Fiat Over Lightning

Last modified on August 18, 2023

The popular opinion about the path that Bitcoin adoption will take has been that Bitcoin will be a store of value first, becoming a medium of exchange next and finally becoming a unit of account to measure the value of goods and services.

While this is a reasonable position to take considering the prevalent mainstream narrative that Bitcoin is nothing more than a digital asset to invest in or ‘digital gold’ to use as a hedge against inflation, we’re seeing something interesting emerge in terms of how Bitcoin is used.

Over the last two years, there has been a rise of ‘fiat over lightning’ applications and services that enable people to send and receive fiat using Bitcoin’s lightning network as a payment rail.

These applications use Bitcoin as a bearer instrument to represent and transfer fiat value. While different apps follow different ways and models to get this done, this is how it works on a conceptual level:

1. Alice has some fiat that she’d like to send to Bob.

2. Alice opens the app, scans Bob’s QR code or enters Bob’s ID, enters the amount to be sent and hits send.

3. Bob will receive the amount to his bank account.

In the background, fiat currency from Alice’s bank account gets converted into Bitcoin according to the exchange rate at that time, which gets sent over the Lightning network to Bob’s wallet instantly, after which it is converted into fiat currency again and credited to Bob’s bank account.

The Bitcoin transfer will happen in a manner of seconds, with the speed of fiat credit and debit entirely dependent on the respective banks’ processing times.

Neither Alice nor Bob have to worry about Bitcoin’s price in this example. What’s crucial here is that Alice can use a different currency (including Bitcoin) from a different country and still be able to transfer value instantly to Bob.

Why is this a big deal?

We live in an age where sending and receiving information to and from a person living in a different location is instant and as easy as talking to someone who is sitting right next to us. It doesn’t matter if the other person is living in a different country or speak a different language.

The internet of information has no borders.

However, this isn’t the case when it comes to sending and receiving value. The internet of value is filled with borders, walled gardens and intermediaries regulated either by a corporation, pseudo-corporation or a governmental entity.

Bitcoin fixes this

The same way TCP/IP, SMTP and HTTP enable borderless flows of information, Bitcoin and the lightning network built on top of Bitcoin are protocols that can do the same for the flow of value.

Until the time Bitcoin becomes widely accepted as money in exchange for goods and services, which we believe will happen, Fiat over Lightning apps are crucial to breaking down borders in the internet of value by helping people send and receive money to and from anyone, anytime, anywhere in the world.

And we hope to be one of them in the coming months.

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