Bitcoin As Subscription
During Bitcoin 2021 I had many long conversations about the future of bitcoin and the Lightning Network. Lightning seems to be on the verge of massive (dare I say mainstream) adoption. Lightning payments are fast, cheap, and easier than Venmo. Strike is indistinguishable from magic. Entire countries have started betting on the network.
In the first world we’re seeing adoption through the streaming of micropayments to podcasters over Sphinx Chat, Breez, and other lightning wallets. It’s all the rage. But I’m unconvinced that this is a sustainable model on its own.
Over the last few decades media has gone through a number of regime changes as we moved our content consumption from outdated disk technologies and onto the internet. In the early 2000s the entertainment industry moved from selling CDs and DVDs from $10-$20 per disk to simply selling them virtually through online platforms. This was insufficient, and as data transmission speeds helped streaming get better, the model shifted from paying for downloads to a “last minute” streaming architecture. In this new regime, selling media on a per download basis fell out of favor for the much more explosive subscription model that we know all too well.
In the middle of this shift was lots of hype around the industry moving to some form of micropayment system. But just like paying for media on an individual basis, this never caught on. While some will say it didn’t catch on because micropayment architecture is difficult under the USD system, I think it never caught on (and never will) because streaming money to someone whenever you engage with their content is a mental brain drain. It does exactly what bitcoiners are trying to avoid: it financializes every second of your life.
The humble subscription with a fixed monthly cost doesn’t do this, and it’s been the way people have paid for things for centuries. You know, like loans and houses and pelotons and stuff.
But I do believe that because of bitcoin’s internet native architecture, it may fundamentally alter the possibilities of the subscription model in a way that helps to strengthen the Bitcoin network while bringing the customer/producer relationship into deeper alignment.
NO ONE WANTS TO SELL THEIR BITCOIN
Many a bitcoin entreprenuer has discovered that bitcoiners are rather stingy with their money. They simply don’t want to sell their precious bitcoins. This is totally fair… it can be hard to rationalize spending money on a product that may be 90% cheaper a year from now because of Bitcoin’s NGU technology.
I’ve had a similar experience with this in a past life, when I built a web game that encouraged micropayments with a native in-game token. I found that our users would rather go through immense pain than microspend any of their tokens on our platform. Our users viewed our token as something to horde, not as something to spend.
When you’re holding money that you perceive will go up in value over time you don’t want to give that money up for much of anything. This causes extraordinary challenges for bitcoin entrepreneurs who are trying to encourage bitcoiners to part with their stacks.
But what if there was another way? What if a bitcoiner could get access to paywalled content without ever spending their bitcoin, and at the same time, the producer of that content could also get paid? Ridiculous, right? I mean geez, if that were possible it would certainly turn the payments world on its head. It might be maybe a little bit revolutionary?
Well… I really kinda actually think bitcoin specifically makes this crazy idea possible.
LIQUIDITY IS THE NEXT GOLD RUSH
I’m not an expert on the technicalities of the Lightning Network, but I do know that node liquidity is one of the most important factors for the operation of the network. In order for my transaction to get to you, I have to route my transaction through a number of other lightning nodes that are staking a proportional amount of bitcoin.
If I send 1 bitcoin to you over lightning, each node I route through must also contain 1 bitcoin. Right now, a 100 million satoshi lightning transaction is rather large, but as the network scales these kinds of transactions may become more common.
For lightning to route hundreds of billions of dollars of daily value there will need to be hundreds of billions of dollars of liquidity staking across the nodes in the network. Furthermore, for optimal security, it’s best that the bitcoin being staked to these nodes is well diversified across the network instead of centrally owned by a few big players. The most effective and highly liquid node operators will be rewarded lucrative fees for providing their liquidity, and as lightning grows there will be a gold rush by operators large and small to give their liquidity to this network.
This is where the model gets interesting. Providing liquidity to the lightning network is extraordinarily low risk. The bitcoin you stake into lightning never leaves your wallet, it can’t be forcibly removed by a third party, and if users use your node for routing their transactions you earn a fee. As Preston Pysh puts it, lightning is Bitcoin’s proof-of-stake protocol.
You earn a return on your bitcoin without risk, and at any time you can take your bitcoin back. Win-win.
And it’s this factor that plays interestingly into the goods and services economy. Imagine that open sourced software could allow me to stake my bitcoin with a content producer in order to enjoy discounted or free services. In return, they receive my staking rewards. I never pay them a single satoshi, and at any time I can walk away with all the money I started with.
Bitcoin then becomes a ticket to a show. A lifetime ticket that you can take to any show in any town any night of the week.
A TALE FROM THE MOTHERSHIP
The implications of Bitcoin as Subscription are far larger than podcasting, but considering that podcasting + lightning are all the rage right now I think it’s appropriate to walk through what this might look like in practice with an entirely fictional, but soon to be famous, podcaster named Jeter McPoormack.
Jeter is an alien aficionado who’s been working on his rapidly growing podcast “Tales from the Mothership”. Up until last week all of his content was free, but he’d like to begin putting some of his future episodes behind a paywall.
To do this he downloads some open source software for creators like him and connects it to one of the many beloved lightning wallet apps. He sets a requirement that anyone who wants to view his content must stake $25 worth of bitcoin in an account that only the user has access to, but which pays him the staking fees.
The above part is important, Jeter never has access to the bitcoin, his audience does. They simply forgo their staking rewards, giving those rewards to Jeter instead. At any point (within the limitations for lock up within the lightning network) Jeter’s users can pull their bitcoin out and take it elsewhere.
If the staking rewards net out to about 2% per year, after one year, Jeter McPoormack’s growing podcast with 30,000 subscribers each staking $25 worth of bitcoin nets Jeter an easy $15,000. If Jeter gets super advanced and sets up a tier system that encourages even larger staking deposits, this $15,000 number could quickly become a living wage.
Of course, things are far more complicated in practice since you’ve got channel management, node uptime, varying staking rates, and all sorts of other technical stuff… but that’s something really smart computer guys can figure out. I’m just the idea guy.
Furthermore, this model can exist on top of other models like advertising, merchandising, affiliate marketing, Patreon, and yes, if you must, your sat streaming.
The true beauty in this model is that all parties get to benefit from the increasing value of the bitcoin network. If bitcoin’s price goes up, Jeter’s 2% take increases in purchasing power. At the same time, because the viewer never spent their bitcoin they also see an increase to their wealth. Furthermore, if hundreds of thousands of producers are participating in this sort of staking, the lightning network rapidly decentralizes away from a few big node operators routing most of the payments.
EVERYBODY IS A CREDIT CARD NETWORK
Let’s go beyond podcasting.
Imagine being able to stake bitcoin to your local, state, or federal government in return for a tax break. Or what if a community could stake bitcoin to pay for HOA’s or the funding for a new park? Maybe I could stake at any financial institution for a discount on their loan products. And, instead of donating to my favorite charity I could stake with the charity and still get invited to the annual gala.
Bitcoin as Subscription is not a psyop to steal your bitcoin! It shifts the locus of power away from the big faceless organization and towards the individual. At any time I can choose to opt-out or opt-in based entirely on my personal preferences. An organization that mistreats its stakers could see its funding dry up overnight, similar to the way exchanges in the cryptocurrency market rise and fall rapidly because of the low switching costs.
This can even extend to our communications on social media. As Guy Swann pointed out with one of his most recent tweets, a Bitcoin as Subscription model could be used to fight spam (without requiring micropayments by the way #winning).
But this model also connects and ingrains you with the initiatives and people you choose to stake with. By staking significant capital with your community, capital that is locked up for a set period and unable to be spent, you become far more inclined to get involved with your neighbors. In return, your neighbors are incentivized to get involved with you. Bitcoin as Subscription shifts everyone’s focus to a longer time preference.
I know I’m only scratching the surface of this model, and I’m definitely not touching on the enormous technical hurdles required for this to be a reality, but Bitcoin’s internet native architecture and principles of self-sovereignty may dramatically change the way we conceive of economic transactions.
Thanks for reading. Now, I’m hungry.