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Bank of Russia Aims for Full Launch of Digital Ruble in 2024

Bank of Russia Aims for Full Launch of Digital Ruble in 2024The Central Bank of Russia plans to begin the comprehensive implementation of the digital ruble two years from now, according to a paper detailing its monetary policy priorities for the 2023 – 2025 period. As the development of the state-issued digital currency continues, the monetary authority intends to gradually connect various financial institutions to the […]

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Philippines’ Unionbank to Support Cryptocurrency Exchange via Mobile App

Philippines’ Unionbank to Support Cryptocurrency Exchange via Mobile AppUnion Bank of the Philippines, commonly known as Unionbank, has announced the upcoming launch of another crypto service for its clients. The financial institution will offer select users of its mobile app the option to exchange bitcoin and other digital currencies without a separate wallet. Unionbank to Add In-app Crypto Exchange Feature, Reportedly a First […]

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Is the Bitcoin Lightning Network for real?

Around the Block from Coinbase Ventures sheds light on key trends in crypto. Written by Connor Dempsey & Sam Newman

In the 13 years of its existence, Bitcoin has risen from obscurity to $1 trillion highs, settling over $60 trillion in total transfer volume along the way.

Despite these feats, Bitcoin’s decentralized design limits it to a mere 7 transactions per second. In times when demand to use the network exceeds 7 transactions, users experience long wait times and fees as high as $60 per transaction at the extreme. Even with fees recently hovering between $1–2, the network remains unsuitable for buying that proverbial cup of coffee.

Enter the Lightning Network: a layer-2 protocol built on top of Bitcoin that can theoretically scale to millions of instant transactions per second that cost pennies to send. If it gains traction, it can even undercut the fees of giants like Visa and Mastercard, along with the entire global remittance market.

But will it?

Lightning 101

As with most layer-2 solutions, Lightning seeks to increase transaction throughput and lower costs while retaining sufficient decentralization by moving activity to a second network. Once BTC is on the Lightning network, it can be transacted instantly typically at fractions of a penny.

Rather than expensively sending each transaction over the Bitcoin blockchain, users deposit BTC into the Lightning Network and then transact inexpensively through payment channels. As with most networks, the more people and companies that join, the more useful it becomes.

Obviously at <1 cent fees, Lightning transactions are cheaper than using the Bitcoin network. More intriguing however, is that Lightning has the potential to replace existing payment processors for fiat transactions without the consumer knowing that BTC was used as the underlying settlement layer. We’ll explain.

Disrupting the payment giants

Visa and Mastercard are the world’s dominant payment processing networks. By collecting 2–3% transaction fees everytime someone swipes a debit or credit card, they pulled in $24B in 2021. Payment processors leveraging the Lightning Network could undercut that.

Let’s say you want to make a $100 payment to a merchant. Using your credit card would cost the merchant $3, which is then passed along to you via hidden costs. Now what if you converted $100 USD into BTC, transferred it over the Lightning network for less than a penny, before converting the BTC back to $100 USD. A service called OpenNode is able to leverage the Lightning Network to do just that, for a 1% fee. A similar logic can be applied to the $40B global remittance fee market, which averages 6.4% per cross-border transaction.

However economic it may be to replace Visa/Mastercard and international remittance companies with Lightning, it’s easier said than done. The incumbents enjoy large network effects, and like any young network, Lightning faces a cold start problem.

So how’s adoption looking to date?

Lightning adoption

Where the potential to disrupt the incumbents is there, current Lightning adoption is still tiny (but growing!). Arcane Research estimated that in Q1 22, Lightning facilitated $20–30M in monthly payments. That’s a 4x YoY increase, but a far cry from the $866B Visa facilitates each month.

The main way that Lightning growth is measured is by “public node capacity” — essentially how much BTC is locked in public Lightning channels. An estimated 30% of channels are private, making it difficult to state the true value in the network. What we can see however, is that public capacity is growing.

When measured in USD, the network has taken a predictable hit with the overall BTC price decline. However, encouragingly, the amount of total Bitcoins in the network is hitting new all-time highs at over 4,500 BTC (around $100M).

More importantly, as adoption ticks upward, the ecosystem around Lightning is growing as well.

The Lightning stack

The Lightning protocol sits atop of Bitcoin. On top of Lighting, sits core infrastructure. On top of the core infrastructure, are a growing number of payment and financial services, as well as consumer applications.

Core infrastructure consists of Lightning implementations and node & liquidity services. Lightning implementations are the software programs that individuals and businesses can run to connect to the Lightning network — the largest being Lightning Labs’ LND with 70% of the market (as of 2020). Node and liquidity services host hardware, provide user-friendly interfaces, and help manage Lightning payment channels (running your own node is complex).

Built on top of the core infrastructure are a range of payment and financial services as well as consumer apps. For example, Strike is built on an LND implementation that lets users buy and sell BTC, tip creators on Twitter, and allow Shopify merchants to accept BTC.

Also built on core infrastructure, are a growing number of budding consumer use cases. Mash, for example, aims to disrupt the creator subscription model via streaming micropayments — think paying your favorite Twitch streamers a couple cents each minute you watch, rather than buying a one-size-fits-all subscription. Zebedee uses Lightning to enable in-game economies that reward players with small amounts of Bitcoin.

Growing accessibility & momentum

As the Lightning ecosystem steadily grows, so has the access that users have to the network. Between Cash App’s Lightning integration and El Salvador’s rollout of the Chivo wallet, access has exploded from 10M to 80M users (the success of El Salvador’s rollout has been mixed, with research suggesting that only 5% of sales in the country use BTC).

26 exchanges support Lightning as well, with Kraken, Bitfinex, and Bitstamp being among the most prominent. Robinhood also recently announced an integration for 20M+ users, and P2P marketplace Paxful offers support for its 7M+ users. Users of these exchanges can instantly and inexpensively deposit and withdraw bitcoin to and from any Lightning wallet, increasing the speed and lowering the cost compared to a typical BTC transaction.

Funding is picking up as well with OpenNode raising a Series A at a $220M valuation and Lightning Labs raising $70M for its Series B. Notably, former head of Meta’s crypto initiative David Marcus’s Lightspark, raised a Series A at an undisclosed amount to build Lightning infrastructure for companies, developers, and merchants.

Hurdles to adoption

The potential, funding, and momentum is there, however significant hurdles remain. Principally, the lack of developer tooling, demand for payment use cases, technical hurdles, onboarding challenges, as well as compliance and regulatory issues.

Developer tooling still needs to be built out to enable more user friendly applications. With most still treating BTC as an investment, we’re yet to see broad demand to use it for payments (use of Lightning rails for fiat payments remains a compelling opportunity). Despite progress from infrastructure companies, Lightning is still cumbersome for new users and merchants. Additionally, onboarding low income users in developing countries remains a major challenge to fulfilling the promise of Lightning remittances.

Lastly, the lack of compliance and regulatory frameworks limit the ability for existing payment and banking service providers to onboard and serve a global customer base.

Early days

After launching in 2018, it’s still early days for Lightning. With about $100M locked in the network, its size pales in comparison to Ethereum’s billion dollar layer-2 networks, Arbitrum and Optimism. Lightning payment activity, however, is more indicative of real world utility when compared to the more speculative activity driving much of the growth on smart contract platforms.

Humble beginnings aside, the potential to turn crypto’s most valuable asset into a true medium of exchange has the power to bring greater financial inclusion to anyone with a smartphone. The ability to cost effectively route fiat transactions over Lightning rails without users ever knowing they’re using Bitcoin can disrupt $150B+ a year industries.

What Visa/Mastercard is for fiat currencies, Lightning can be for Bitcoin. The combination of a universally accessible payment network atop the world’s first open-source protocol for money can help Bitcoin evolve into a true global reserve currency. Should it happen, look for developing countries with high inflation and more smartphones than bank accounts to lead the way.

When Coinbase?

This article should not be construed as an indication that Coinbase has imminent plans to add support for Lightning. Rather, a few employees at the company simply found its potential compelling enough to research, write, and share.

With that said, it’s hard not to be encouraged by the growth that the Lightning Network is showing — particularly over the past six months. It’s noteworthy that this growth is coming in a bear market, where Bitcoin fees are relatively low. In a future bull market, we could see Lightning activity spike as fees on the base chain rise, sending users looking for cheaper ways to transact.

If growth of the Lightning Network continues, it will have major implications on the future utility and value of the world’s oldest and most valuable digital asset.

H/T Nick Prince, Kevin Choe, and Yash Parikh for also helping inform this article.

For deeper reading on the Lightning Network, check out:

This website does not disclose material nonpublic information pertaining to Coinbase or Coinbase Venture’s portfolio companies.

Disclaimer: The opinions expressed on this website are those of the authors who may be associated persons of Coinbase, Inc., or its affiliates (“Coinbase”) and who do not represent the views, opinions and positions of Coinbase. Information is provided for general educational purposes only and is not intended to constitute investment or other advice on financial products. Coinbase makes no representations as to the accuracy, completeness, timeliness, suitability, or validity of any information on this website and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. Unless otherwise noted, all images provided herein are the property of Coinbase. This website contains links to third-party websites or other content for information purposes only. Third-party websites are not under the control of Coinbase, and Coinbase is not responsible for their contents. The inclusion of any link does not imply endorsement, approval or recommendation by Coinbase of the site or any association with its operators.


Is the Bitcoin Lightning Network for real? was originally published in The Coinbase Blog on Medium, where people are continuing the conversation by highlighting and responding to this story.

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Reserve Bank of Australia to Pilot Digital Currency, Explore Use Cases

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Nepal Prepares to Issue Digital Currency, Drafts Necessary Amendments

Nepal Prepares to Issue Digital Currency, Drafts Necessary AmendmentsA task force in Nepal has proposed legal changes allowing the country’s central bank to issue its own digital currency. The move comes after a study indicated that such an initiative is feasible and recommended certain provisions that would authorize the regulator to proceed with its realization. Nepal Central Bank Prepares Legal Ground for National […]

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Report Shows Crypto Startups Raised $30.3 Billion in H1 2022, Exceeding Total Raised in 2021

Report Shows Crypto Startups Raised .3 Billion in H1 2022, Exceeding Total Raised in 2021While cryptocurrency markets have seen poor performances during the first two quarters of 2022, a recently published fundraising report authored by Messari researchers notes that $30.3 billion was raised by crypto projects and startups during the first half of 2022. The $30.3 billion raised across 1,199 fundraising rounds surpasses all the funding blockchain startups and […]

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CBDC Could Be ‘Holy Grail’ of Cross-Border Payments, ECB Says, Sees Bitcoin as Less Credible

CBDC Could Be ‘Holy Grail’ of Cross-Border Payments, ECB Says, Sees Bitcoin as Less CredibleSeveral solutions can potentially improve cross-border payments significantly and central bank digital currency (CBDC) could be the “holy grail,” according to the European Central Bank (ECB). In a new report, the eurozone’s monetary authority also claims stablecoins, among other options, are “problematic.” ‘Holy Grail’ of Cross-Border Payments in Reach Through CBDC, European Central Bank Insists […]

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Borrowing to buy Bitcoin: Is it ever worth the risk?

Borrowing to buy crypto has often been advocated for by various influencers, but the consequences may be dire.

The cryptocurrency space is expected to reach 1 billion users in 2030. While some have been known to make a fortune off of it, others have ruined their finances, chasing similar results, going as far as getting credit to buy crypto by putting up valuable assets, including their homes, as collateral.

Borrowing to invest can make sense under very specific conditions, but using a home equity loan is also extremely risky. For example, it means that an investor’s home is being put up as collateral on loan.

Cryptocurrencies have, in the past, delivered spectacular results to investors, but also saw them go through long drawn-out bear market periods in which many lost hope and sold at a loss, with those who managed to hodl on reaping the biggest rewards. As any analyst or financial adviser would say, past results are not indicative of future results.

When Bitcoin (BTC) was trading at $57,000, MicroStrategy CEO Michael Saylor suggested investors should use all of their money to buy Bitcoin and “figure out how to borrow more money to buy Bitcoin.” At one point, Saylor suggests they should “go mortgage their house” to get more BTC.

At the time of writing, Bitcoin is changing hands near $23,000, meaning investors who followed Saylor’s words would now be deeply underwater. MicroStrategy has taken out loans from Silvergate Bank and raised capital by issuing debt to buy more Bitcoin, to the point that it now holds 129,698 BTC.

While corporate lending differs from personal lending, it’s important to understand what may happen when investors borrow against their assets to buy more crypto and what’s in store for them.

Being prudent in a high-risk environment

Mortgaging a home to buy cryptocurrencies has been a strategy employed by some investors, one that, if done at the right time, could lead to significant returns. However, it could have disastrous consequences if done at the wrong time.

Speaking to Cointelegraph, Stefan Rust, CEO of inflation-tracking platform Truflation, noted it’s “definitely a high-risk strategy” that is “always an alternative” as it’s a “reasonable and cheap source of capital.” Rust added that if the house being mortgaged is paid off and there are “residual assets available to be able to take out a mortgage then why not leverage that mortgage to buy Bitcoin.”

The CEO referenced fintech startup Milo, which offers 30-year crypto-mortgages and allows users to leverage their cryptocurrency holdings to purchase real estate as an option, and added:

“I personally would not go all out and ‘maximize’ by putting all my earnings into Bitcoin. That’s basically putting all your eggs in one basket. This is a super high risk allocation of capital.”

Rust added that for investors with a family to take care of and bills to pay, mortgaging their property “might not be the most advisable strategy.” Per his words, it’s “typically best to deploy common sense and appropriate risk management.”

Recent: How blockchain technology can revolutionize international trade

Dion Guillaume, global head of PR and communications at crypto exchange Gate.io, expounded upon Rust’s words, telling Cointelegraph that the “easiest way to ruin is to play with shitcoins and try to time the market” and told investors to “never use excessive leverage” and instead “reign in” their greed.

Guillaume said that investors must avoid falling for the hype, and while “this can be tough in crypto, discipline is key.” Commenting on leveraging assets to buy more BTC, he advised caution instead of going all-in as Saylor suggested:

 “We need to be more prudent with the way we use our money. Despite all its greatness, crypto is still a high-risk asset. Are you a billionaire with seven houses? If yes, then you can probably mortgage one to buy BTC. If not, then be smarter.”

Speaking to Cointelegraph, Dennis O’Connell, chief technology officer and portfolio manager at crypto portfolio company Peregrine Digital, noted that borrowing to buy crypto is a “textbook case of what never to do with your finances,” as a “house is a great investment over the long term and one of the primary ladders to grow wealth.”

O’Connell added he has read “too many articles of destroyed families or of people who have taken their lives tragically by doing this very thing.” He added one should never take out loans or use leverage to invest in Bitcoin if they cannot afford to lose.

Cryptocurrency markets are known to be extremely volatile and filled with significant ups and downs, where leading assets can nearly double in a month and bear markets can see BTC lose over 80% of its value.

Expect the unexpected

Because of the cryptocurrency space’s inherent volatility, O’Connell noted that investors need to take into account that Bitcoin is affected by monetary policy the same way other assets are and has “proven not to be an inflation hedge” while being highly correlated to other risk assets.

The portfolio manager suggested investors need to expect the unexpected, especially when using leverage:

“They should expect the unexpected. Market cycles in crypto are highly volatile. Depending on their local regulations they can try and buy some protection through hedging perpetual futures (not yet legal in United States) to off their risk.”

Per his words, the volatility in risk assets seen amid climbing interest rates make it difficult to “justify borrowing against any asset traditional or crypto and going to into Bitcoin.” Addressing suggestions investors could borrow to buy crypto, O’Connell said they must be “highly skeptical and always question the motivation of the source” telling them to borrow.

He added the cryptocurrency space is known to be filled with scammers and is heavily influenced by investor sentiment, and as such, caution must be exercised.

Thomas Perfumo, head of business operations and strategy at cryptocurrency exchange Kraken, told Cointelegraph that educational resources exist that “everyone should read” before using leverage to buy any cryptocurrency.

Perfumo noted that leverage is generally a tool used to maximize returns on capital and, in some cases, leverage it in a tax-efficient manner while also increasing the risk profile of transactions in which it’s being used. This means it’s “important for anyone looking to employ leverage to understand their risk tolerance and manage their risk effectively.”

With any risk asset, Perfumo said, investors should never invest more than they are willing to lose, concluding:

“When making important financial decisions, it is important for everyone to consider their personal risk tolerance and financial goals. We often recommend people consult with advisers to determine the most appropriate investment strategies.”

These important financial decisions should likely also include the composition of investors’ potential crypto portfolios and their role in their overall investment portfolio. To investors who put in more than they can afford to lose, crypto exposure may seem like a nightmare.

Reacting to levered positions gone awry

Guillaume stated that investors who have a leveraged position in the cryptocurrency space need to consider how much longer they can afford to maintain them, as given enough time, they can keep on holding onto it and hope for their “fortunes to turn.”

Guillaume said leveraged traders should use a bull market to turn crypto into cash when they break even so they can pay off their debts and promise themselves they will never mortgage their house for crypto “ever again.”

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O’Connell said that investors underwater on a leveraged position should “should immediately seek the advice of licensed financial planner and expert to structure a plan.” Mental health, he added, should not be set aside:

“They should also take care of their mental health and seek help from therapists or licensed mental health professionals. They should know there is professional support both financially and mentally.”

At the end of the day, investors need to recognize that cryptocurrencies are risky assets based on technological innovations. Things can change overnight, as the collapse of the Terra ecosystem and subsequent contagion to other firms made clear.

To stay safe, investors need to appropriately manage their risk, which may mean their portfolios will be “boring” for quite some time. However, this “downtime” can give them the break they need to heal mentally and improve their outlook.

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Israel Prohibits Cash Deals for Amounts Starting as Low as $1,700

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