Scenario Planning for a Lightning Provider
This gist is an outline of a likely scenario within South Africa, a developing country with a strong interest in Bitcoin & blockchain technologies.
Although it is expected within the LN community that users & merchants will run their own nodes, and fund their own channels, this approach seems to require a level of familiarity with the concepts and technology beyond the comprehension of the average joe, along with a level of access to bitcoin for channel funding purposes that is outside the financial reach of most in this country.
It's far more likely that mainstream adoption will come via parallels to existing widespread usage models, such as:
- buying and loading prepaid airtime, via cash & EFT
- linking credit card(s) to Snapscan, and paying by scanning a QR code.
A model I can see happening is a service provider makes an app available for a smartphone.
First, users download the app, sign up to become customers of the provider.
Then they proceed with two primary requirements:
- FICA requirements (AML/KYC information)
- Link a credit card
- Make an EFT deposit
- Make a cash purchase for a voucher code, which can be entered into the app
The provider would then verify the information provided, and based on funding and a unique app ID, setup a channel to the client, which is pre-funded in favour the client relative to the amount of money they deposited with the provider.
The client could then make use of the app to make instant payments.
Whenever the client ran low in balance, they would add further funding to the provider via credit card, EFT payment, or cash purchase of a voucher code from a vendor. The provider would then send more Bitcoin to their side over the existing payment channel.
The provider would have to ensure there were sufficient funded channels to the rest of the network, and with this being a costly exercise, only large players with deep pockets would be able to do this.
The provider could also provide services to merchants, in terms of node setup, LN channels, and cashing out Bitcoin received for cash.
The provider would generate an income from commission on the buying/selling of Bitcoin to fund client & merchant channels, along with fees from channels, and other value-added services in the setup of merchant facilities.
The benefits of this model is it removes the technical barriers to entry for instant payments over the Bitcoin network.
A user need only download an app, complete the AML/KYC requirements, and fund via already familiar methods.
They do not need to know very much about Bitcoin to make use of a QR code scanner to make payments.
They do not need to calculate pricing in a volatile market - the app could simply show a Rand value, which may fluctuate.
LN providers become 'another bank', but it is arguable whether this is a pitfall or not, because for the bulk of the bitcoin illiterate, it doesn't matter. They are expecting a bank.
Additional possibilities may exist in terms of providing credit to suitably credit-worthy individuals. The LN provider could do a credit check and prefund channels on a credit basis, with settlements coming from a monthly debit order.
This might be suitable for micro-loan facilities, where the risk of loss is not financially significant because the volume provided is so low - sufficient for a few small purchases only.
In an ideal world people would have control of their private keys and wouldn't be dependent on providers.
Providers would also want to retain customers, and likely seek ways of preventing customers from closing channels with funds in their favour, and using the bitcoin elsewhere.