While still a relatively-new technology, the Bitcoin Lightning Network offers distinct advantages for a wide range of business operations.
This is an opinion editorial by Matt Maraia, a CPA focused on how changes to accounting regulations impact the Bitcoin community.
Today, companies spend egregious amounts of money on credit card fees when processing customer payments, ultimately cutting into margins that are widely scrutinized by investors and management alike.
But the Lightning Network presents a new payment solution with the ability to process instantaneous payments (using Bitcoin) for virtually no fees. It boasts equivalent decentralized safeguards to the Bitcoin network, ultimately using Bitcoin’s blockchain, which has not been hacked since its inception in 2009. While doubt among the general public about bitcoin manifests itself in the asset’s price volatility, this innovative technology built on top of “Bitcoin rails” poses a unique opportunity for CEOs and CFOs to improve profitability.
In fact, you can be anti-Bitcoin and still be able to extract the advantages of the Lightning Network into your company’s payment processes, avoiding the issues of bitcoin price variability.
Here are some of the biggest advantages of adopting the Lightning Network for businesses:
Improving Margins, Reducing Fees
With mass layoffs circulating the market, investors and managers understandably continue to scrutinize margins — every dollar matters and can spell disaster without proper planning and foresight.
The Lightning Network helps to alleviate these pressures by way of minimal transaction fees. On average, payments made via credit card amount to about 3% in fees owed to intermediary financial institutions. The Lightning Network opens up the possibility to process payments at a fraction of the cost by using micropayment channels. While it is unlikely that an entire customer base will immediately transact through the Lightning Network, even transitioning 25% of credit card payments could significantly improve margins.
Benefitting From Consistent Innovation
Without delving into the superfluous details of how Lightning operates behind the scenes, the innovations materializing in the space remain frequent.
For example, IBEX Pay operates as a web application service that allows merchants to create an invoice on demand, generate a QR code to be scanned by the buyer with any Lightning wallet and process payment via Lightning instantaneously. Merchants can opt to receive payment based on the user-designated ratio of BTC to USD.
For companies with point-of-sale (PoS) terminals, Strike is developing Lightning Network compatibility for many of those while offering similar benefits to the IBEX Pay platform in both efficiency and cost effectiveness. And most of these services do not require monthly subscription fees.
Another benefit of using the Lightning Network is a near-immediate settlement of funds. No longer are companies required to wait two to three business days for ACH/wire payments to settle to access capital via “fiat rails.” Intermediaries are removed with the use of the Lightning Network, permitting fast access to capital while limiting counterparty risk.
A Built-In Customer Base
Although customer bases are highly dependent on the goods or services offered by a company, there is a large contingent of Bitcoin supporters who prefer and often seek out vendors that operate directly or indirectly within the Bitcoin environment.
Many Bitcoin advocates use websites such as btcmap.org and satmap.app to find businesses that accept bitcoin. Given that the Lightning Network is a layer built on top of the Bitcoin network, adopting it can provide you with an ever-growing, built-in customer base that is hungry to contribute to and share the successes of businesses operating under the Bitcoin umbrella.
Limitations And Risks
Still, the relative infancy of the Lightning Network means there are potential limitations and risks.
For instance, IBEX Pay currently offers a maximum $2,500 transaction size. Additionally, and as with any new technology, while the network is gaining traction, there are still potential risks with bugs and other vulnerabilities. Recent traction in popularity has helped to lessen concerns over this proof of concept, but without decades of data points to lean on, there is no guarantee issues will not emerge. Lastly, a current lack of regulatory clarity in the digital asset realm could potentially lead to more questions later.
With all that said, the Lightning Network provides companies with a competitive advantage from a financial, operational and technological standpoint, though there are some concerns due to the relative infancy of the product in addition to existing limitations in current solutions. However, rather than standing by and suffering through the oncoming margin pressures that continue to infiltrate the economy, it is worthwhile to take action and adapt.
My recommendation for business owners out there is to trial run implementing this solution for at least a small segment of your business and to build out enough of a sample size to compare to current payment processes. What’s the worst-case scenario here? You are not reaping the benefits outlined herein, but you are without collateral damage to your business. The best? You are a first mover in a technology that aims to interrupt the payment processing space, coupled with increasing margins and gaining quicker access to customer payments.
The decision is yours.
This is a guest post by Matt Maraia. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
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