Why did we build on Bitcoin + Lightning + Nostr Part 3: Lnfi Network’s Unique Proposition in the Bitcoin Ecosystem

In this article, we delve into Lnfi Network’s breakthrough within the Bitcoin ecosystem, leveraging the foundation of Bitcoin alongside the innovations of the Lightning Network and Nostr protocol.

Join us as we explore the strategic development of Lnfi, uncovering

  • How it solves inherent challenges within the Bitcoin ecosystem
  • It’s role in enhancing Bitcoin’s utility and scalability
  • Revolutionary approach to asset management and transaction on the Bitcoin Blockchain

Read the Chinese version of this Article

Challenges with the Traditional Internet

The traditional internet, once celebrated for its openness, has evolved into a landscape dominated by centralized platforms. These platforms operate on a client-server model, limiting user interaction to centralized servers.

For instance, Twitter initially allowed developers access to its APIs, fostering innovation and apps like TweetDeck. Yet, Twitter later restricted API access to monetize through ads, stifling third-party development and innovation, and diverging from the collaborative ethos of the early internet.

Additionally, the traditional internet heavily relies on centralized payment systems like Stripe, which levy fees of 2.9% plus 25 cents per transaction. These fees render microtransactions financially unfeasible and limit the potential range of supported business models.

This centralized control stifles innovation and restricts user freedom. Lnfi envisions a decentralized alternative, where users retain control over their data and interactions.

Challenges with the Current Web3

Amid various challenges and advancements, such as issues surrounding self-sovereignty and digital asset ownership, the concept of Web3 Crypto has emerged. This paradigm signifies a transition towards fully peer-to-peer systems like Bitcoin or Ethereum, where participants collectively share a global state.

While Web3 promises decentralized systems, achieving consensus remains costly and challenging due to processes like hash rate mining, notably evident in Bitcoin’s block generation every 10 minutes.

Achieving consensus in decentralized systems like Bitcoin or Ethereum can be challenging, leading to uncertainty about the accuracy of recorded information until a certain number of confirmations are received. This challenge hampers both the scalability of application development and the widespread adoption of these systems by users.

It’s worth noting that similar challenges are anticipated with existing and upcoming Bitcoin rollups and sidechains, which seek to enhance scalability but may encounter comparable consensus hurdles.

Lnfi: Unifying Layers & Enabling Interlayer Operability

Lnfi Network is a Layer 2.5 solution built at the intersection of open standards and network economies:

  • Bitcoin
  • Lightning Network
  • Nostr protocol
  • with BTC and Taproot Assets serving as the value of exchange

By seamlessly enabling interoperability across the various layers and leveraging the unique strengths of each layer, Lnfi is revolutionizing the Bitcoin ecosystem, making it more efficient and versatile than ever before.

Lightning Network

Image source: https://paxful.com/

The Lightning Network emerged in 2018 as a groundbreaking solution for instant, global settlement, thanks to collaborative efforts led by developers Joseph Poon and Thaddeus Dryja.

This network has transformed the scalability and usability of Bitcoin by addressing critical issues related to transaction speed and cost. By operating as a layer atop the Bitcoin blockchain, the Lightning Network enables off-chain micropayments and near-instant transactions, significantly enhancing Bitcoin’s functionality.

This innovation not only reduces congestion on the Bitcoin blockchain but also lowers transaction fees, making Bitcoin more accessible and efficient for users worldwide.

The Lightning Network boasts several key properties that set it apart as a game-changer in the world of digital finance

  • Instantaneous
    Lightning Network settlements occur instantly, providing rapid transaction confirmations.
  • Cost-effective
    Lightning enables payments of any size, even sub-1 cent micropayments, opening up new global commerce possibilities. It also supports innovative payment models like “streaming,” where users pay by the second for services like streaming movies or accessing insurance.
  • Privacy-focused
    The network employs peer-to-peer onion routing, similar to TOR, ensuring that each hop in a transaction path only knows the next hop and nothing beyond that.
  • Open-access
    Lightning operates as an open and permissionless network, allowing anyone to utilize its services. In contrast, most other USD payment networks operate as closed ecosystems that do not naturally interoperate.
  • Risk-free:
    Lightning stands out as the sole payment network capable of settling transactions directly in Bitcoin without any counterparty risk or reliance on third-party trust.
  • Simple:
    All technical complexities such as its underlying hashing algorithm have been abstracted away from end users.

Today, the Lightning Network allows people to send almost free and instant payments worldwide using Bitcoin denominations known as satoshis. It’s accessible to all, regardless of location or financial status, and has the potential to transform Internet commerce by welcoming billions of new users and enabling countless new use cases.

However, there are still technical challenges left to solve in scaling the Lightning Network.

Challenges like:

  • Will all users have the capability to operate a node?
  • How can we address the scalability of liquidity management, particularly in situations where on-chain fees make looping impractical?
  • Users and apps are subjected to limited arbitrary payment conditions?

Lnfi seeks to tackle these technical challenges and these will be outlined in detail in our article — Our Vision and Product Roadmap.

Nostr protocol

The Nostr protocol serves as a unique middle ground between the traditional internet and fully decentralized systems. While the traditional internet relies on multiple users accessing content from a single company-owned server, the Nostr protocol operates on a decentralized network of relays, transmitting JSON blobs with only seven fields. This simplicity extends the programmability of the platform, overcoming limitations often encountered on Bitcoin and Lightning and enhancing their overall utility. It couldn’t be simpler, and it’s going to be hard for anything else to beat that in terms of adoption by both developers and end users. These relays, akin to servers, are spread geographically, forming a vast global data pool accessible to anyone. Unlike blockchain systems, the Nostr protocol does not enforce a global state, allowing for greater flexibility and scalability in data management.

A Nostr user identity is represented by a public key that employs the Elliptic Curve Digital Signature Algorithm (ECDSA) for secure messaging, distributing data across relays for various applications. (ECDSA is also adopted by Bitcoin)

Today, the Nostr protocol primarily focuses on social media applications like Damus, Primal, and Amethyst. These apps aggregate data from different relays, offering a Twitter-like experience with unique features. Notably, the Nostr protocol allows users to port their identity and social graph across applications, facilitating seamless transitions and interoperability. For example, users can easily migrate to another Nostr protocol app and retain their identity and social connections, such as followers and interactions.

The potential is vast; we can recreate platforms akin to LinkedIn, hiring apps, or dating apps, among others. What’s unique is their interoperability: users can seamlessly navigate between these applications. Possibilities include:

  • One can receive recommendations for potential connections based on their music preferences on Wavlake, who follows them on the Nostr protocol, or even what books they have reviewed.
  • The extension of the social graph on the Nostr protocol through a transfer of value using Zap (which is not available elsewhere) and this transfer of value unlocks a new metric for indexing and returning better results than Google search.
  • This extension can be further enhanced by considering users’ identities. For instance, a Zap initiated by Jack Dorsey should carry more weight than one initiated by a newly created account.

This information can be leveraged to enhance user experiences, such as improving the indexer to return more targeted recommendations and better results than Google search. These novel product experiences were previously unattainable on the traditional web, and the integration of direct payments further enhances the user experience. This interoperability fosters a dynamic ecosystem where various applications complement each other, offering users unparalleled flexibility and functionality.”

Bitcoin

Bitcoin serves as the cornerstone of our decentralized ecosystem, embodying the principles of energy-backed money and offering unparalleled security developed over 15 years of rigorous testing.

As the foundation of Lnfi, Bitcoin’s robust security model ensures trust and reliability on our platform. Lightning and Taproot Assets inherit Bitcoin’s security properties, ensuring transactions within our ecosystem are fortified by the same level of protection.

Bitcoin also serves as the ultimate data finality layer. Lightning Network’s transaction data is kept off-chain, with only final states posted to the Bitcoin mainnet. This ensures consistent access to information for validation and dispute resolution, crucial for preserving security when settling transactions.

In essence, Bitcoin’s energy-backed money, security, and data availability support the decentralization and sovereignty of Lnfi.

Taproot Assets

Image Source: https://pbn3.substack.com/

In October 2023, the Taproot Assets protocol debuted, allowing the creation of stablecoins and other assets on Bitcoin and Lightning, a pivotal step in our ecosystem’s evolution.

While Taproot Assets offer easy digital ownership and transfer, they also carry risks like scams. Nonetheless, they’ve spurred innovative methods of building digital communities vital for the Web3 era.

Similar to Ethereum’s success with dapps, Taproot Assets provide benefits like rewarding users with future profits, diverging from traditional dollar-based approaches, and ensuring fair distribution of benefits among contributors.

By representing digital ownership and rights to profits, Taproot Assets prevents profit monopolization and encourages participation in the protocol. They also enable the digital representation of real-world or virtual items, fostering new trading and creative opportunities.

Despite their versatility, Taproot Assets can be used positively or negatively, a fact overlooked by some Bitcoin enthusiasts. Their impact depends on the intentions and actions of their creators.

We opted for Taproot Assets due to their seamless integration with the Lightning Network, enhancing our system’s efficiency and scalability. For deeper insights into Taproot Assets, stay tuned for our upcoming article.

The Convergence of Bitcoin, Lightning Network, Nostr protocol, and Taproot Assets: Redefining Decentralized Innovation

Bitcoin blockchain, Lightning Network, Taproot Assets, and Nostr protocol represent the core pillars of truly open, censorship-resistant, and privacy-preserving technologies at scale. They challenge the idea that decentralization relies solely on global consensus.

They provide users with a self-sovereign alternative to centralized digital payment platforms like Venmo, ensuring complete control over funds and transactions, in line with Bitcoin’s decentralized principles.

Today, we are already seeing dApps that have harnessed the synergies between Lightning Network and Nostr protocol.

  • Zaps have been integrated into various Nostr protocol apps to tip another user in incredibly small amounts of bitcoins over the Lightning Network.
  • Alby and Stacker News have both launched free NIP05 verification associated with their users’ Lightning Address (a human readable address to receive Lightning payments).
  • Nostr protocol + Lightning allow anyone to access a marketplace via light web or mobile clients with instant Lightning Network payments
  • Demo on microtransactions via Lightning Network on Primal (a Nostr client) over Nostr protocol

This represents a significant step towards establishing a decentralized and accessible internet infrastructure that prioritizes user privacy, security, and financial autonomy.

Furthermore, we envision that by moving much of the computational load off-chain, these technologies unlock a myriad of opportunities for decentralized applications (dApps), including:

  • Social media platforms like DeSo, which don’t require on-chain operations.
  • Decentralized exchanges (DEX) operating off-chain.
  • Games leveraging decentralization without the need for on-chain transactions.
  • Platforms like Flare offer decentralized alternatives to YouTube.
  • Collaborative note-taking apps enabling online and offline collaborative editing.
  • Services akin to TikTok or Yelp, but decentralized.
  • Decentalized Uber — BUber: Proposal for instant permissionless Taxi on Nostr protocol

Furthermore, all these dApps can issue their token in the form of Taproot Assets for:

  • Digital sovereign ownership of the protocols and owners would be entitled to protocol revenue streams
  • Bootstrapping a digital community via token airdrop, which can be a more innovative and cost-effective strategy, compared to traditional voucher giveaways for acquiring new users by traditional companies.
  • Fundraising for team expansion and rapid development

At the heart of making the above possible, enabling interactions across the stack, and ensuring necessary liquidity on both the Lightning Network and the Nostr protocol, Lnfi furnishes the essential infrastructure.

Our protocol aims to stimulate increased settlement on the Lightning Network, thereby capturing utility for BTC and ensuring alignment of interests and longevity for the entire stack while most Bitcoin Layer 2 solutions will accrue the majority of the value created on their respective layers. The positive flywheel effect created by our protocol operates as follows:

  • The rise of dApps leads to an increase in users.
  • More user activity leads to increased settlements on the Lightning Network.
  • Increased settlements mean higher profitability for BTC liquidity providers on Lightning.
  • This profitability incentivizes more providers to offer BTC liquidity on Lightning.
  • Increased demand for BTC drives up its price.
  • Higher prices attract more mining activity, enhancing network security.
  • Enhanced security and higher prices attract more users and developers to the ecosystem.

This evolution signifies a significant shift in BTC’s role, moving beyond its traditional narrative as a store of value. Instead, BTC now accrues value from its utility and network effects.

The Super Network Effects

The upcoming wave of applications using Lnfi will thrive because of its open and compatible design. Unlike other crypto platforms, Nostr protocol operates at a deeper level, so any app that gains popularity on it benefits all others using its login and identity features. This creates strong network effects.

With ample early adoption and a clear understanding of its potential, we firmly believe that the combination of Nostr protocol, Lightning, Bitcoin, and Taproot Assets presents an unparalleled opportunity to rebuild a decentralized internet.

We are fully committed to pursuing this vision with Lnfi.

--

--

Lnfi Network (formerly NostrAssets)

A Unified Layer 2.5 to supercharge web3 and tokenization on Lightning Network with Taproot Assets, leveraging: Bitcoin, Lightning Network and Nostr