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The CEO of Block and ex-CEO of Twitter has hit back at Sam Bankman-Fried, founder of crypto exchange FTX, for claiming that bitcoin has no future as a payments network.
In a Financial Times article published on Monday (May 16), Bankman-Fried appeared to cast doubt on bitcoin’s payments potential, citing scalability issues, high transaction fees and bitcoin’s environmental impact.
“The bitcoin network is not a payments network and it is not a scaling network,” he said.
He argued that to be able to do millions of transactions per second it needs “to be extremely efficient and lightweight and lower energy cost”.
Although it is worth pointing out that most mass payment systems around the world do not require this level of scale and can function perfectly well with a significantly lower order of magnitude.
Global card giant Visa, for example, says its global processing capacity across VisaNet is 65,000 transactions per second.
Bankman-Fried, who usually goes by his initials "SBF", suggested that crypto payments could be delivered more efficiently using a proof-of-stake blockchain, as this would use significantly less electricity than bitcoin’s proof-of-work computing model.
Major proof-of-stake blockchains that could be up to the task include Ethereum, Algorand and SBF’s own project, Solana.
However, the trading quant turned crypto billionaire, who celebrated his 30th birthday this year, stopped short of naming names for a bitcoin payments replacement.
“It has to be the case that we don’t scale up bitcoin to the point where we’re spending 100 times as much as we are today on energy costs for mining,” he said.
“I don’t think that means bitcoin has to go,” he added, but its strongest use case is likely to be as “an asset, a commodity and a store of value” akin to gold.
Having caught wind of SBF’s comments, Dorsey took to Twitter to express his disappointment.
“And you didn’t bring up Lightning because…?” Dorsey asked, referring to bitcoin’s second-layer solution, which its supporters say could be used to facilitate mass payments with near-zero transaction fees.
“Honestly,” SBF responded, “it's a big mouthful to repeat the whole set of ways that bitcoin can be transferred each time I'm asked the question, and I'm asked it a lot.”
“It's easy,” Dorsey wrote back. “[You just say that] Lightning was designed to make moving bitcoin for every day transactions fast."
“The reporter chooses what makes it into the article and what doesn't,” SBF protested, but in the end he did concede some ground.
Responding to a Twitter user who suggested that “all will be forgiven” if FTX integrates Lightning Network payments into its exchange app, SBF replied: “Sounds right, will ping devs [developers]."
Two years of Lightning growth
Bitcoin’s Lightning Network may not yet be battle-tested in the way that traditional payment systems are; however, both its total capacity and its total usage are growing fast.
In terms of transaction volume, Lightning Network’s increased from little more than 100,000 transactions per month in Q1 2020 to more than 800,000 per month as of Q1 this year, according to data from Arcane Research.
Although this is extremely small scale in the grand scheme of things - in the US alone, Visa processed an average monthly transaction volume of 425bn in Q1 2022 - it is perhaps a positive sign of potential things to come.
Much of this growth is due to El Salvador’s decision to make bitcoin legal tender, effective as of September last year, which paved the way for Lightning Network acceptance throughout the country.
As VIXIO has written previously, the Lightning Network works by opening up direct channels between two or more bitcoin wallet addresses, so that transactions between them do not have to pass through the main bitcoin blockchain, which is costly and often congested.
When a user wants to “close” a channel, all the transactions within it are grouped into a single transaction, which is then sent to the bitcoin mempool — a kind of clearing house for the main blockchain — to be settled and processed by miners.
Currently, it is estimated that more than 3,500 bitcoin ($106m) is held in public Lightning Network channels ready to be utilised for payment.
In February, Cash App, a mobile payment service from Dorsey’s Block, announced that Lightning Network payments are now live.
This means that all of Cash App’s 80m+ users now have direct access to the Lightning Network, either to transact with each other or with Lightning-enabled merchants.
On Tuesday (May 17), Dorsey was asked by Matthew Green, a professor of cryptography at Johns Hopkins University, whether he believes the Lightning Network has the liquidity to handle payments at scale, and if not, whether Block plans to provide it.
“We are looking into it,” Dorsey replied.
