[00:01:56] But from a payments processing standpoint, how are vendors going to interact with this? There’s been a lot of comments and debates as to the, how robust and reliable the lightning network is. So somebody that’s building in this space, where do you see this kind of moving and evolving in the coming five to 10 years with respect to the lightning network?

[00:02:15] And then you as, you know, an entrepreneur and builder, with Breez, talk a little bit about the mission of Breez.

[00:02:22] Roy Sheinfeld: Okay. Yeah. Easy question to start me off. There’s a lot to unpack. So let’s, let’s take a step back and kind of try to understand what is that Breez is trying to achieve. And it’s really about evolving Bitcoin to be a global currency.

[00:02:39] That’s basically our mission. If we talk about in this time stance that you’re talking about, like 10, even 20, 30 years, let’s talk about 100 years, what will happen in 100 years? we think there are two options, basically. We think the world will have a global currency, but there are two options on the global currency that will be used in the world.

[00:03:01] One option is CBDC, one global currency that is controlled by an entity. We don’t know, like, Which exactly is going to be the ruling entity, but there will be an entity that govern this currency. And the second option is a decentralized currency. We think Bitcoin has the best chance of being this decentralized currency.

[00:03:24] So when you talk about vision, the Breez mission is basically to help Bitcoin evolve to be in a place that it will be able to perform the task of a global currency. And that’s where we headed and everything that we do in Breez is to make sure Bitcoin is capable in performing the task of being a global currency.

[00:03:46] And it’s not easy because Bitcoin is based on the blockchain. The Bitcoin technology is based on the blockchain and blockchains in general don’t scale. So how can you evolve Bitcoin to a place that it will be able to perform the task of money? We tend to call medium of exchange. There’s a lot of time people kind of confuse medium of change with the merchant adoption like I think already, Bitcoin is a tremendous medium of exchange, but in order to get to a point where it’s widely accepted by merchant, we need to scale Bitcoin in order for Bitcoin to be used by at least two orders of magnitudes that it’s being used right now.

[00:04:25] We started the Breez six years ago with the Lightning Network, with the emergence of the Lightning Network because we think the best way to scale Bitcoin is by using Bitcoin, meaning Lightning Network is an extension of Bitcoin. It uses Bitcoin as a bearer asset, and it provides a level of scalability that can be achieved on the Bitcoin mainnet, on the Bitcoin chain.

[00:04:50] And it works. There are challenges, as you’ve mentioned, and there are inherent problems to the Lightning Network that hinder the user experience, mainly the, what we call the inbound liquidity problem. We can talk about that if you want to expand on that later. But another point of friction is also the fact that it does interact with the chain from time to time, meaning in order to onboard to the Lightning Network, you need an on chain transaction to happen.

[00:05:19] And sometimes channels get closed and when channels get closed, you need to interact with the chain. And every time users interact with the main chain, it’s a cause of friction because the chains are slow and the chain are costly. so if fees are high, it means that there’s a cost to be paid.

[00:05:41] I think we’ve done a lot specifically at Breez, but generally also in the Lightning ecosystem in the past six years. I don’t know if people remember how Lightning looked like six years ago, but I remember myself like in the Bitcoin conference in Berlin, trying to pay for a beer using Lightning and it took, on average, it took us 30 times to get the payment 30 tries 30 tries.

[00:06:05] Yeah. Yeah. I think it was one of 30 or one of 50 tries to get the beer spilling in this hacky Bitcoin conference. And today you don’t see that. no, we’re not in a place where we have 99 percent reliability. We have around 90 to 95 percent payment reliability. Which by no means is good enough, but it’s widely used by millions of people.

[00:06:30] The largest exchanges in the world already support Lightning. And we’ll talk about Coinbase and Binance and Kraken. All the major exchanges support Lightning. I think Coinbase even released some statistics a few months ago that 6. 8 percent from all the Bitcoin deposits are done using lightning.

[00:06:48] Preston Pysh: Oh, wow.

[00:06:48] Roy Sheinfeld: And it’s Coinbase.

[00:06:50] Preston Pysh: Yeah. That’s pretty high.

[00:06:51] Roy Sheinfeld: So we’re talking about definitely a significant number. There are other statistics. I think, okay. X are reporting 70 K of active lightning users on their exchange. So yes, lightning didn’t took the wall, but I think, one of the mistakes that. Some people have done, years ago is to set the wrong expectations of what lightning is.

[00:07:15] I think nevertheless, we did achieve the next level in the foundation that we’ve built lightning as a foundation, which is remarkable and millions of people are using lightning. And I think we’re ready to use lightning as a way to scale Bitcoin and bring to the next level. And the way I see now, and I think I have a different vision than the vision that I started, Breez, I think Lightning is going to be the common language between end users, enterprises and subnetworks, meaning we’re starting to see subnetworks evolve.

[00:07:50] That brings Bitcoin to end users, what we call the last mile solution. So we see solutions like FedE and we are seeing solution like e cash, solution like Cashew. And we’re starting to see ARK evolve and we’re starting to see many Bitcoin layers too. I think all of these sub networks are going to speak Lightning.

[00:08:11] I mean, Lightning is going to be the interoperable language between all the sub networks. So Lightning is here to stay.

[00:08:18] Yeah, I really liked that last point. And I think that last point is sometimes lost on people because they see e cash or they see FETI or any of these other ones that you’re talking about.

[00:08:28] And they might not understand that those other networks are dependent on lightning being the second layer. If you want to call those third layers or whatever, I don’t know what the correct terminology would be, but they’re really dependent on lightning being that middle ground between where they’re at acting in a very high frequency kind of way, but requiring more trust.

[00:08:47] And Bitcoin layer one, which is store value settles every 10 minutes, a lot more robust security setup required and all of those things. So I think that that’s such a key point before we go any further. You have this amazing article that you recently wrote. This went out on Bitcoin magazine. The name of this article was Bitcoin’s false dichotomy between store value and medium of exchange.

[00:09:08] You were using a term. I want to clear up some terminology for people that are listening to this. You were saying the term currency. And when I think currency, I typically equate it with paper money or something that’s happening at a very high frequency. Like the money that you would have in your wallet is a currency.

[00:09:25] It’s, you know, we can get into the backing, which gets really, mutilated in the difference between currency and money, because these are the two terms that I think are really important for people to wrap their head around. And when we’re talking about money, typically we’re talking about something that has some type of proof of work.

[00:09:43] Or some type of backing to it. Call it gold. Like I think nobody would disagree that gold is money, whether it’s actually saleable and you can use it as a form of currency. And you wrote a little bit about this in the article. It gets a lot harder because in order to make it more saleable, you really need to kind of ride a paper currency on top of it because it’s just so scarce.

[00:10:04] Yeah, it’s not portable. That’s a better way to put it. but these two terms currency, which is high frequency representation of money. And then you have money itself, which is this proof of work back. Then with Bitcoin, we have something that has the potential and is both of these things simultaneously with respect to being able to spend it at a very high frequency way.

[00:10:26] But we get into the technical challenges of doing it, which I find really interesting. Because it’s a representation of what we’ve seen throughout human history that right. And even though we’ve moved completely into the digital realm, these things that existed in the physical realm of, you know, it’s really hard to make gold saleable.

[00:10:48] It’s really hard to do. And it’s just mind blowing to me that Bitcoin has the exact same challenges, even though at the base layer, it’s still digital. So 100%. Talk us through. So like people were hearing that and they’re saying, well, how is that even possible? Like, what are you talking about? So how do we explain this?

[00:11:05] And you do this in your article and you do a lot more in the article too. But let’s start there to explain, like, why is it still so hard to make it saleable in a secure way? And like all that nuance.

[00:11:16] Okay. Again, I’ll have to unpack here. I think comparing to gold, for example, gold didn’t became gold as a sellable asset until people started minting gold coins.

[00:11:28] Now, the question is, in my mind, has Bitcoin reached the point where We meet Bitcoin as a coin, meaning easy, enough, convenient enough to exchange Bitcoin in a portable divisible fungible way. So let’s take a step back and talk about store of value and medium of exchange, because basically these are the properties that we’re talking about.

[00:11:50] Preston Pysh: That question that you proposed, I think needs just a touch more to it, which is, can you do that? On your own without some type of custodian or, assistance from somebody else, right? Yes. Can you transact in a way that it’s just you doing it or do you, are you reliant on some other person to provide a service for you to do it?

[00:12:10] Roy Sheinfeld: So, when I talk about Bitcoin, I talk about self-custodial, Bitcoin, everything, all the work that we do at Breez is self-custodial Bitcoin, meaning you own the keys, you own the Bitcoin. You’re not relying on the third party or an intermediate to do the exchange for you. When I say Bitcoin, I inherently and implicitly say self-custodial Bitcoin. And I know it’s maybe that’s not the way people are using the term Bitcoin and people equating the term Bitcoin with self-custodial.

[00:12:40] But when I say Bitcoin, I mean self-custodial Bitcoin, because that encapsulates the value proposition of Bitcoin, which is basically two pillars to the value proposition of Bitcoin. One is the scarcity of Bitcoin. The fact that we only will have 21 million coins, and secondly, the fact that you can do an exchange without relying on a third party or another entity or individual to perform the task for you, the exchange of value.

[00:13:10] And I’m just a flip. I’m not an historian and I’m not an economic scholar. I’m just a flip. But when I say store value. And when people say store of value, the word value exists in the sentence store of value, meaning people want two things. When they use something as a store of value, they want something that is durable, and they want to use something that will retain value.

[00:13:35] But the word value means A future change. You don’t want to store something for nothing. You want to store something because you know, you’re going to sell the asset later on. It can be years. It can be decades. You might not even sell it, but it means that you have the ability to sell something in the future.

[00:13:58] Again, there are different theories of value. There’s the labor theory of value that Value reflects the work that you put into something that’s kind of the Marxist theory of value and there’s a frequently used the term interesting value. There’s like inherent value or something .

[00:14:15] Preston Pysh: Very Warren Buffett- like .

[00:14:17] Roy Sheinfeld: Yeah. Yeah. I, yeah. I don’t think there’s something, I don’t think like, I think people use it without understanding There’s no value without context, meaning a barrel of water in the desert Worth. Like all the gold in the world in a very specific context. So all value is contextual. Once you understand that all value is contextual, you understand there’s nothing like the intrinsic value doesn’t really exist. Like you don’t use gold because you have the ability to make it to jewelry.

[00:14:47] Preston Pysh: There’s another, there’s an idea that’s often discussed called the coincidence of wants. Meaning if you’re in a desert and you’re, you know, like ready to die and you need water to survive and I have that water and I can somehow get it to you, like the value is, it’s dependent on the situations.

[00:15:03] So some people want an apple, the other person wants an orange, and if you have a bunch of apples and I have a bunch of oranges and we, you know, the value proposition, even though if you’re looking at the energy that was required for you to harvest that and for me to harvest, it was maybe the same amount of energy.

[00:15:18] Because of where we sit and because of the circumstances of our environment, the value changes dynamically for each one of us. And this is this idea of coincidence at once.

[00:15:28] Roy Sheinfeld: Exactly. If all value is contextual, the only way to determine value is to exchange. The asset for something else, price discovery is inherent to a store value, because if you have value and the value is contextual and you want to trade it someday in the future, you need an exchange to happen in order to discover the price of your product.

[00:15:53] Store value. And we see that with Bitcoin right now, by the way, like all the time, like Bitcoin is being exchanged for fiat value. And we know the price of Bitcoin as the store value because of its exchange with, with other fiat currencies. And if you flip the coin to the medium of exchange side, you understand there’s no medium of exchange without some.

[00:16:17] A portion of being able to retain value, if you have a good medium of exchange, it’s an asset that you can exchange for goods and services. But if he doesn’t retain value, it’s a bad medium of exchange. You wouldn’t use a, I don’t know where like the boulevard.

[00:16:36] Preston Pysh: Yeah, well, no, from a first, I love this idea. So from a first principle standpoint, going back to what we were talking about with the apple and an orange, right? If I exchange. Let’s say I have the apple and I give it to you. As soon as it passes out of my hand and it hits your hand, let’s just imagine that it immediately becomes rotten and you can’t eat it or use it for anything immediately upon arrival because it didn’t have some type of store of value properties. It then becomes worthless immediately.

[00:17:03] Roy Sheinfeld: Exactly. And there are cases by the way, where it happens, for example, like in my pediatric care, I give it an example of a cigarettes in prisons.

[00:17:13] Preston Pysh: Yes.

[00:17:13] Roy Sheinfeld: It’s something that is very, it’s not durable. Like it lasts, like they can, they perish after a one or two weeks.

[00:17:20] Eh, but they, use as a medium of exchange all the time in prison, in a very specific context. Of course he doesn’t extend. Outside of the prison walls, because it’s a very, poor store value. So if you do kind of in your head, you do the Venn diagram of the medium of exchange on one hand and store value on the other end, you see most of the assets that we use are actually both are both store value and they are medium of exchange and Bitcoin.

[00:17:51] I got tired of the discourse. Like I got sick of hearing a sailor talk about Bitcoin as capital. And people trying kind of to push the ETF narratives and their own stocks in order for you to buy Bitcoin via proxy. So, and they use kind of the store value medium of exchange narrative in order to say, listen, Bitcoin isn’t a medium of exchange.

[00:18:12] You don’t need a direct access to Bitcoin. So if it’s a store of value, you can buy it via proxy because you’re not going to sell it anytime soon, maybe, but it doesn’t mean Bitcoin isn’t a medium of exchange. Bitcoin is a very good medium of exchange, like Bitcoin is being traded in the trillions, tens of trillions of dollars every year.

[00:18:33] Preston Pysh: Yeah.

[00:18:34] Roy Sheinfeld: And if you compare it to the market cap of Bitcoin, it’s very high frequency. It’s one or two outta

[00:18:39] mag. I kind of, I, I wanted kind of to say my piece and be done with it, and if people don’t get it, okay, I’ll let them, continue with this narrative. But Bitcoin is a great store value and Bitcoin is a great medium of exchange.

[00:18:54] Yeah. Now, let’s go back to your original question. If I’m claiming it’s such a great medium of exchange. Why it’s not being widely adopted by all the merchants and why aren’t we transacting Bitcoin in our day to day lives? And that’s basically why I started the Breez. And that’s why we have a lot of work to do, because I don’t think Bitcoin had this a gold coin moment.

[00:19:17] Where we kind of transform gold from something that is used in ceremonies and for in rituals to something that can be easily exchanged and transferred. The Lightning Network is one piece of the puzzle. We definitely made a lot of progress in that regard, but there are still hurdles. Some of the hurdles are technical hurdles.

[00:19:38] Some of the hurdles are kind of macro related to the wider acceptance of Bitcoin as a currency and the fight that we’re still having with a regulatory entities to accept Bitcoin as a currency from a UX standpoint, I think it will be there soon. You asked me about like the five to 10 years vision.

[00:19:58] I think we’ll get there sooner than that. I think it would become very easy to transact in Bitcoin, even without The pain points of lightning, which is the interaction with the main chain and the fees that incur is a result of interacting with the chain. So we’ll get there very soon. You can already see solutions like Feddy and solutions like Cashew and solutions like arc and solutions like what we are doing with liquid.

[00:20:25] We’re basically using blockchains, other blockchains in order to scale the beacon blockchain. So I think you’ll see a proliferation of solutions that are kind of targeting in solving the last mile issues. And we’re very close.

[00:20:42] Preston Pysh: I just want for the audience to understand the context of that last comment.

[00:20:47] So Blockstream has the liquid network. Which is a federated, just like we were talking about Feddy earlier. This is another federation that you can peg in, peg out. It comes with its own security challenges or whatever, like any federated system does.

[00:21:01] Roy Sheinfeld: It’s a different trust profile. I think when you’re talking about scaling a Bitcoin, you’re basically talking about compromising in the trust profile. Once you accept another Frost profile, and even Lightning kind of has some constraints that you need to subscribe to. Not in the terms of kind of the consensus, but in terms of you need to be online in order to validate, to check your channels and to make sure that you’re not being frauded.

[00:21:29] It’s a different Frost profile. Then, using, the main, chain and in fact, you accept the, like the guardians, you need to trust the guardians and you want, you need to trust the guardians who won’t collude to, to take your money. And with Liquid, we’re talking about currently it’s a federation of 15 organizations and you need 11 out of 15 functionaries to sign a, in order for them kind of to steal Your money.

[00:21:57] Next year we’re gonna scale the federation to, in another order of magnitude. So the trust for profile going, improve, with the solutions like . You’re talking about the minter. You need to trust the mentor not to see your funds.

[00:22:10] In ARC you’re talking about an A SP, like the arc node. You need to trust the arc node in some regards.

[00:22:17] So every last mile solution, including by the way, other Bitcoin layer twos. I’m using layer two in a very free form right now, because there’s. It’s a very controversial term, what, is a layer two, but I’m including for the sake of simplicity. I’m including all the layer twos here, even layer twos that don’t have unilateral exit from the chain.

[00:22:41] You basically trust another federation, another consensus algorithm that is different from. The Bitcoin and mainstream, once you do that, we solve the last mile solution in a different way that is sold using the Lightning Network.

[00:22:58] Preston Pysh: Let me just talk about my own personal experience of running my own node, opening a bunch of channels, taking a self-custody wallet and linking it to my, you know, my node and where I had all this liquidity that I created.

[00:23:09] And then going out and conducting transactions on. You know, layer two, lightning Bitcoin, and you had talked about earlier about the reliability being like 90 to 95 percent of the transactions going through on layer two today, based off of, you know, just global metrics. And what I found personally was that it was a little slow.

[00:23:29] It was slow relative to just trying to find a pathway. Right. When I was doing literally all the technical side. And by the way, this was no task that I would ever want my mother to do, or my father, it doesn’t scale. Like I, could I do it? Yep. Did it take a whole lot of effort? It didn’t take a terrible amount of effort, but I feel like I’m somewhat technically inclined.

[00:23:50] And so I was able to do it. The reliability wasn’t great. Was I able to conduct trans? Of course it was like, I had a pretty good success rate, but then. I go out there and then other people were providing this service on my behalf, call it a wallet of Satoshi or I download the primal app and there’s a native wallet in there that I, you know, is using strike backend and like all these other things that just really make it easy to do.

[00:24:14] And I’m like, ah, I’ll just load a hundred dollars worth of sats onto this. You know, wallet that somebody else is holding. Where was I at? I was in Mexico last week and I was buying something and the person literally had, you know, we accept Bitcoin here. And I went and I scanned it. I downloaded the Primal app or I had the Primal app already in my phone.

[00:24:32] I scanned it, went straight through, no issue. And probably the transaction settled in a second or less first try. So I think from a user standpoint, having gone through everything that I had done, you know, before to then seeing that you can see how a bunch of people just want to basically outsource this.

[00:24:51] I’m not too concerned if I lose a hundred dollars. you know, there’s a hundred dollars on the wallet. If I ran out of money, I could just load it up with another hundred dollars worth of Bitcoin and just kind of use it in this manner. Is this a concern that, this is the way that this is going to go?

[00:25:05] What are your thoughts on this being how medium of exchange kind of, you know, maybe the natural market forces are pushing us in this way. Talk us through your thoughts around all of this.

[00:25:16] Roy Sheinfeld: First, I don’t argue with the market. Like the market does what the market does. And it’s a good deal. And again, a lot to unpack.

[00:25:23] But what we’ve done with Breez is to create this notion of an LSP, a Lightning Service Provider. Meaning when you download the self-custodial wallets of risk, you are connected to a professional and know that is a very professionally maintained and very tuned to make sure that your payments are going through one of the reasons that a lightning matured and became more and more reliable is because we no longer had this Command you, that you, ran your own node probably on your Enbrel or whatever.

[00:25:56] Yeah. But you were part of the reason that the network was flaky. So the less obvious we have as node runners, the more professional the network become. And part of the reason that the Latin payment success rate increased in the past couple of years is because we went through this. Phase of, hobby, going from hobby to Yeah.

[00:26:17] To professionals. Yeah. And it’s a good thing. Like I, I see it as a positive, evolution in the evolution of, of liking. The more professionals, the more money they have, the more liquidity they have. The likelihood of the payment to go through these increases by a lot. So that’s one thing. I think the network needs to become more professionals.

[00:26:36] I think LSP is a notion that we brought to market and it’s now widely adopted. When you use a Phoenix, when you use a Breez, when you use it, there are other Zeus or other self-custodial wallet. You’re immediately connected to a professional LSP, which helps you in the success rate of the payments and solves the inbound liquidity problem, et cetera.

[00:26:58] You were talking about a custodial, meaning when you use primal, you said it correctly. You’re using strike at the back end. When you use blink, when you use a, I don’t know, big knob in Africa or pouch in the Philippines, you’re basically using a custodial service. My concern about custodial services is twofold.

[00:27:17] One, They can’t scale globally, meaning it’s a Bitcoin bank and a Bitcoin bank won’t operate globally because all of their regulatory hurdles and there’s no way to use this solution globally. There’s no fiat payment that works. Globally. And if we want to provide the service to all of the people in the world, we can’t rely on the custodial service because that won’t happen.

[00:27:42] We have a 26, 000 fiat payment network. There’s no single fiat network that works globally. So the only way for Bitcoin to be widely and globally accepted is maintaining its peer to peer characteristics. That’s one thing. Secondly, I think that if we’ll continue in building Bitcoin banks, which again, like you said, it’s a natural evolution in the acceptance of Bitcoin, the acceptance of Bitcoin in the market, I think that’s a positive in that regard, but we’ll get into the same fiat problems that we’re getting, that we have, with fiat today, AML, KYC, BANs, et cetera.

[00:28:21] I don’t know. I saw a post yesterday of someone was banned from wise. It happened to me like I tried to use wise and suddenly the day after they banned me, you’ll get to the same problems. If you’re being reliant on Bitcoin bank, the fact that primal works right now doesn’t mean it will work tomorrow. If they will continue using a Bitcoin bank at the back end.

[00:28:42] Preston Pysh: Roy, I think this is a really important topic. Because what you’re really, what you’re effectively saying is there’s a potential to bifurcate the Lightning Network into a KYC’d network and a non KYC’d network. Am I stating this correctly as far as a concern?

[00:29:00] Roy Sheinfeld: Yeah. Latin network is just an implementation detail of Bitcoin.

[00:29:03] Bitcoin in general can be very, like you, you can have white and black Bitcoin in the future. You already have that, which analysis and other products are kind of using to differentiate between different types of Bitcoins, but definitely it can happen by the way, it’s already happening. If in the early days of lightning, every node was able to connect to another node in the network.

[00:29:28] You can’t do that right now. If you’re trying to connect to the cache node, for example, you can’t. Only regulated entities in the U. S. can connect to the Cashu app as an example.

[00:29:42] Preston Pysh: Do you think that this is, policy driving, is the past administration that we’re moving away from one of the reasons why Cash App was very hesitant to just allow anybody to connect with them?

[00:29:54] And do you see that changing potentially if we get more friendly policies? Or do you think that this is hanging around?

[00:30:01] Roy Sheinfeld: I think a cash app is a part of block, which is a public company can take the risks that company like Breez can take. And definitely being in the U.S. You need to be concerned about the risk and the regulatory landscape as we saw with the samurai trial and in other occasions.

[00:30:19] So yes, I definitely think that a more open administration can lead to less to be less risk adverse. Nevertheless, I think we all need to keep in mind that you can’t avoid the inherent issue here. If you let someone else take care of your money, that entity is going to be heavily regulated. And that regulation is going to have implications.

[00:30:43] It’s going to have user experience implications, meaning. As a user, you will have to KYC and AML every time you make a transaction. And there’s risks in them preventing you access to the network in the future. It happens in fiat. It’s happening in Bitcoin as well. It’s going to only get worse in the future.

[00:31:03] The only way to circumvent that, again, we started this conversation by taking kind of the 100 years vision of a one single CBDC versus a peer to peer. The only way to circumvent that is by everyone owning their own money and executing peer to peer transaction. That’s why we’re so focused on the peer to peer aspects of Bitcoin.

[00:31:25] And the technology improving, I’m a technology, you start by saying that I’m a developer. Yeah, I believe in technology. I believe in the ability of us to evolve and improve a technology. I think we’ll get to a point where peer to peer transactions are super easy. And not just for us, the Bitcoiners, but for every mainstream users.

[00:31:44] And if every one of us will be able to make peer to peer transaction, there’s no reason why we can’t. That peer to peer won’t be an alternative to banks.

[00:31:53] Preston Pysh: Yeah, one of the interesting things that you get when you start talking about federated systems or like Cashu is you get way more privacy with the movement of the coins because of the way that federations work.

[00:32:04] Do you think that this technology and I know we called it layer three earlier, would you agree that it’s called a layer three or like what would be the correct terminology for these types of technologies?

[00:32:15] Roy Sheinfeld: I think Cashu isn’t really a layer three because it’s not built on Bitcoin at all. I think. I don’t like to add another layer, like I think layer two is enough.

[00:32:23] Preston Pysh: Okay.

[00:32:24] Roy Sheinfeld: It’s complicated enough. Like, let’s end the discussion on what’s a layer two and then move to a layer three. I don’t think it’s this point. We need to add another,

[00:32:31] Preston Pysh: so the reason I bring this up is because it almost seems like this technology that people are just starting to build on here in the last year and a half.

[00:32:40] Is going to be instrumental in almost being a tailwind to non KYC lightning and allowing these properties to allow it to continue to propagate where not everything has to be KYC. And when we look at that 5, 10, 15 year horizon, is this the thing that maybe actually allows and enables Bitcoin to remain the freedom tech that we all, you know, see it being because at grassroots and Instrumental level of just like a 1 payment or a, you know, a cup of coffee type payment that you can do it with, call it Cashu or a fed a mint or something that, or these like tokens that have an enormous amount of privacy to them because once you get down and I also find this interesting and I’m sorry to meander all over the place.

[00:33:27] That layer one Bitcoin where it’s really being used to store a value has a ton of issues with respect to privacy, but as you go further and further away from it in the really high frequency, low value per transaction size that you get way more privacy once you push down on that part of the spectrum.

[00:33:47] And I find that really fascinating, right? That that’s kind of how it’s naturally put it out.

[00:33:52] Roy Sheinfeld: One easy way to explain it is that as the chain keeps track, it’s a global ledger and it keeps tracks on all of the transaction. And once you start building on layers, you no longer have to persist a global state.

[00:34:07] And if you don’t need to persist a global state, then inherently you gain more privacy. You have that in lightning, by the way, as well, because there’s no global state. The state is persisted in the node. And if you are executing transaction, basically the date is persist in the channel, which means it needs to proceed by two parties, but there’s no global state in lightning as well.

[00:34:32] Only if you open the channel or close the channel, then the state kind of resurface in the chain. So there’s no ledger. There’s no public ledger of the lightning transaction. I always laugh when people give me statistics about the adoption of lightning, because the only thing that they can see is how, much public liquidity is locked in lightning.

[00:34:55] They don’t see the private. Liquidity that is locked in lightning and they don’t see the velocity

[00:35:00] of the payment, the frequency of the payment. So you can have a solution like Ellen markets. And if you take a look for, from an outsider view, you take a look at their node. I don’t know how, like how big is the node at 30, 40 Bitcoin, something like that.

[00:35:15] But I think people will be shocked when they realize how, like, what’s the velocity, how many payments Ellen markets are actually processing and what’s the throughput of these payments. And I say that because this information is not encapsulated in the chain, like you don’t know, you have no way to retrieve this information.

[00:35:34] Only if you go and inspect the specific node, which of course, naturally you don’t have access to very specific nodes.

[00:35:42] Preston Pysh: Well, this is an interesting difference from physical reality to the digital realm of money, where I think of it in terms of like electrical engineering. When you open these channels and you’re running frequency through the line, you need the wire to be really large.

[00:35:55] If you’re putting a lot of current through the line, or there’s a lot of alternating current going through the line, would heat up and it would melt down with this. That’s not necessarily the case. You could have a massive channel and you could be using it very seldomly. It’ll still, yeah, it’ll still carry the communication of the money transfer and the line could actually be really small because I think the frequency is unlimited because you’re in the digital realm.

[00:36:19] It just doesn’t matter. And so I, this is really fascinating that. You’re right, like, I guess all we can look at are the sizes of the lines connecting the network, that doesn’t necessarily tell you how much the network is being utilized or what the frequency of that exchange is. Yeah, very fascinating, right?

[00:36:36] Like, just taking a step back, I guess, I’m just like, as an engineer, I’m looking at certain things, it just like, Make me say, wow, like, how’s this happening in the digital realm? And it’s so in parallel to the physical and then some other aspects that are just, you know, slightly different, but yeah, anyway.

[00:36:50] Roy Sheinfeld: It’s like saying you have a one gigabyte connection at your home, so you can’t watch movies that are larger than that.

[00:36:56] No, that’s not the case. Like you’re downloading gigabytes or maybe terabytes of data on a very small. Yeah. And the same happens in the network. It’s actually counterintuitive, but. You have a more efficient lightning node if you get the ratio right between locked liquidity to frequency, meaning you need to be very efficient with your liquidity and the more you can route using less liquidity, the more money and that’s the incentives of the lightning network.

[00:37:29] The ratio between the velocity and the throughput of the channels divided by this channel size. That is the calculation for the profitability of the channel and the node. So the less liquidity you look, but you’re still able to process the payment that’s going through your node, the more efficient, the more economical.

[00:37:52] The more money you make as a lightning node, many node operators are making the very beginners, like noobs mistake of putting a lot of liquidity early on.

[00:38:03] Preston Pysh: Yeah.

[00:38:04] Roy Sheinfeld: They don’t need to their channels are just going to get exhausted. Well, their channels will just get exhausted to the, edge node of where all the buying is taking place.

[00:38:14] Even if they’re going to be used at all, that’s on, that’s a, yeah, Exhaustion means there’s frequency, there’s payments coming through. It’s a good sign. If your channel is exhausted, again, it depends on the time spent, but if your channel has been exhausted, it means that you were able to successfully route payments.

[00:38:34] Which is a good thing. There’s a lot of nodes. If you look at kind of the Latin terminal or Rambos or other Latin store, you immediately identify the nodes that allocate tons of liquidity. There’s something be cautious about these nodes because either they want to artificially capture a traffic. or they simply don’t know what they’re doing.

[00:38:55] Preston Pysh: Yeah, which in my case was exactly what it was. When I, was writing my own node.

[00:39:01] Roy Sheinfeld: You’re still running your node?

[00:39:02] Preston Pysh: I still run my node, but the channel capacity and all that, I’ve just, you know, it was just too much effort and too much hassle, but I learned a ton by doing it. Like I learned an absolute ton.

[00:39:11] And according to you now that now the network can run a little bit more efficiently because amateur Preston, isn’t there clogging things up? Let’s talk about your software development kit. So Breez has an SDK. This, that’s what that stands for. It’s very popular amongst developers that are building on Lightning.

[00:39:29] Explain to the audience what this is, why it’s important, what value it really provides to vendors or people that are building businesses on Lightning.

[00:39:38] Roy Sheinfeld: Yep. Allow me to take a step back again and because we talked a lot about Bitcoin as a global currency, the part that we want to play in that regard is that we want to bring lightning to every application.

[00:39:50] Basically Bitcoin, I don’t think Bitcoin, I don’t think merchant adoption. There’s a lot of discourse about merchant adoption. I don’t think Bitcoin right now provides enough value for people to use it in the context of buying physical goods or even digital goods. I don’t think that’s kind of the play where we’re gonna see Bitcoin adoption.

[00:40:09] So what we want to do, we want to bring Bitcoin to every application and service out there in this kind of concept of creating Bitcoin or setting Bitcoin as a global currency. So imagine you using TikTok and you want kind of to tip a toker, or as a toker you want to earn. Monday, we want Bitcoin to be the currency that you do that.

[00:40:33] We want Bitcoin to facilitate these digital interactions. But the barrier of entry for developers today to embed Bitcoin payments into their solutions is Super high in order to, before the Breez decay, if you wanted to add Lightning payments to your solution or your application, you had to have dedicated Lightning team working on this project for two or three years.

[00:40:58] And basically what we do with the Lightning SDK with the Breez SDK is lowering the barrier of entry and we’re continuing to lower it every day for you. As a developer to integrate Bitcoin payment into your application or solution, it takes days and we haven’t had developers integrating like in hours.

[00:41:18] So we’re continuing to kind of lower the barrier of entry of embedding Bitcoin payments into apps and services. And basically that’s our role. Our role is kind of to provide the best developer experience out there for embedding Bitcoin payments in applications and solutions. We have two flavors of our SDK.

[00:41:38] We have a native, implementation, which is built on top of Greenlight by Blockstream. We learned a lot from the Breez wallet and the work that we’ve done on Lightning over the years. And we’ve managed kind of to simplify everything, for example, by running nodes in the cloud. Using the Greenlight infrastructure, providing automated Lightning liquidity services, providing automated on chain interoperability services, and everything is encapsulated in the SDK in a very simple API.

[00:42:07] You have one API to send the payment, one API to receive the payment, and all the heavy lifting is done on the backend. And we recently added a very popular took off much faster than I expected. We created a node less implementation. And in the node less implementation of our SDK, users don’t even need to run lightning nodes because the underlying technology is liquid.

[00:42:30] So people hold their funds in liquid, but the interface is still a lightning interface. We talked about lightning as the core language, basically the SDK exposes the lighting interface, but it uses a different side chain in order to preserve and people…

[00:42:45] Preston Pysh: In that scenario, and so I’m sorry to interrupt you.

[00:42:47] So you’re outsourcing somebody else running the node, which means there’s private keys associated with that node. That’s interacting with layer one Bitcoin. Is that correct?

[00:42:56] Roy Sheinfeld: So in the node less architecture, you still hold your funds and you hold the keys, but you hold it in a liquid wallet.

[00:43:05] And when you want to do a lightning transaction, you basically do an atomic swap, a submarine swap between liquid. Two lightning, so you’re always in custody over your fun and there’s no way for an intermediary or third party to steal your fun, even in that implementation in the notice implementation.

[00:43:25] But there’s no need for an LSP and there’s no need for on chain fees to occur because you’re not interfacing with lightning using lightning channels. You’re interfacing with lightning using atomic swaps.

[00:43:38] Got it. So while, you’d be holding funds in liquid, that’s where you’re trusting the federation liquid federation.

[00:43:47] Preston Pysh: Okay. Thank you.

[00:43:49] Roy Sheinfeld: So if you compare the native SDK implementation to the node less SDK implementation, the trust profile is different because in the native implementation, you just trust. The chain in the nodeless implementation, you trust the liquid federation, but it comes with…

[00:44:07] Preston Pysh: Yeah, it comes with the benefit of not running your own node and doing all the technical swoopy things that, you know, I talked about earlier being so challenging.

[00:44:14] Roy Sheinfeld: Well, in the native application, you don’t do that as well because everything is covered by the LSP. Basically the LSP, open channels, the LSP manage the liquidity, the LSP writes the payment. The difference is that you don’t have channel management fees. Yeah. Basically, you don’t need to pay an on chain fee in order to onboard to Lightning.

[00:44:35] And there is no friction when it comes to closing channels or anything like that, because one of the functions of the LSP is to allocate liquidity to reallocate liquidity. So it means that if you don’t use the channel, the LSP needs to take your liquidity and use it for other users. And that means that they effectively will either close your channels.

[00:44:58] Or decrease your inbound liquidity and that creates friction because next time you want to receive a payment, then another on chain fee will occur. You don’t have that with the Nodus implementation. So from a developer experience, it’s much easier to integrate the Nodus implementation because you don’t, you’re not dealing with anything other than, you’re not dealing with opening or closing channels and fees.

[00:45:21] But yes, you need to kind of subscribe to the Liquid Trust profile.

[00:45:24] Preston Pysh: When I look at all these technical solutions and I see how robust all of it is, I’m starting to like up until now, I think if we went back four years ago, you were talking about how poor the reliability was, you know, when you were at the conference in Atlanta or wherever you were at.

[00:45:38] And today I think that we’re really, we’re quickly moving away from that where the barriers or the challenges for a vendor to start being onboarding and paying in Bitcoin. I don’t think it’s originating necessarily from technical challenges anymore. What it seems to me is if I’m a vendor. And all of my bills are denominated in dollars and I’m receiving payments coming through the door.

[00:45:59] Then let’s say my top line is a hundred dollars and my expenses are 90 and they’re denominated in dollars. That means I have free cash flows of 10, which I can then sweep into Bitcoin. If I want to, you know, preserve that buying power and put it into something that’s going to continue to grow. And I think this is how everybody is functioning today.

[00:46:18] This is how I’m operating as a business today. And many others that I know micro strategies may be a little bit fancier with how they’re implementing this, but at the end of the day, as long as that 90 Of expense structure exists. And I mean, this could be a mom, pa, just store gas station for all we could be talking about.

[00:46:37] Right. As long as those bills are all denominated in dollars, a lot of them don’t want to be accepting Bitcoin payments because then they effectively, you know, if I get 1 worth of Bitcoin into as a payment. I almost have to immediately take 90 percent of that based on the math I was just describing, immediately turn it into dollars.

[00:46:56] And then I can keep the other 10 percent still in Bitcoin, because my bills at the end of the month are in dollars. And I need to remove that variance of the price action versus. You know, between Bitcoin and dollars, then you go to developing nations. Let’s say we’re going somewhere where the inflation rate somewhere else is 50 percent annualized.

[00:47:15] They’re having to deal with this volatility in their underlying currency and their expenses still being denominated in dollars or that underlying currency. And it just creates massive challenges for them to really want to accept this as a form of payment. Do you think that that’s the number one thing, number one thing holding us up, or is there something.

[00:47:33] Roy Sheinfeld: I think capital gain tax is definitely a, huge barrier and volatility. Although I think that volatility can also be a feature, not a bug. Meaning if you’re a Bitcoiner and you understand the Bitcoin trajectory and you understand that the number goes up, you want volatility, basically, because the volatility is going your end, if you can kind of retain the funds and not use it for expense.

[00:47:59] So let’s take a company like Atom. For example, I like the shoe company that accepts Bitcoin. Yes, not all the customers of Atom use Bitcoin in order to purchase shoes. But let’s say you have 10, 20 percent that do use Bitcoin in order to purchase shoes. And they put it immediately into their treasury.

[00:48:18] Preston Pysh: It’s the same maths. It’s a win-win. Yeah. It’s the same math.

[00:48:20] Roy Sheinfeld: It’s the same. Yeah. It’s exactly. So, so volatility goes, both way. Yes, of course. You’re, if you’re in a survival mode and you’re dependent on every penny that goes into the business, you understand that you need to pay expenses or buy groceries with the, with this, it doesn’t feed the model.

[00:48:38] But another thing, I think it is very important to understand. The more Bitcoin is used as a medium of exchange, meaning the more price discovery happens for Bitcoin, the less volatile Bitcoin will be.

[00:48:51] Preston Pysh: Yeah. Especially compared to physical real things, not necessarily fiat currencies, but like real physical things,

[00:48:58] Roy Sheinfeld: Like the, Nigerian high rise, like you can’t really trust it, right? No. They fluctuated their 40% day after day. So I think crazy things happens in fi less crazy things happen in Bitcoin, and I think the trajectory is very clear, where Bitcoin is added. So I think, of course, the, innovators and the early adopters.

[00:49:18] Already accept Bitcoin as a mean venue. I think people will be surprised to understand and to know how many merchants already accept, Bitcoin as a, there’s a reason, all the luxury brands accept Bitcoin. Like you can buy Louis Vuitton bags and you can buy Ferrari. Ferrari. You can buy Balenciaga, you can buy everything in Bitcoin.

[00:49:35] And of course, yes, it’s luxury brand still not the $5 coffee, but in the 10, 15 years, the time spent that we’re talking about, I think you’ll be able to buy everything in Bitcoin.

[00:49:46] Preston Pysh: It’s so fascinating and I’ll tell you what, Roy, from a strategic standpoint, just kind of understanding where so much of this is going, you have always been just so helpful for me personally.

[00:49:56] I’ve just cherished the conversations we’ve had in Nashville and other locations where we’ve had an opportunity to just kind of talk in person. And this is like all of those other conversations. So I thank you so much for your time and coming on. Is there anything else that you want to highlight to the audience or throw out there that you guys are working on?

[00:50:12] I did want to say this with respect to the SDK that we were talking about earlier. I know you have this Yopaki case study that happened in Mexico recently. I don’t know if you want to talk about that or anything else that you want to highlight to the audience.

[00:50:22] Roy Sheinfeld: Yeah, sure. The Yopaki is another example. We have two live implementations of our Nodeless integration that just came out a month ago. We have StashPay by Tanker that is creating an app for freelancers to be able to accept Bitcoin. And Yopaki is The second implementation, it’s a Mexican and it’s a fascinating app. By the way, it shows you your pack is a good example to show you how much the things are in applications are not rational.

[00:50:51] Like, everything is so emotional, meaning you need to. There’s no one size fits all when it comes to money, you need to speak in the language of your users. And your, pack is a great example for that because something like fold and I love the wheel and I love fold, but something like fold won’t work in Mexico because there’s no culture affiliation to fall in your party.

[00:51:14] For example, they have a feature called the lotteria and lotteria is something that is very common in Mexico, like a Mexican raffle. And they brought the same feature. To their app and they’re speaking the language of their users. And that’s one of the things I like to see with the Breez decay. One of the reasons I was always kind of pushing to build something like the Breez decay is because there’s no one size fits all.

[00:51:38] And we need to have hundreds, thousands and tens of thousands of application fulfilling different requirements, speaking different languages. Addressing different use cases. So we starting to see like the first thing, no less integration coming to market. I think you’ll be surprised next year to see how many existing applications, not new applications, existing applications, adopting lightning, using the Breez decay, and even tens of millions of users using traditional fintech product.

[00:52:10] We already see that with cash app, but you’re going to see other fintech solutions like Robinhood. And others supporting lightning. So exciting times.

[00:52:20] Preston Pysh: Where can people learn more about Breez?

[00:52:22] Roy Sheinfeld: I’m everywhere and Breez is everywhere. I think our medium is a good entry point medium.com/BreezTechnology.

[00:52:30] And our Twitter, X, whatever I’m on LinkedIn, I’m easy to find.

[00:52:36] Preston Pysh: Awesome. We’ll have links to all of that in the show notes.

[00:52:39] Roy, thank you so much for making time and coming on the show today.

[00:52:42] Roy Sheinfeld: Thank you, Preston. Thank you so much.

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