Bitcoin Lightning Network + Nostr: A New Paradigm for Decentralized Social Payments

Author: 0xCousin, IOBC Capital

In the first half of this year, the innovative narratives of the Bitcoin ecosystem—BRC20, Ordinals NFT, Bitcoin Layer2—have become one of the main topics in the industry. More and more people are starting to pay attention to the development of the Bitcoin ecosystem. In the article “Narrative Innovation: A Brief Analysis of Recent Experiments in the Bitcoin Ecosystem”, we outlined the current development status of BRC20, Ordinals NFT, and several leading Bitcoin Layer2 projects.

Around the development path of Bitcoin, the Bitcoin community has experienced ideological struggles more than once. In the process of divergent development, the Bitcoin ecosystem gradually reveals a huge opportunity: decentralized social payments combined with the Lightning Network and Nostr.

The Origin of the Lightning Network—The Scalability Debate (Layer2 Scalability VS Layer1 Large Block Scalability)

The block size of the Bitcoin network is designed to be 1M, with one block generated every 10 minutes. Under similar transaction code volumes, the Bitcoin network can process about 7 transactions per second. This cannot meet the demand for a large number of transactions, especially during a bull market with active on-chain trading. Therefore, voices for scalability emerged in the Bitcoin community as early as 2015.

There are divergences in the technical paths chosen for scalability within the Bitcoin community:

1. Radical Miners: Support for Layer1 Large Block Scalability to Increase Transaction Capacity

Some radical miners chose Layer1 large block scalability. A hard fork produced Bitcoin Cash at block height 478558 before the Segregated Witness upgrade.

2. Conservative Developer Community: Advocating for Layer1 Technical Upgrades + Layer2 Scalability Solutions

The Bitcoin Core development team, represented by Bitcoin Core, advocates for maintaining Bitcoin's pure "non-sovereign asset" attribute, only performing conservative technical upgrades on Layer1 (Segwit Segregated Witness) and expanding Bitcoin's application scenarios through Layer2 off-chain scalability (Lightning Network).

In August 2017, Bitcoin underwent a Segregated Witness upgrade. By only packaging transaction information into the block and placing digital signature information in the Extended Block, the current Bitcoin block size is mostly around 1.5M (theoretically achieving "4x" scalability, with 1M transaction information and 3M digital signatures). Each block can accommodate more transactions, achieving a certain degree of Layer1 scalability; in March 2018, the Lightning Network went live, helping the Bitcoin network achieve rapid off-chain payments through the State Channel solution.

Since then, a combination scalability solution of Layer1 technical upgrades + Layer2 off-chain scalability has been partially realized, maintaining the value proposition of "Bitcoin as digital gold, Lightning Network for instant payments."

……

After a complete cycle, the Lightning Network has 18,000 nodes, operating over 70,000 channels, with more than 5,400 BTC in the Lightning Network. In addition to the Lightning Network, several Bitcoin Layer2 projects such as Stacks Network, Rootstock, and Liquid Network have emerged. Bitcoin Cash also forked into BSV in November 2018.

The issue with the Lightning Network is that the payment function is not very suitable for existing as independent dApps; it is more suitable to be embedded into other dApps to play its role with fast and small payments. Especially for social applications, it is most suitable as an embedded carrier for the Lightning Network.

Social Payments: The Combination of Nostr and the Lightning Network

Because Nostr's developer fiatjaf is also a developer of the Lightning Network, Nostr natively supports the Lightning Network.

Nostr is a minimalist social protocol that is not based on blockchain, creating a censorship-resistant global social network. Nostr transmits notes and other stuff through relays. It does not rely on any centralized servers; clients publish information, and relays transmit information, making the publication and transmission of information censorship-resistant; any user can create public and private keys, thus not being restricted by third-party servers.

From a product experience perspective, the social network Damus based on Nostr has product functions very similar to Twitter, where you can create posts (like tweets), like posts, follow or unfollow someone, and retweet.

To use Nostr, users need to run a client, which can be a native client or a web client. When users want to publish certain content, they need to edit the content first, then sign it with their key, and send it to multiple relays, which are responsible for broadcasting the user's published content. Anyone can run a relay; a relay only needs to accept posts from users connected to it and then forward them to others. Users do not need to trust the relay because they sign and verify on the client.

The most popular client for Nostr, Damus, has built-in Bitcoin Lightning Network payment functionality. Users only need to enter their Nostr Public Key to directly call the one-time fee for the Lightning Network payment relay, and after payment, they will receive a Bitcoin Lightning Invoice (receipt).

The design philosophy of Nostr is somewhat similar to the Bitcoin Network. Developers create various clients for users to choose from; clients are used for signing and verifying information; relays are responsible for fetching, storing, and transmitting any information from clients connected to it and forwarding it to other clients, with many relays available; users only need to create a pair of public and private keys to use Nostr without any admission requirements. This is somewhat akin to the Bitcoin community's developer teams, miner groups, and users, with each link in the design having a certain robustness and censorship resistance.

According to Nostr.Band, there are currently over 23 million pubkeys, with accounts having personal profiles exceeding 3.6 million, and accounts with Lightning Network addresses exceeding 170,000. There are 1,644 relays, with over 100 million events occurring.

The crypto community's skepticism towards Nostr mainly revolves around the lack of incentives for relays. If relays had token incentives, most tokens might be held by a few individuals, failing to create effective incentives and being vulnerable to attacks; if relays had no token incentives, there would be no sustained motivation to store user data, and there is a possibility of relays actively or passively deleting data.

A possible solution is to set up AI bots to act as Nostr relays, responsible for fetching, storing, and transmitting any information from connected clients and forwarding it to other clients. AI can be more neutral than humans, not filtering out user content based on personal preferences or accidents. At the same time, a Lightning Network address that charges users could be set up, requiring new users to pay a one-time fee in BTC to use that relay. The BTC collected by the AI relay would cover operational costs.

The combination of Nostr and the Lightning Network sets a template for the native integration of social applications and Bitcoin. In the future, there may be more social applications combined with Bitcoin (Lightning Network), perhaps the mass adoption of DeSo will first explode in the integration with the Bitcoin Lightning Network.

Conclusion

The financial inclusivity of Bitcoin as a decentralized payment system with no admission barriers, combined with the rapid payments enabled by the Lightning Network, possesses unparalleled advantages in decentralized social payments and even applications in the AI field.