By 2021, bitcoin the asset (BTC) would have progressed far enough along its monetization cycle to establish itself as a worldwide store of value.
In 2022, the second stage of monetization is coming into focus—BTC is maturing as a medium of exchange. This is made feasible by the Bitcoin blockchain’s basic stability and security, as well as the evolution of the Lightning Network, a second-layer Bitcoin payment mechanism. The consequences are far-reaching, including a fresh window of opportunity for the world’s unbanked people.
On April 5, 2022, Lightning Labs, a Lightning Network infrastructure technology business headed by Elizabeth Stark (CEO) and Olaoluwa Osuntokun (CTO), disclosed the new capability of issuing and transferring assets on the Bitcoin blockchain, including stable coins such as Tether (USDT). Issued assets may be traded on the Lightning Network, and by the end of 2022, Lightning Labs’ Pool product will provide liquidity for issued assets in the same manner that Bitcoin now does.
This function is enabled by Osuntokun’s new protocol, Taro. Taro’s ultimate goal is to allow all Lightning Network users to benefit from Lightning’s near-free, near-instant global transaction capabilities without having to suffer BTC’s present volatility. Volatility in BTC is now optional, even for individuals who use Bitcoin’s Lightning Network, such as the 3 million Salvadorans who reported transacting on Lightning in 2021.
Taro was made feasible by the November 2021 activation of Taproot on Bitcoin Core, the most recent significant upgrade to the Bitcoin protocol. Taproot enhanced the security, privacy, and transaction throughput of the Bitcoin blockchain, which also resulted in the enabling of more advanced smart contracts on Bitcoin.
Notably, Taro exemplifies how Bitcoin develops over time. While protocol development is focused on preserving and maximizing the technology’s essential principles for network security and scalability, “conservative” tweaks may significantly expand the design space for what can be built on Bitcoin and Lightning, as Taro’s collaboration with Taproot demonstrates. Notably – and fundamentally – Bitcoin’s usefulness is enhanced without jeopardizing the software’s promises (a.k.a. “rules”). These regulations specify the overall quantity of BTC to be issued, the issuance timetable, and the reward scheme for miners, among other things.
The new protocol will broaden the demographics that Lightning Network applications and infrastructure may serve significantly. Taro will transform Lightning into a functional payment rail for groups who are less tolerant of BTC’s volatility, such as individuals with poor socioeconomic positions or who live paycheck to paycheck.
This breakthrough enables users to utilize BTC volatility as they see fit and prevent losses that would be unbearable. In other words, consumers may adjust their exposure to volatility on a scale. By earning in USDT and/or BTC via Lightning and Taro, for example, a receiver might choose to store money in BTC for long-term savings or in USDT for immediate or near-term consumption. Taro, therefore, positions Bitcoin and its Lightning Network as a rival to both the SWIFT financial communications system and commercial banks.
As Lightning Labs CEO Elizabeth Stark puts it, “one of our core tenets at Lightning Labs is solving real problems for real people, and we’ve spoken to countless community members in emerging markets who have expressed how significant stablecoins based on bitcoin and Lightning would be for their economies.” As the cycle of infrastructure => adoption => infrastructure => acceptance continues, Bitcoin’s promise as an open global financial platform may be achieved.
Emerging economies, which have traditionally had limited access to the global economy and financial instruments, may set the precedent.