I got a request from a guy in person. He was like, I'd love to be connected with your node. I sent it over to the developer. He had to look at one of the developers, he had a look at it and he was like, well, this node makes total sense because it's been there for quite a while. It has plenty of liquidity, it has plenty of channels. It's just a nobrainer, but there have been requests in the past from someone which is like, I'm just figuring out Lightning and I want to open a channel with you guys because I like the company or something. And then it's like, okay, but what are you actually planning to do with it? And it's not like they need to fill out a form and KYC and put all of their reasons on the table of why they might want to connect with us. But there needs to be a little bit there, there needs to be a proper reason. And that's what the focus has been on so far.
Kevin Rooke - 00:31:02:
Right. And if you have enough of these nodes that don't have a proper reason or some sense of how the network works or a track record of reliability, then the worry would be that it could drag down your reliability as a service provider. Is that the idea?
Sam Wouters - 00:31:21:
Yeah, pretty much. And in general, since the focus is so much on the reliability, we sort of try to be selective enough. And obviously, like, our channel count has been increasing a lot recently with our second node growing out quite a bit. But one of the important things here as well is that we want to be efficient with our capital because we're a business and if we just keep opening channels with everyone and there's liquidity sitting in there, but it's just almost never moving, then that also becomes a reason to close that channel down. So rather than only the question of should we even open one up in the first place. We also evaluate, has there been any activity on these channels in the past? While I think every node operator can do this exercise for themselves, where they just look at these are all of my channels, and if I look at that, which of these channels have actually been active over the past month, for example? So how much of my total capacity is actually actively contributing in some way? If they're running a routing node? Of course, if you're just an individual and you're not trying to earn any kind of returns, it's not so relevant. You're not servicing anyone. But if you're taking it somewhat seriously, then it makes sense to take a critical look at that. And as a business, you're almost forced to because you just need to be very efficient with your capital rather than just let it sit dormant and Lightning for months on end without really doing anything.
Kevin Rooke - 00:32:43:
Makes sense. You mentioned Chivo a little while ago, and that was written in your report as well. Chivo is using Rivers Lightning API, I believe. Can you give listeners a better understanding of how that works? And did Chivo start with you guys on day one, or they had a service provider beforehand, right? Because they've been up and running for over a year. And I believe your API is newer than that, correct?
Sam Wouters - 00:33:08:
So the API publicly is newer, but sort of as the first client, we started out with them, and that was, I believe, like, about a year ago or over a year ago when they initially sort of put out a request to get this connection. It's a bit before my time, so I don't know all of the details there, but we did start out with them. And the idea, like, instead of going public about that immediately and boasting like, oh, we're amazing, we're doing this thing for the Chivo wallet, we were like, let's just see down to earth. Does this work? Sort of at this kind of scale? Can we make this as good as possible? And by working with them, we went through this process of, like, upgrading that infrastructure, ensuring that we had a second node for redundancy and being able to take the first one offline for maintenance and all this type of stuff. So we kind of like, in a way, they were the first client there without going very public about it and making it a really big deal. And once we've gone through that process, we'll realize that there's potentially more demand for this, there's more we can do with this API that we've built. So to answer your other question, like, how does it work? In essence. When someone uses the wallet and they want to send a Lightning transaction. That transaction is routed through our nodes to ensure that they never need to worry. That the Chivo team never needs to worry about opening channels. About liquidity management. About payment success rates that's not their concern and they can thus focus on developing the app and making it a good user experience and we ensure that the payments get routed. And sort of the first feedback that people have done is like, wow, that sounds really centralized, especially if you start doing this for a lot of companies. Like, what if almost no companies actually run their own Lightning infrastructure and all of them use a handful of Lightning service providers and there will probably be many just before us believe, BitGo did an announcement that they would also start doing this and there will probably be many more companies that start offering Lightning services. But besides that, there are so many individual node operators that want to run a successful routing node in the network and can dedicate a lot of time to that. So I don't believe for the usage of the Lightning Network itself, it's not necessarily going to be very centralized, that almost everything happens just on a handful of nodes as people will ensure it's decentralized, there's many different routes, there's ways to go around those nodes, et cetera. But what it does offer is for companies as a way to start using Lightning without having to worry about sort of the technical hurdles and basically putting Lightning like a developer on this for a big part of their time, or potentially all of their time to set up the node, to maintain them, to update them every single time. It's necessary to ensure there is always enough liquidity, because if you run this stuff as a business, it needs to always be there. And so many people underestimate this because when Lightning initially started growing a bit, people started pressuring the coin bases, all of the exchanges out there, like, you guys need to integrate it. And like, sure, a lot of those exchanges, they're big enough, they could totally spare the engineer to do it, probably. But there's quite a bit of work involved there that people don't always appreciate because suddenly you're dealing with a consumer facing product and if you're really excited about Lightning and really excited about Bitcoin, you know a lot about it. But if you're off, like, if you think about the average Coinbase user, lots of them, they have no clue about anything technical related to Bitcoin or any of the cryptocurrencies. They just buy what's in the interface and keep it there, probably. So, like, offering them a Lightning product that always is online and always works, that is obviously, like quite challenging. So for a lot of these companies, this could be a first step to start using Lightning. And from there on out, if they have good feedback from users, if they see the value of it, they could always reconsider to run their own Lightning infrastructure in the future. It's a bit similar to when people first buy Bitcoin. A lot of them, they go to an exchange, they buy it and they keep it there. And it's not great. A lot of people will complain, like, you need the custody for yourself. You got to get off an exchange. And not everyone needs to do that because a lot of people can't even remember their password. Literally, if you told them how to sell custody, they're going to lose their bitcoin. So while I am a very strong believer of educating people on this and encouraging them to sort of take their own keys and have their own financial freedom, it's quite similar in this Lightning sense that immediately pushing everyone to run their own Lightning infrastructure will just make a lot of companies wait a long time before this becomes super easy and accessible. And that slows down Lightning's adoption. So by adding this kind of service to the market, we hope that companies will see this as a way to start playing with Lightning already and to be at the forefront to be involved in it, even if they're not necessarily running their own nodes yet.
Kevin Rooke - 00:37:55:
I hope you're enjoying the show so far. I just want to give a quick shout out to our sponsor, Voltage. Voltage is the industry standard for Lightning Network infrastructure, creating layer two applications and services on top of bitcoin starts with Voltage, where you can spin up nodes, get access to liquidity, optimize your node, and much more. Voltage is leading the way as the next generation provider of Lightning Network infrastructure. And if you want to get a free trial and start using Voltage today, you can do so at Voltage.cloud. So when I look at River business as an outsider, I see three different avenues in which you could turn this Lightning integration and all the work you're doing in Lightning into a business model. One, which I think you guys have been clear that you're not pursuing as a primary business model, is earning routing fees. One is servicing your customers and just letting them make those Lightning withdrawals and deposits. And then the other one that we're talking about now is this infrastructure piece. Is it right to think that this infrastructure piece is going to be the primary revenue driver for Rivers Lightning business? Is this the primary business model for you guys?
Sam Wouters - 00:39:10:
From my understanding, this is the plan and it's growth out and obviously these things can shift. But the thing as well is it's kind of the question like, what is best for both the Lightning Network and for River? Like, as a company, you have investors and you need to think about kind of the future of the company as well. And whenever you can find things that are good for the network in general and also good for the company, that's kind of the sweet spot. And if all you're doing on the Lightning Network is earning routing fees, it's good. Obviously the route transactions for people, but there are many alternative routes that they could take. Like, they don't necessarily need you. You're just one of many options, which is nice, but if we want the Lightning Network to grow and succeed, then there's a big question like, who is going to make this accessible to businesses if we actually want to use this for all kinds of payments? And that's where we figured that we could play a big role there and grow this out and allow the Lightning Network to grow in that way. And in doing so, if that can succeed, then it could open up all kinds of other sort of financial options in the future. If Taro becomes a success in the future, when it's fully implemented and people start adopting it in some kind of way, that might open up avenues too. But first we got to ensure that the Lightning Network is big enough, widely adopted enough, successful enough in writing the payments, and then we can sort of look at the next steps from there on out.
Kevin Rooke - 00:40:36:
In your report, you highlight payment success rate of 98.7% in September. Now, this number, to me, it's a lot higher than I would have expected the number to be. I believe the number, just so we have a definition of it, is this the percentage of payments that is going through Rivers Lightning nodes, not just River customers, it's any payment going through the node, correct?
Sam Wouters - 00:41:03:
Yeah, it's any of them. Exactly.
Kevin Rooke - 00:41:05:
Got it. To me, this is a really positive sign that 1 of 100 payments maybe is failing, but 99 are succeeding, which is much higher than my personal payment success rate on Lightning. When I use my own node and things like that, I want to know what benchmark you guys are going for here. How do you assess the state of payment success on the Lightning Network today? Is 98.7% good? What's great? What's the target here? When we think about Visa and Mastercard and some of the payment infrastructure we use today, what are these guys at?
Sam Wouters - 00:41:50:
Yeah, it's 100 or bust. It would kind of be the goal to get as close to 100 as possible. Obviously that's difficult because not everything is within our control. This is something we try to focus on the report to share a bit like, why are these payments failing today? Why are they not successfully being routed? One of the reasons that comes up there is time out. So the node is trying to find a route to send a payment and it just can't really seem to figure anything out and then the times out after a minute. And part of the reason that a lot of people started pointing out is it's got to be because of Tor, because a large part of the Lightning Network runs on Tor and the connections are just much slower there, so it can be tricky to figure out the routes. So that was about, I believe, like half a percent or so of all the transactions failed for this timeout reason. And the second biggest reason was there's just no route available to get to the point where we need to be. And this could be like the liquidity changed. In the meantime, a node may have gone offline that was previously there. So these can be all types of reasons. And that's sort of another half percent very small amount of transactions that fail for reasons like, you know, someone sent a manual Lightning transaction, they go to it themselves, but they put in a mistake in there in the routing instructions. Or it could be that the nodes went offline for a bit. We had that in, I believe, June or July. So it is very briefly one of them was offline and then it adds up a little bit if at that time a bunch of people were sending transactions. But those altogether are quite negligible. It's really the first two reasons, the time out and no availability of a route that are the biggest reasons why the transactions are failing today. And some of the work there needs to happen on the protocol level and the network level. And there's only so much you can do as an individual participant besides sharing data, which is what we're trying to do. So maybe if there are other nodes out there that can also share what it looks like for them, they might start painting a more broad picture of what's going on and why these transactions are essentially failing or not.
Kevin Rooke - 00:43:58:
Why are so many nodes running over Tor? I know that's like an Umbrel and some of the products and like node offerings in Lightning space, but if it's such a big deal that all these payments are failing, why are these services still choosing to use Tour?
Sam Wouters - 00:44:17:
I'm guessing part of it is people aren't necessarily aware that it could be such a big contributing factor. And so far the Tor thing is mostly a suspicion that seems to be shared by a lot of people. So there isn't hard data that proves this is definitely Tor, but it seems like the most likely culprit from what I've understood. So it's more about like we would need to quantify in general as a network, I think, how big of a reason is it? And if so, is that worth sort of the tradeoff of using it less? And a lot of people there will say, well no, we want the privacy aspect of Tort is so important and we will just accept that there will be some payments that fail and then there might be other nodes that say we're not going to connect to anyone who uses Tor for reliability reasons and it's not for any kind of privacy related reasons. It's really just we do business in some kind of way and we need every transaction to succeed. So we need to try to avoid Tor as much as possible. That could become a situation in the future that people start considering. But for now, I think I guess it's not quantified enough or there is too much demand from people. It's also possible to just use Tor and to keep everything private. I can imagine why people might want to if they put their own capacity on a node and they might interact with others and say like, hey, can you open channels with me? Et cetera. You might have one that tied to a physical location. Like I have x bitcoin in this node at this location or this area. Maybe people are wary of these things that I don't really know the details of too much from protocol level when.
Kevin Rooke - 00:45:57:
It comes to Lightning Network, what can we do to improve the number one and number two reasons for payment failure? How can we get around those?
Sam Wouters - 00:46:08:
Yeah, I'd say way over my head in terms of what can be done technically. I'm not necessarily a technical person as mentioned at the beginning. I believe at TABConf, which recently happened, Matt Corallo did a presentation on sort of lightning's challenges and sort of the struggles that it has. I wasn't there personally, but I saw some pictures of his presentation and he outlined some of the potential things that need to be fixed about Lightning to improve reliability, to improve privacy, etc. So I'm guessing that might be a good starting point for people to figure out like what are all the things that need to be done? In general, I think in order to improve any of these points data, I could just kind of sound like a broken record. I can keep repeating it, but sharing data on it in general, I think is going to help developers to even get an insight on why are they failing today and what are potential steps that we can take there. And one example that's been really well received is Rene Picard's work on multi path payments as one way to ensure that more transactions get successfully routed, for example. It's more of these types of things, but those insights obviously don't come without getting insights from the network itself, from the users of the network on what is and isn't working today. It's about giving. Like the developers, they are human too. Just sharing information with them, helping them understand what things aren't working and how they can improve upon that is a really important step.
Kevin Rooke - 00:47:40:
Do you think it's realistic to I think right now a lot of the hobbyist node operators are running node on Raspberry Pi's, which I've heard it can be unreliable at times. I haven't personally experienced many reliability issues with a Raspberry Pi in the past, but I've heard a lot of people who have. Is it realistic to expect many node operators to continue using Raspberry Pi? Is that a constraint on payment reliability on the network?
Sam Wouters - 00:48:13:
I don't know much about that. My guess would be this is going to sort itself out. In a way. It's kind of a self selecting mechanism, I suppose. Like if people realize that actually with these nodes they go offline too much or they have issues too much, I'm just not going to connect to them. And over time people might start realizing themselves like okay, my node goes offline too much or like I have too many technical issues. This is causing problems for me to be a successful routing node. So thus I'm going to upgrade my Lightning node to something a bit more professional or that might cost a little bit more, but then I have the reliability of that. So I think on an individual basis there these hobbyists. For them it's a passion project that's really awesome. It's giving them a lot of energy, they like to spend time on it. So seeing that struggle or fail is just automatically, I think, going to make them look into options to improve it, share information with each other and then figure out along the way like what are actually the culprits of these issues and how can we sort of move on from that and do better. So I think purely by the passion that people have for the network, I'm hoping anyway this will get sorted out.
Kevin Rooke - 00:49:21:
Is it important that people are running their own nodes? And that, you know, centralization is a big topic of conversation in bitcoin more broadly, but on the second layer do we have the same requirement for decentralization as we do on the base layer? Is it important that everyone or many participants are running their own Lightning nodes? You know that it's not all on one centralized kind of service that runs nodes for you. How do you reason about the importance of that on bitcoin second layer?
Sam Wouters - 00:50:02:
Yeah, I think it's still like given for the size that the network has today, I feel it's a little early to make sort of really professional good conclusions about that. So far I can only guess and one metaphor that I used in the report itself as well that I believe is relevant here is if you look at something like YouTube or Tik Tok or any content creation platform. It's kind of the question of like how many content creators should YouTube have to service humanity in a way like how decentralized should that be or should everyone watch the same then extremely popular channels and people kind of come and go there and there is a certain amount of money to be earned. And similar in Lightning probably there's some kind of upper limit to how many successful routing nodes there can be before people start dropping off and just realize this is not worth my time or effort as I'm just not earning enough from doing it. So in a way it's sort of a self balancing mechanism I think, where as long as there's like if there's money to be made then obviously more people will naturally flock towards it and want to start spinning up their own nodes and do it. So there's really strong incentives there for that aspect. If the potential earnings on Lightning would be too low and almost nobody would be incentivised to run routing nodes on it, then I could see a bigger concern towards centralisation where only the nodes with very high capacity, massive connectivity can really get any kind of meaningful number out of this that would be different. So far I'm not getting the impression that it's trending in that direction where it's becoming very dominated and there's no room or space for smaller node operators. In fact we published our earning numbers and they're way lower than some of the smaller node operators percentage wise. Like we're earning about 1.15% per year at our current rate. But that is previously discussed, like it hasn't been our focus. The focus is on reliability and that's just the trade off that you make there. What are we going to do our best at? But there are some smaller node operators and they make like five plus percent per year at the moment. I'm sure there are some that make 10% plus and keep their mouths shut and try to keep that going as long as possible. No idea what the highest numbers are out there but as long as that percentage is there like, you know, like 5% to 10%, a lot of people are interested in doing that. If the only hurdle there are some technical skills and devoting a bit of time to start learning how this stuff works, then I suspect as long as it's the case, it will remain decentralized enough. If that incentive drops off then yeah, things will change I think, and will learn a lot from doing that. Then I would probably revise my opinion on the matter once there's more data available on it, rather than already have like a very forward looking projection of this is how I think it's going to be. I'm not sure. I wish I could tell you right.
Kevin Rooke - 00:52:53:
I like that incentive analogy with the YouTube creators and if there's enough money in the system it will naturally attract more people to it. But I also want to play devil's advocate on the idea that attracting more people to Lightning is necessarily going to lead to decentralization. Because I wonder if we look at web servers on the internet like 20 years ago, maybe you could run your own now there's a lot more people running web apps but a lot of them are using the same two or three services. Is that part, do you think, concerning at all? Like maybe we do get a lot of Lightning node operators, maybe there is a lot of money to be made but they all end up using the same infrastructure to do it. How concerning is that to you?
Sam Wouters - 00:53:45:
I'm glad you challenged it because I think you're right there that we've seen this happen with the Internet in a way. The difference there is of course, yes, you can make money as an actual business. Running this for people on the internet, but it's a bit less direct and a bit less accessible. I would say the lining is today, but if you look forward 20 years or something, then, yeah, this whole landscape might change quite a bit, become way more professionalized, and then it could start looking quite different indeed. So I'd say it's a really important thing to watch in general and to remain aware of how are we seeing this progress? But then again, we get back into the tricky subject of data. Like, how will we know when it's too centralized? Is it when the small node operators become very vocal and start saying, I'm just seeing the traffic drop off and I'm just seeing these big nodes, they keep growing and growing and almost nothing is getting routed through me. I suspect everything goes through them nowadays. Or is it just the overall activity of the network that drops or something? It becomes pretty hard to monitor this in a way, unless people keep opening up about their data. So it's kind of in the interest of the network itself, if you want to see it remain decentralized, that in some kind of way we have some data sharing. But yeah, the question is, is that enough for people to take the initiative to publish this type of stuff?
Kevin Rooke - 00:55:10:
Right. And the issues with centralization on Lightning node, though, that may be different from the issues with centralization on Bitcoin and space chain. Right. What do you think the worst case scenario is for we have too much centralization on Lightning? Is it just that a node operator is making more money than they should and they've kind of like captured a market a little bit? Or is there any Censoring transactions or stopping the flow of payments in some way? Is that at all a concern? Or is it more just that they may be captured by a large node operator and they get more of the revenue than they should?
Sam Wouters - 00:55:53:
Yeah, it's a really game theoretical question. In a way. I'm really thinking, like, what could be the worst case? And this is something I've always appreciated about Bitcoin, that the engineers always think from this perspective, not like, how can we optimize and make things as good as possible? It's how can people break this stuff and make it really awful for everyone? So I think Censoring, like, it's a concern up to a certain extent, but it kind of depends on how expensive is it going to be to set up a Lightning node in the future if there's so much traffic on the network. Sort of like how big of a node, how much storage space do you need to have, et cetera? How big is this thing going to grow for just any random pleb, let's call it that, to set up a Lightning node. Because as long as that is accessible, then even if any kind of large nodes start Censoring transactions, people will just spin up new routes. The tricky part there, I guess, is how do you instruct the software to sort of realize, okay, I'm being blocked in some kind of way, I can't form connections with these nodes, so instead I want to find a different route that still allows me to go through. There's probably some challenges to figure out there. I'd say censorship is always the most obvious concern in this regard, but the benefit is that you don't know the origin of a Lightning transaction. You really just know, like, in which direction you got to send it. So that will always be some kind of always. I would hope that it remains a good protection against too much focus on censorship because it's so tricky to try to figure this out. Beyond that, I would say the earning aspect that you're mentioning, I could see that be some kind of concern. Of course people can set their own fee rates, so that would help a little bit there. Again, if the big nodes, if they're just asking too much for the service they provide, then there will be incentives for people to spin up new nodes and just undercut them and remain really competitive that way. So I like that there's a lot of these mechanisms built in. The good balance itself out. The question is, of course, will they in a way like how lazy are people, how incentivized are they to build alternatives to some of these challenges? Like lots of things I'll be watching very curiously to see if this is going to succeed.
Kevin Rooke - 00:58:21:
Yeah, and then there's also an issue of like, we don't really know where fees on bitcoin’s base chain are going to settle over time and that could be a meaningful it could change a lot about the routing node landscape. If I'm a new operator and it costs $1,000 to open a channel, well, that changes the number of channels that I'm considering opening versus if they're a dollar to open.
Sam Wouters - 00:58:51:
Yeah, for sure.
Kevin Rooke - 00:58:52:
And then I guess it also changes then who can participate as a node operator, whereas it doesn't necessarily fees can go up to $1,000 per transaction on the bitcoin base layer, but a bitcoin node operator can still run the blockchain, right? They can still see all that. They can download this history of transactions, so it doesn't affect them, but it could affect the Lightning node operator, right?
Sam Wouters - 00:59:18:
Yeah, for sure. It's a big consideration. Also, I've written about this in the report as well. When you want to set up a successful routing node, when you want to actually earn a good bit of money, there's a lot of trial and error there. You might be opening channels. Some people go to Liquidity Marketplaces and try to buy liquidity and not all of them may work out. So occasionally you just need to close a channel. And indeed, if you want to bootstrap a node, set up a new node in a network that's going to be successful, you'll need to open and close a whole bunch of channels before you kind of lend the sweet spot and build out your network and have good routes available to you. So indeed, like the more expensive and on chain transaction becomes, the harder it might be for people to set up a successful routing node. And that's again, in a way it's a self balancing mechanism, but if the starting capital becomes too high, then it becomes almost similar to mining in a way where mining is sort of accessible, but there is a sort of high barrier to entry for quite a lot of people that just don't have access to the kind of capital needed to get into mining. But that is of course it's in the future, we don't know how far off it is. And to your question towards centralization of the network and on chain fees, I guess the tricky part is we don't know how high the fees are going to be. But we do know that typically what we've seen in the past is that the average fees, they increase pretty quickly when they do and of course it will cool back down once the Hype cycle is over again or something. But in general they tend to spike pretty quickly. And then Lightning in that state, sort of that period of time during that spiking, it's a bit harder to build it out for people to set up new nodes. So then it's kind of like what's there in the network now that's mostly it what we need to do it with, where we need to start offloading on chain traffic onto Lightning with. So during that time period where it's a bit too expensive to open and close channels, it might be a little bit stagnant in a way. It might not continue to grow as much as it did before where it was much cheaper to open channels. So during those periods I would say it's probably the most vulnerable in a way to the censorship or to bad actors messing things up because people will need to pay more to combat it in a way.
Kevin Rooke - 01:01:37:
Right? And one other thing that is tied to the transaction fee for opening channels and making a bitcoin payment is what is in the average transaction size on lightning. And this also relates, I guess to the price of bitcoin if we're still denominating transactions in US dollars. You guys noted in the report that I believe the average transaction size of a Lightning payment on through River Lightning nodes is $46 today. If you look forward, which direction is that head? Is it going? I can make a case for it going higher and lower. What do you think?
Sam Wouters - 01:02:22:
Yeah, it's kind of what you're saying. Like I could make both cases. It was actually my biggest surprise you mentioned like when you saw the 98.7%, like all really interesting, but for me it was that in combination with the average transaction size? Because in my head I was always thinking like, yeah, Lightning is mostly for micropayments largely anyway. That's just where a lot of the user activity happens as well. On your podcast, for example. But the tricky part is I saw the $46 number and I was like, well, I got a quadruple, check this, because there's no way it's correct. But then you're realizing, well, this just gets screwed upwards so much by large transactions. And why do those large transactions happen? It's not necessarily because people need to send them, because they can just do it on chain. But when people are experimenting with Lightning and trying to send big transactions, just kind of seeing like, does this break something in a way. It's not really something you want to figure out with a large amount of bitcoin, but like they've got to be done one way or another. Someone has to do it sort of gradually start increasing the amount that we're sending, but those more likely get routed through the big nodes and then we're included there a little bit more often. So I figured the median transaction size is formally relevant, which is about $5. And that's sort of what I would expect to be the sort of the average online today, but then without the outliers that are screwing it upwards so much. So from the five dollar point, I would expect it to go up over time, especially like a bitcoin transaction fees. Just like if they're in the dollars and they become higher and higher for just like a standard transaction, then it just makes a lot of sense for that number to go up. The $46 average, as a result, might climb for a while, too. If people just start, like especially if some businesses adopted and larger payments start happening or larger transfers between exchanges, for example, for arbitrary reasons could be the case as well, then I could see if that climb up, but sort of remains to be seen where that's going to settle in relation to the base chain fees.
Kevin Rooke - 01:04:23:
Sam Wouters - 01:04:24:
Kevin Rooke - 01:04:25:
I know that on the surface looks like a bad idea to send a large transaction over Lightning because the fee. If you have a number of hops of fee may scale with that transaction size. So it could be like a quarter of a percent and a quarter of a percent on one bitcoin is a lot more than you'd pay if you just were making an on chain payment. But I wonder if maybe Arbitrage is one of those use cases where it is rational to do that. Like if I have an option of if I see an Arbitrage opportunity on another exchange and my two options are wait for six confirmations to send money onto that exchange or do it over Lightning, pay way more than I would have in an on chain fee, but instantly get access to those funds and then I can make my Arbitrage play. Maybe there is a case for that being rational behavior and I can definitely see more participants doing that in the future. What do you think about trading and the use case there for making large payments that otherwise would seem to be like irrational behavior?
Sam Wouters - 01:05:38:
It could be the case. I think like today, a lot of traders use stable coins for this reason, which it makes total sense, but for some it might make less sense in the future. It all depends on how regulations develop. I have no idea. I don't look at that too much today. I think another interesting aspect there might be if people start issuing stable coins on Lightning through Taro, then that could be the way that people start doing it and that would also just severely undercut the fees there in a way, so that could become an accessible option. But that is probably a while out before exchanges really start adopting it. But in general, people will make some kind of trade off of how much am I paying versus how much benefit is this giving me. And yeah, it really depends where it settles. If it's in favor of the arbitrage, then people will do it for sure if there's money to be made.
Kevin Rooke - 01:06:33:
Sam Wouters - 01:06:33:
So, yeah, it depends a bit on how it develops, I guess.
Kevin Rooke - 01:06:37:
Off by hand, do you know what the largest payment River has routed is?
Sam Wouters - 01:06:43:
No, not off the top of my head. I would need to check that.
Kevin Rooke - 01:06:46:
Okay. I think I've seen a couple of people on Twitter. I want to say someone on Twitter mentioned routing a full bitcoin at some point.
Sam Wouters - 01:06:53:
Yeah, I'm pretty sure I saw this as well.
Kevin Rooke - 01:06:55:
Okay, yeah, that's about the highest number I've ever seen on Twitter, but of course that's a very limited set of data. I'd be interested to know what that maximum number is today.
Sam Wouters - 01:07:08:
Yeah, I doubt it's us. I'm just thinking off the top of my head if we even have any channels of that size. I don't know if we do, but yeah, if it was us, maybe I would have included in the report, but actually I didn't look at it. What was the biggest one? It's a really obvious question and when I put out the report and did the presentation, this is also kind of a request for people to kind of like, tell me what you would like to learn. We're not going to share everything, of course, but maybe there are interesting ideas of things that people feel might be a good contribution and a bunch of them came from our own developers, which I have to give a shout out to. Like, there's four of them who are working on the Lightning infrastructure and without them there would be none of this. So huge shout out to them. But I also ask them, of course, what ideas do you have? What do you think are things that are interesting to learn about, but in general, there's lots of questions that can be asked that aren't necessarily super competitive information, but that might be really interesting to have us benchmarks as sort of points to investigate further. So if people have any kind of requests like this, I'm always happy to look into it without any promises. I can actually give you that data or not, but I'm happy to look into that more.
Kevin Rooke - 01:08:22:
Okay. I want to ask also about the most common types of payments on Lightning right now. And I know you have very limited visibility into like, you're only seeing where the payment is coming from and where it's going to not necessarily the full route, but do you guys have any insight into light what types of payments you think are happening most frequently? What is the activity being done on lightning today? What are people using it for?
Sam Wouters - 01:08:50:
Yeah, it's tricky. I was curious too. Wanted to figure this out as well. Obviously, we can tell a lot. My first feeling as well was like, let's first map out when the transactions happen. So this is also in the report, like a heat map of when they typically happen during a week to get a feeling of like, are people doing this for groceries or something or for leisure activities so more often on the weekend or something like that. And by making that, I made it over the course of a couple of different months to sort of compare. And it was quite consistent in the sense that people pretty much send transactions, like at least in our connected part of the network, like the nodes were connected to from like morning to evening, from Monday to Saturday and on Sunday a little bit less than the other days of the week. But other than that, it was quite evenly spread. So it shows that in general, there are would be my guess, there are loads of different use cases and reasons why people are sending transactions and it's why it's so sort of evenly spread throughout the week. If it was very focused on specific activities, then I would expect those to happen a bit more often at the same kinds of times or at least skewed towards certain hours or times of the day. And that wasn't really there. So I'm guessing it's quite a big mix and it really just depends, I guess. No further insights there. Really. What we try to avoid for now is doing sort of analysis on an individual channel level. So just figuring out, okay, this specific channel, what does their heat map look like, for example, when are those transactions happening, and then trying to reverse engineer what could be the reasons why they're happening at these times, et cetera, and what kind of payments might those be? Let's reach out to them and figure out more things on this. We haven't gone to that extent for now, as mentioned, this is sort of a first pass of the report, the first way to see what are people like, what are they wondering about to then start exploring what other options are there and things to figure out. What are your guesses?
Kevin Rooke - 01:10:59:
I don't know. I think there's a lot of new use cases that have been developed over the last year that will become very common and especially when it comes to some of the social media stuff, I think there's going to be like that. Right now when you think about the what about the interactions that someone makes online today, the clicks and the likes and the shares and the follows and the things like that, if those are expressed as sats being sent in this kind of Web3 or Web5 or whatever we want to call this, I think that could lead to a lot of Lightning activity. Now there's a case to be made that maybe that all happens custodially and those actually aren't made as Lightning payments. That could be true too. But I think that's the kind of stuff that I look at and I see that's a global scale, really tiny transactions that people can make relatively easily, someone could be making easily in a day hundreds of those transactions right. Just liking all their friends, Instagram posts and sending three sats every time they send a like I think that for a number of payments, I think that kind of stuff could be really significant. But I don't know.
Sam Wouters - 01:12:17:
Yeah, it could be a lot of the volume or sort of a lot of the frequency, but not necessarily the volume. Perhaps the volume might be the bigger trades from exchange to exchange or something like that.
Kevin Rooke - 01:12:29:
Sam Wouters - 01:12:30:
I do think there's some really interesting stuff on this written by I think it might have been Nick Szabo who talks about the social scalability of micropayments. I think at some point somewhere, if I'm recalling correctly and it had me thinking a lot because I'm from the Netherlands and there was a company here at some point and they tried to make an aggregation of all of the newspapers, the online newspapers, and they allowed people to purchase instead of purchasing a newspaper, you would just purchase an article for like 10, 20 cents or something. But their experience after a couple of years was that people actually didn't really prefer to do it that way. They would much rather have a subscription because it reduced the number of decisions that they made, financial decisions they made in a single day where they start like they didn't want users to start thinking like I'm buying this article, is that really going to be worth ten cents to me or $0.20? So it kind of depends on how you implement it. If you do it after content is consumed. So like on social media, you've read someone's post, you like it and then you send them some sats. It's a bit different because it's more of a goodwill thing. Like, I think Kevin did a great job with this podcast here. I should give him some sats for it. If people would have to pay beforehand before unlocking something, then it's a totally different social construct in a way where people need to start evaluating like, yeah, is that worth the amount of money to me or not? And then they need to make decisions. And people can only make so many decisions in a day. So it was kind of the gist of the whole two angles to look at it.
Kevin Rooke - 01:13:56:
Yeah, that's a really interesting point. I wonder if automating some of that process could eliminate some of the decisions people have to make. For example, if you said, I know some projects have done this already, I know Mash and Albi have variations of this in place. Like if I said, hey, I have a five dollar budget per day and I'm just going to browse the internet like I normally do, and at the end of the day, my $5 is dispersed to all the content I consumed on a per second basis or something. I wonder if then I can say, okay, I know how much I'm spending. I'm okay spending $5 a day. I recognize that's my budget and that's my limit, that's fine. And then I don't have to decide how to allocate every single penny. The browser just does it for me. I wonder if that's possible, if there's.
Sam Wouters - 01:14:49:
Ways to build in where they're like what is actually engaging you? Where are you getting your value? Like which page are you returning to a bunch of times where you spending the most time reading? There's lots of these options that can be built and then people will naturally gravitate towards what they sort of appreciate. The tricky part is always people are lazy, I guess, and that's why subscriptions are so popular nowadays and why so many people like they have tons of subscriptions to things they don't really use anymore, but they just forget to cancel it. That's really a strong sign of where the mindset of people is at and changing that kind of behavior and making them more proactive about it. I'm not saying there are no people who prefer to do things that way and to be very intentional about who they give money to and who they are rewarding. But the question is, how big is that market size and can you nurture that kind of behavior? So kind of watching it play out in real time now suddenly people have the tools to build this kind of stuff that wasn't possible before Lightning. And that's something that's really exciting, I think, to see how does that play out and is there adoption there, right.
Kevin Rooke - 01:15:53:
I wonder what the incentives might be and how that changes the incentives of app builders. If, for example, you know how Apple gives you if you have an iOS device, you'll see your screen time every week. Like, what if your budget, you set a budget of $5 a day and your budget was allocated to the apps that you gave the most screen time to?
Sam Wouters - 01:16:15:
Kevin Rooke - 01:16:17:
I mean, part of me thinks that maybe that accelerates some of the, like, clickbait, like, stay on my app behavior that we've seen from apps mostly in the social media space today. But I wonder if it also leads to more healthy decisions. I have to think more about that one, but that's what you can for sure. Okay, let's go into a segment that I do at the end of every show called The Lightning Round. Got a couple of rapid fire questions. Are you ready?
Sam Wouters - 01:16:49:
Kevin Rooke - 01:16:50:
I hope you're enjoying the show so far. I just want to give a quick shout out to our sponsor, Stakwork. Stakwork is a lightning powered platform that generates high quality transcripts from all of your audio or video content. They combine AI engines and hundreds of human workers all over the world who are paid over the Lightning Network to assemble these transcripts. And that's what lets Stakwork create better, faster, and less expensive transcripts than anyone else. I've used Stakwork to transcribe all of my episodes on my personal website. You can check that out. I just get the Stakwork file, copy paste and go. No additional editing required. If you want to learn more about Stakwork, you can visit stakwork.com. That is stakwork.com. First question, if you have to pick one app that has sent the most number of Lightning payments this year, what is it?
Sam Wouters - 01:17:56:
I would guess maybe it's Wallet of Satoshi because they have so many channels. I have no idea.
Kevin Rooke - 01:18:03:
Sam Wouters - 01:18:03:
It could also be Muun Wallet or something. Or not sure.
Kevin Rooke - 01:18:07:
If you had to guess, what API is the most profitable Lightning node earning today?
Sam Wouters - 01:18:20:
My guess would be like 15% or something like that. I'm not sure.
Kevin Rooke - 01:18:25:
15%. And now if you were to take this hypothetical 15%, this node you have in mind, how much public capacity do you think they have on their node? Because there's a limit to this, right? Like you have you put too much public capacity on your node and all of a sudden the network can't absorb that and you lower your API, but you don't have enough then you can't generate enough traffic for your node.
Sam Wouters - 01:18:47:
Yeah, well, like to mention with the 15%, I would say with the caveat, that's not extremely low capacity because otherwise maybe it's relatively easy. But I'm thinking like, whoever is doing this, they probably have a bunch of nodes for starters. Like they really just connect to as much of the network as possible. It's not going to be one node. Another question is, is it a fair comparison, so to speak, if they run multiple nodes versus someone running one node? And I think they probably would be my guess, like I'm really just guessing, but my guess would be. They've learned a lot from what is the optimal balance there, experimented a lot with different nodes and like, how connected do I want to be, how much capacity do I want to have on there? And someone who is like, an experienced developer and who knows a lot about Lightning could probably run lots of different experiments there, just like you would in marketing, for example. You're trying to convert clients, just run loads of different experiments and then learn what actually works best at large scale. And if you're a hobbyist that isn't as experienced yet, you can't run experiments at that scale necessarily. So it's probably one of the more advanced users, some of the more knowledgeable people, they'll do this at scale and probably have figured out what's the optimal balance there.
Kevin Rooke - 01:20:02:
What do you think the payment success rate of the entire Lightning Network is today?
Sam Wouters - 01:20:09:
Significantly lower than the number we published, probably. Maybe it's like 80% or something like that would be my guess.
Kevin Rooke - 01:20:23:
And you think it's growing over time? Like your success rate went up, I believe, in the last month, right?
Sam Wouters - 01:20:29:
Like, only slightly. The past couple of months has been fairly stable, around like 90, 98 and a half to 99 and a half. It's been going back and forth sort of. Okay, but maybe like 80% to 90% would be my guess. But not sure. It could be in the low 90s already.
Kevin Rooke - 01:20:45:
Okay, I like it. Has there been any book that has changed your view of the world?
Sam Wouters - 01:20:53:
Who, I'd say plenty. I think one probably gets cited a lot. The Sovereign individual was really interesting. Quite a boring book, to be totally honest. You really got to chew through it. It's not written in a very exciting kind of way. It's very factual, but it kind of forced me to think very critically about sort of how things in the world work. So that's been one that I've appreciated a lot, and you get sighted a lot in the bitcoin space, but there was definitely a significant one that stuck with me. And other than that, just lots of books on general kinds of topics that interest me as I have quite broad interest. I haven't read a ton of bitcoin focused books, actually, and I've always tried to sort of stay clear of writing a book myself because it becomes such a like, all of your time goes into it like crazy, and then that becomes you in a way, like you're marketing yourself as, I'm the author of this book. Nothing against them by any means, but it hasn't really been a focus for me.
Kevin Rooke - 01:21:57:
Yeah, that's fair. If you could only hold one asset for the next decade and it could not be bitcoin, what asset would you.
Sam Wouters - 01:22:05:
Hold for the next decade? And it could not be bitcoin. You can't say sats.
Kevin Rooke - 01:22:18:
No, I'd say sats and you can't.
Sam Wouters - 01:22:20:
Say, like, Taro USD and Lightning, actually. Like, you might as. Well have USD. No. Oh, that's tricky. I guess gold, but I don't really like gold that much. Yeah, but it sounds like the next least stupid thing.
Kevin Rooke - 01:22:38:
It's not an easy question.
Sam Wouters - 01:22:40:
No, it's really not.
Kevin Rooke - 01:22:44:
Okay, final question. Is there anyone in the Bitcoin community you'd like to give a shout out to? This could be a company that not enough people know about. It could be a team, a developer or builder, whatever. Anyone that you think is doing great work and you want to give a shout out.
Sam Wouters - 01:23:02:
For the Lightning stuff, I think you might have spoken to him before Steven Ellis @cold_sats on Twitter. I think he's also, like he's a relatively smaller node operator, but still quite significant. And he might have been the first one I think I saw that was very public with his data on Lightning and his strategies around it and stuff. And that's just something I appreciate a lot because it showed like, okay, I'm not the only one thinking about doing this is out there. Some people are already doing this, and that's just awesome to see that someone takes that initiative to do that. So I just wanted to give a shout out there. But in general, I love to shout out to lots of people that are doing interesting stuff.
Kevin Rooke - 01:23:42:
Yeah, that's awesome. Yeah. Steven's work is great. I follow along with those monthly updates and some of his guides as well. Well, listen, thank you so much for taking the time. This has been a great conversation. Where can people go to learn more about you and your work?
Sam Wouters - 01:23:59:
You can follow me on Twitter. I guess, like, the handle would be in the Show Notes @SDWouters. I'll be publishing pretty much everything there, like contents related that I do, so that would be the easiest way.
Kevin Rooke - 01:24:12:
Awesome. Thanks for the time. Hope we can do it again soon.
Sam Wouters - 01:24:16:
Yes, thank you, too.