The other day, I went to buy dog food at my local pet shop. I bought a large bag of dog food and some treats for my dog that claimed to be able to make her breath smell better. Toothbrush-shaped treats. I paid with my Chase Visa card and walked out of the store. A few minutes later, I happened to check Twitter and saw an advertisement pop up—for toothbrush-shaped dog treats. I thought: this was not an online purchase. I used nothing but my credit card. How did this happen?
The advertising was too specific to have been pulled from the geolocation of my phone, even though my iPhone was in my pocket and certainly knew that I was more or less at the location of a pet food store. If that was the case, then I could have been offered an advertisement for cat food, or normal dog food, or bird food, or any of the other hundreds of items on sale. But it was the toothbrush-shaped dog treats.
Most likely, I was targeted with this advertising because one of the trusted third parties involved in my payment to the pet store knew not just that I bought something there, but that I made a very specific purchase for toothbrush-shaped dog treats.
My data was sold into the personal information markets, without asking me, and without an opportunity for me to share in the profit. Thanks to big data analysis, within minutes my purchase was locked into the growing system of surveillance capitalism.
So who leaked my data? Was the guilty party Pet Food Express? Chase? Visa? Most likely Chase—given that they have confirmed that they share information about consumer purchases with third parties—but we don’t need to know the exact answer to see the inherent and striking problem:
Today’s digital payments are privacy holes.
As a civil liberties advocate, I’ve racked my brain to figure out what solutions might exist to help us address this problem.
We know that financial surveillance won’t stop mutating at relatively harmless advertisements for us to buy more dog treats. We’ve seen what happens in dictatorships like China, where citizens gain “social credit” points for purchasing baby goods, or where they lose points for buying cigarettes, or get cut off from the money system altogether for smoking pot or criticizing the Communist Party.
Our transactions say more about us than our words. The more your daily spend is micro-tracked, the more likely you are to face an Orwellian outcome. In this sense, the fight for private payments is a moral one.
Even in democratic societies, there’s a robust debate unfolding as we speak with regard to the potential role of companies like Facebook as creators of corporate currencies. Some fear that Facebook would on-ramp hundreds of millions of people onto its payment platform Libra via existing social media accounts on WhatsApp or Instagram or Messenger, only to harvest the payment activity of users and steer them in certain behavioral directions, or even deplatform users and freeze their money for having certain political opinions.
As initially proposed, Libra’s corporate partners will spend $10 million for the right to own a validator node in the network and help process payments. You might think—wow, that’s a lot of money—for what? Well—beyond earning interest on the hundreds of millions or billions of dollars kept in Libra’s reserve—the “what” could be an unfettered look into a treasure trove of transaction data from wallet activity and in-app purchases.
It’s clear that no matter where we live, to stop Big Brother we must begin to shrink our ever-expanding data profiles.
The less “linked” information about us being disseminated and shared between companies and governments, the harder it is to surveil us, manipulate us, and control us.
Today across most of the world, you can still walk into a store and buy something with cash, giving you financial privacy. But cash is fading in use around the world. It’s estimated that only eight percent of daily global transactions are done with paper or metal money, and that number is much lower in places like urban China or Scandinavia. Even in my local neighborhood in California, there are cafes which are going cashless, for safety concerns. By 2030, the number of people who can meaningfully use cash in their daily lives will decrease asymptotically to zero.
A cashless society is a surveillance society. Whether it’s with the government-controlled WeChat model or the corporate-controlled Libra model, your day-to-day activities would be tracked. But what if the future could be different? What if we could have the digital equivalent of cash?
There is a possible future where we can transact with each other in increasingly advanced ways that still preserve our privacy—where we innovate rapidly while also preventing mass social engineering and surveillance.
There is, today, a feasible and reasonable road map to a functional reality where you can buy things on Amazon, purchase bus or subway tickets, and subscribe to political magazines or podcasts without disclosing your identity.
What’s interesting is that many people—across partisan lines—want to preserve financial privacy and agree about the threat of the surveillance state. Most just don’t realize that the answer may already be here in the form of Bitcoin and Lightning.
Bitcoin provides the essential monetary substrate for Lightning’s global private payment network.
In this arrangement, Bitcoin operates as the source of value and security for private payments to function. Without Satoshi Nakamoto’s innovation of decentralized payment processing, I wouldn’t have much hope for private payments, as all financial intermediaries are security holes. But lo and behold, Bitcoin is now in its second decade, and you can today send value to anyone else on Earth, as long as you both have internet access and a smartphone, without relying on third parties.
The challenge is that for Bitcoin to work, its creators and founding community had to make several trade-offs, choosing to prioritize security and decentralization and censorship-resistance and settlement guarantees over speed and privacy.
But the Lightning Network allows us to take Bitcoin—which is limited on its own to just a handful of global transactions per second and a public, only pseudonymous ledger—and massively upgrade its speed, privacy, and daily transaction volume.
Lightning payments are instant and onion routed, so that they are hard to trace, similar to (if not quite as private as) data flows in the Tor network. If the network keeps growing at its current pace and architecture, it very well may remain decentralized enough to prevent collusion and keep Lightning payments censorship-resistant.
Because Lightning isn’t limited to a certain number of transactions per second, it could one day—in combination with ongoing technical upgrades on Bitcoin’s base layer—accommodate the billions of daily transactions necessary for our future planetary needs. And because it’s open source and permissionless, Lightning is available to anyone on Earth, regardless of location or age or income or gender or ethnicity, a key factor as we consider a dystopian future where privacy may only be attainable by wealthy and expert individuals.
There are, of course, significant unknowns and potential downsides with Lightning. There is, for example, a scenario (outlined here) where it ends up being too expensive and difficult for users to directly interact with the network (read: run their own node) so they instead begin to rely on third parties for access, seriously compromising privacy and decentralization. At the same time, users may find controlling their own assets daunting or inconvenient, leading to similar compromises. In the early days, merchants may find settling their Lightning balances into fiat money difficult.
And there are other private money projects, too, that may win out. Technologists are building Monero, ZCash, Grin, Beam, MobileCoin, and more, in a welcome competition to preserve the values of cash in the digital world. From a human rights activist’s view, the more innovation in the private payments space, the merrier.
Either way, we can’t discount the possibility that Lightning—currently an obscure technology only known to a few—might end up going mainstream, creating the global payment network that we need to preserve privacy and human rights deep into the information age.
Here’s how that might unfold.
In 2019, it’s only possible to spend Lightning with boutique merchants or by using some to buy the equivalent of cash gift cards to spend at a selection of popular stores. But in 2020, Square adds Lightning capability to its popular Cash App, which already provided Bitcoin access for tens of millions of users. You can now use a popular app on your iPhone to buy things with Lightning, anywhere Square is accepted. Sure, the payment is at first likely linked to your Cash App and thus your bank account and identity, but Square will not necessarily know what you are buying, and the merchant will know less about you—a big improvement.
Companies like Blockstream, Lightning Labs, and ACINQ continue to evolve Lightning’s infrastructure, offering users more stability, privacy, and usability and enabling new functionality in mobile apps. Big merchants start accepting Lightning through payment processors from open-source wallets, not just ones from big brands. It’s too easy, fast, and cheap to ignore. Some merchants ditch centralized payment processors for Lightning not because they care about user privacy, but to a) avoid the traditional two to three percent credit card processing fee that they typically pay to Visa or Mastercard and b) get instant settlement, without having to wait the usual amount of hours or days for the money to arrive in their bank account. Lack of clarity on financial regulations like the “travel rule” and the lack of a de minimis tax exemption on transactions still slows mass adoption, but some companies see the big benefits of Lightning and spend time and resources winning over authorities. Consumer protection efforts, led by groups like Coin Center, begin to show that such regulations don’t apply to most Lightning transactions.
Due to popular demand, companies like Amazon and Starbucks start directly accepting Lightning payments from users without needing to know anything about their real-world identities. Due to Lightning’s security model, users treat it more like a “checking” account than a “savings” account and only keep relatively small amounts of money in their wallets. And so in part because Lightning payments are overwhelmingly small, merchants and payment processors begin to allow customers to use Lightning on their platforms without requiring identification, while still being in line with financial regulations.
Individuals have been able to do peer-to-peer private (non-custodial) payments for years with technology provided by companies like Casa, but now, in a big win for privacy, we finally see mainstream merchant adoption. Regulators clarify that running a Lightning node does not require a money transmission license, encouraging more companies to enter the space. Identity link is still required for Lightning payments over a certain amount (and for merchants such as gun stores and pharmacies) but this is seen as a reasonable compromise.
Millions of younger Americans are using Lightning-based apps in the same way they once used Venmo. Except they aren’t leaking their personal information anymore. Online social media platforms and advertisers change their models. They don’t have the same granular understanding of our digital footprints as they did five years earlier. You don’t get hit with advertisements 20 seconds after you leave a store or make an online purchase, since companies can’t link your Lightning payment with the rest of your payment history. Adoption by the gaming and fantasy sports sectors drives Lightning adoption forward massively, as markets in Asia, Latin America, Africa, and Europe catch on. By this point, all major financial companies offer or are experimenting with Lightning services.
Due to widespread global use, the once-formidable legal and technical obstacles to Lightning payments fade away. The “scalable off-chain instant Bitcoin payment network” first outlined in a 2016 whitepaper has come a long way.
It’s now possible to send Bitcoin—unlinked to your identity—to an open-source, non-custodial Lightning wallet and buy just about anything from any retail merchant immediately, maximally protecting your privacy while still abiding by financial rules. Small daily payments are virtually anonymous again, just like in the days of cash.
Catching the “bad guys” is just as easy (or as hard) as it was a decade earlier, as merchants must inform the government about Lightning transactions over $2,500, and users must disclose some aspect of their identity for those purchases in order to get the payment to go through. Very large payments (tuition, real estate, cars, loans, and expensive goods) are typically done through base-layer Bitcoin or through fiat money, and remain traceable.
Social media companies, of course, followed Facebook’s lead and launched their own currencies. Some still exist and are used heavily. But none turned out to be as fast or easy to use (and certainly not as globally compatible or permissionless) as Lightning. Some of the biggest social media companies end up ditching their own mobile payment currencies for Lightning-based solutions.
The borderless nature of Lightning creates a financial revolution inasmuch as individuals can buy and sell things around the world instantly with extremely few restrictions and without needing to prove their identity. Old obstacles of currency conversion and bank account delays or freezes are left behind. “Banking the unbanked” becomes an anachronism, as the disenfranchised seize this new tool to connect and transact without permission from elites.
Lightning is still technically illegal in many countries—including China—but black markets are popular, and in most democracies, Lightning has become the evolutionary successor to paper and metal money, which has become a curiosity of an older age.
In this new world, we only give merchants what they need. Merchants only take from us what they want. Advertisers have been forced to change their strategies.
Tech visionaries like Jaron Lanier once spoke of a new internet where we could interact with each other in a peer-to-peer way, without being exploited and spied on. Lightning has brought us one step closer to this reality.
In the late 2010s, there was a lot of talk about “decentralized identity”—but this doesn’t matter as much anymore. Now that *you* control your micropayments and your interactions with voice-controlled devices and the ever-increasing internet of things, you don’t have a single clustered digital identity anymore. Companies don’t see you as they once did—as an easy and coherent data narrative to leak to advertisers—but only as obscured pieces of data, difficult to link together. Technologies like Microsoft’s ION decentralized identity platform help advance this trend, as users begin generating distinct and unconnected identities for different kinds of daily payments—coffee and food, payments with friends, travel, work, etc.
You of course still have a physical address, and a phone number, but they aren’t meaningfully connected to your day-to-day payments. Few people have goods shipped directly to their homes—as this is a major privacy concern—rather, they pick them up at community lock boxes, similar to Amazon’s lockers today.
Wearables and voice assistants and implants have exploded in popularity, but zero knowledge encryption has made it possible for people to begin to store private data locally on their devices, and individuals share only what they choose to share with the data markets. Of course, most people sell quite a bit to the data markets—but they can conduct business via their Lightning account, and don’t have to disclose their full spectrum of personal information like they once did without even thinking.
Lightning has revolutionized gaming and social media. Individuals are able to use the network to make streaming micropayments to each other. The best video game players in the world make money in a flow over time. As do the best podcasters and musicians. We consume media and articles on an à la carte basis, paying tiny amounts via our Lightning accounts. Government agencies and corporate HR departments eventually catch on, and they offer an option for you to receive your salary or welfare in small increments every minute, rather than one big chunk every two weeks, reducing the stress on the average blue collar worker or unemployed citizen.
In-person shopping is more convenient than it even was in the cash era, as payments are made with a quick tap or scan, and the merchants get the funds immediately. Fraud and refunds are still retail problems as they are today, but insurance companies have changed their business model to accommodate the new system.
From a human rights perspective, protest has gotten a little bit easier. Especially in democracies, where it’s possible to use Lightning (combined with facial recognition-deterring masks) to buy public transportation tickets and SIM cards, so that citizens can organize and protest without being easily spied on. Tactics of buying burner public transit tickets and SIM cards that cash once made possible in places like Hong Kong are still usable, even in a much more digital world.
Crime rates are similar to historical rates from earlier decades when everyday transactions were strictly cash. Despite what governments once said, there isn’t, all of a sudden, more child porn and more human trafficking and more terrorism, as these activities are still illegal and law enforcement remains effective.
The idea that you have to give up your rights and privacy for security turns out to be a lie and a myth.
Satellite and mesh networking infrastructure—first launched by companies like Blockstream and GoTenna more than a decade earlier—is now widespread, with internet access essentially being decentralized and Lightning users having many options to choose from when they want to connect and transact. Innovation has shrunk the old satellite dish down to something about the size of a USB stick and far more powerful and cheap, allowing anyone to send and receive from anywhere.
Dictatorships continue to try to crack down on Bitcoin and Lightning, but local merchants are addicted to the cheap fees and ability to send money globally instantly. Ubiquitous satellite internet access and easy-to-use privacy tools make enforcing a ban on use very difficult. Better money turns out to be harder to kill.
Lightning is no panacea, but the dire threat of an omniscient, exploitative global surveillance state has receded, even as mobile payments and internet-of-things interactions have skyrocketed in volume and popularity. It was once said that technology favored tyranny, but as it turns out, decentralized technology favors freedom.
What seemed like a paradox became reality: a world with more privacy and human rights was actually a world that was also better for business and finance, with faster payments, no middlemen, and a more connected global population.
Is this future too good to be true? Almost certainly.
But what do we have to lose by trying to build it?
This is the moral case for Lightning, a global private payment network.