How Bitcoin and Lightning Can Boost Productivity
The emergence of Bitcoin and the Lightning Network offers promising solutions that could potentially reverse negative trends and revitalize US productivity.
Swan Private Insight Update #23
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Today, productivity is falling in the workplace. Year-over-year productivity fell dramatically in 2022, falling 1.8% YoY to end the fourth quarter.
This worrisome trend continued in 2023, with productivity plunging 2.4% in the first quarter, down 0.9% YoY. The US has now experienced 5 consecutive quarters of YoY declines in productivity for the first time in history. This means that Americans are working longer hours while producing less.
There are many theories as to why this drop in productivity is occurring, but one theory around this decline is the rise of “quiet quitting.” Quiet quitting refers to an employee only doing the minimum requirements of one’s job and refusing to put in any extra effort or enthusiasm than absolutely necessary.
A recent poll from Gallup found that nearly 50% of the US workforce are considered “quiet quitters,” with only 32% responding that they are actively engaged and 18% percent saying they are actively disengaged.
This is especially true for younger workers below the age of 35, where the percentage of engaged workers dropped six percentage points, and the percentage of actively disengaged workers rose six percentage points from 2019 to 2022.
Another potential factor that may be contributing to the observed decline in productivity over the last 10 years includes decreased corporate investment in Research and Development. This has led to a slowdown in technological innovation, which has limited productivity growth. Another potential contributor is the high costs of global payments, which can impact business productivity in several ways, including discouraging international trade and diverting resources and capital away from productivity-enhancing investments.
All of these factors have likely played a role in the decline in US productivity we have seen over the last decade. The good news is that Bitcoin and Lightning Network are coming to corporations and could help reverse some of these trends and get US productivity back on track.
Bitcoin, coupled with Lightning, is a breakthrough technology that can create new incentive structures that can help boost workforce morale and engagement, reduce the cost of global payments, and allow corporations to put a portion of their treasuries in an asset that preserves its value over time, which could ultimately spur more investment in R&D.
While at Microstrategy’s Bitcoin and Lightning for Corporations event last week, I walked away with the feeling that we were at an inflection point.
Previously, there were regulatory and technological hurdles stopping these corporations from using this breakthrough technology. Those hurdles have been broken down by the work of countless builders and advocates.
Corporations will soon realize the power of Bitcoin and Lightning, and what could come as a result will be a productivity boom. Here’s how…
Imagine a world where each employee at a company can be rewarded for every action they make. If they arrived on time at a meeting, they were rewarded. If they read an article on a topic relevant to their role, they were rewarded. If they contributed positively to a discussion, they were rewarded. If they hit a fitness goal, they were rewarded.
This is all now possible with the advent of the Lightning Network. Lightning solved the problem of micropayments because it allows for fast, instant payments for a fraction of a penny.
By creating an internal reward system where employees can receive micropayments directly in sats via the Lightning Network, new incentive structures can be created that can result in boosted productivity in the workplace.
This dream became a reality through the hard work of builders and advocates of the technology.
One breakthrough was when Zebedee announced the Lightning Address Protocol, which makes sending and receiving money as easy as an email with a Lightning Address. This protocol replaces a standard Lightning invoice with an identifier such as an email address.
No more QR codes. No more long Lightning invoices. Now people can use Lightning in a way that is instantly familiar to them.
After this announcement, it didn’t take long for Microstrategy Chairman Michael Saylor to experiment with it internally at his software company when he converted his corporate email address into a Lightning address and started receiving sats.
Little did Saylor’s followers know that behind the scenes, Microstrategy was building something much bigger. At last week’s Microstrategy World 2023 Conference, Microstrategy revealed its Lightning Rewards program aimed at incentivizing both employees and customers.
The Lightning Rewards platform integrates with existing enterprise applications like Salesforce, Microsoft 365, Zoom, Adobe, and more.
Each user has their own Lightning wallet and Lightning wallet where they can receive sats as rewards.
Now you can deliver instant gratification to your employees and reward them for positive behavior seconds after it occurs.
Some examples of how Lightning rewards can be used for employees are listed below.
Each employee will have a wallet and screen like this. Michael Saylor used the example of being on time for a Zoom meeting. When he was on time, he received 100 sats. He didn’t receive any sats when he was late and admitted that upset him.
It is easy to understand how this could result in increased workplace productivity if employees are instantly rewarded for working above and beyond with the hardest money to ever exist.
Not only that…Microstrategy also went a step further and showed how Lightning rewards could be used to attract and foster relationships with customers as well. What if you could reward a client who wrote a review for your product? What if you could reward a client for participating in a survey or attending a webinar? What if you could reward a client for attending an event?
The possibilities are endless for businesses with this new innovative technology. Micropayments via Lightning open up new opportunities for business to revitalize their workforce with new incentive structures and rewards and to build a close-knit community with their customer base in a way never possible before.
This is one example of how Bitcoin and Lightning could help improve workplace productivity in the near future.
In this highly connected, globalized economy, many corporations need to make international payments daily to keep their operations running smoothly. Despite all of the technological advancements that have occurred in the last several decades, global payments remain slow and expensive for these businesses. These high costs can significantly impact the productivity and profitability of corporations engaging in international trade.
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Today, to make a global payment using the Correspondent Banking System, a business will pay, on average, 10% in fees. These fees are from SWIFT messaging, transaction, and foreign currency exchange fees.
With each transaction a corporation needs to make, various intermediaries take their cut and hurt their profitability in the process.
On top of that, the average international payment takes 2-3 days to settle. Slow transaction processing times can create delays in supply chains, disrupt cash flow management, and reduce overall operational efficiency, ultimately impacting business productivity.
The high costs of global payments can lead to businesses allocating more resources to manage these costs, diverting capital and labor away from productivity-enhancing investments, such as research and development or worker training.
Furthermore, expensive global payments could discourage international trade altogether and act as a barrier for small and medium-sized corporations seeking to engage in international trade. This could lead to a decline in the overall level of trade and hinder potential productivity gains that arise from specialization and economies of scale.
Luckily, the Lightning Network is here to revolutionize a global payments system that has seen minimal improvement over the last 50 years. The Lightning Network is a second-layer payment protocol built on top of the Bitcoin network that optimizes for speed and cost. Theoretically, the Lightning Network can allow for millions of transactions per second that can settle at practically no cost.
In previous years, corporations have lacked the tools to fully utilize the Lightning Network, but that has all changed.
Recently, the team behind Lightspark announced the launch of the Lightspark Platform, the first enterprise-grade entry point to the Lightning Network. The company is led by former PayPal President David Marcus, whose goal is to make it easier for corporations to access what he believes is “the protocol for money on the Internet.”
Historically, users have faced considerable complexity when using the Lightning Network, which has hindered its adoption among enterprises. To successfully utilize the technology, corporations need the technical expertise to convert fiat currency into Bitcoin, open channels, route payments, manage channel liquidity, and more.
Enter the Lightspark Platform, a groundbreaking solution for corporations that enables them to effortlessly send and receive payments, build novel payment experiences, and devise new business models.
By providing a seamless plug-and-play solution, the Lightspark Platform enables businesses to integrate with the Lightning Network while eliminating the need to navigate the network’s complexities. This makes it easy for corporations to fully capitalize on the benefits of this cutting-edge technology.
With enterprise-grade solutions like the Lightspark Platform, it’s easy to envision a world where businesses worldwide are all transacting on the same protocol of money for the Internet. Since these businesses would all be transacting using the same standard, there no longer will be the complex regulatory environment that has contributed to the high cost of global payments. In turn, international payments would become more affordable and able to settle instantly.
This innovative payment infrastructure would pave the way for novel business models, where corporations could stream value in real-time based on their dynamic trading relationships. The Lightning Network has the potential to revolutionize how global payments are conducted, addressing long-standing issues that have negatively impacted business productivity. By making international payments efficient and cost-effective, corporations could allocate more resources to other endeavors that help improve their business processes or workforce output.
After five decades of stagnation in the global payments landscape, the Lightning Network is poised to breathe new life into the industry, propelling it toward a more efficient, productive, and interconnected future. The first mainnet transaction on Lightning took place in 2018. Now 5 years later, the tools are finally being brought to market that will allow corporations to reap the benefits of this innovative technology.
I think David Marcus said it best,
With inflation raging across the globe, it has never been more important for corporations to have treasury strategies to protect their cash from losing purchasing power.
Corporations are clearly concerned about inflation. The number of S&P 500 companies citing “inflation” on earnings calls remain at historically high levels.
When a company gets cash, they need to figure out how to invest it. Bitcoin is an attractive option for corporations to gain exposure to, given its scarcity, especially in an inflationary environment.
In 2020, Michael Saylor recognized this opportunity and made headlines when his company, Microstrategy, purchased hundreds of millions of dollars worth of bitcoin. However, he noted that there was a big problem that made it difficult for companies to put bitcoin on their balance sheets.
There are currently no accounting or disclosure rules specifically for Bitcoin. Businesses need to classify them as intangible assets, which means they have the mark the value of the asset once a year. If the price of bitcoin goes down, they have to mark the value lower on their balance sheet, and if the price goes up, they can’t record the gain unless they sell the bitcoin. This creates a huge balance sheet impairment for these companies if the price of bitcoin drops. It creates a situation where a company has to potentially list the bitcoin on its balance sheet at a lower value than the market price when it is simply holding it.
This accounting problem had to be explained in Block’s most recent quarterly filing, where it speaks on the impairment charges and how Bitcoin’s market price exceeds their charges:
“As of March 31, 2023, the cumulative impairment charges to date were $117.7 million, and the fair value of the investment in Bitcoin was $228.7 million based on observable market prices, which was $126.2 million in excess of the Company’s carrying value of $102.5 million after impairment charges.”
As you can see, with the current accounting and disclosure rules, if a business decides to invest in bitcoin, the potential impairment to its balance sheet can be substantial. The difference between the value of the bitcoin held on its balance sheet and the fair market value can be significant.
The good news is that significant positive developments toward fixing this accounting problem occurred in 2022. The Financial Accounting Standards Board (FASB) is preparing a new rule proposal that would improve the accounting and disclosure rules for companies that invest in Bitcoin; that is currently seeking public comment and is likely to be passed.
Back in October, FASB said that fair-value accounting best captured the economics of Bitcoin and determined the method would be a requirement rather than an option for companies. These new rule changes would fix this impairment problem for corporations holding Bitcoin. What used to be a regulatory barrier of entry for companies considering placing some bitcoin on their balance sheets is now close to becoming a thing of the past. For public companies currently sitting on large cash balances with CPI inflation, this could open the doors for them to invest in Bitcoin.
Given the current banking crisis, this rule change could come at no better time. In light of these events, a growing number of corporations are now recognizing the importance of considering counterparty risk as a central component of their treasury strategy. This realization became glaringly apparent with the collapse of Silicon Valley Bank. A staggering 97% of SVB’s deposits, primarily consisting of business accounts, were uninsured, as they held funds significantly exceeding the $250,000 FDIC limit. As a result, numerous businesses were exposed to substantial financial losses, underscoring the need for a more vigilant approach to risk management regarding their treasuries.
During SVB’s collapse, over 5,000 CEOs and Founders signed a petition to Treasury Secretary Yellen and FDIC Chairman Martin Gruenberg stating,
“We ask for relief and attention to an immediate critical impact on small businesses, startups, and their employees who are depositors at the bank. According to the NVCA, Silicon Valley Bank has over 37,000 small businesses with more than $250,000 in deposits. These balances are now unavailable to them, and without further intervention, according to the FDIC website, may be inaccessible for months to years.”
The recent bank collapses have woken corporations up to the risk that exists with their banking relationships. With Bitcoin, corporations can be their own bank and don’t have to worry about counterparty risk. By holding a portion of their treasuries in Bitcoin, they can hedge themselves against the risk of bank failures.
This counterparty risk and inflation risk are something all corporations must consider in the future, and with the regulatory and technological barriers coming down for them to access this savings and payments technology, more and more corporations will be looking for alternatives to protect their cash holdings.
A prime example of the technological hurdles for these corporations coming down can be found in the emerging startup Lucent Labs, which operates out of the prestigious Wolf Lightning Accelerator in New York City. Lucent Labs is developing treasury management software tools tailored explicitly for corporations.
Solutions like this that aim to facilitate more effective management of Bitcoin holdings on corporate balance sheets will empower businesses to optimize their Bitcoin strategies and harness the full potential of this protocol of money.
Thus far, the list of corporations incorporating Bitcoin into their balance sheets predominately consists of entities within the industry. Below is a list of the top 20 corporations holding bitcoin, ranked by how much they have on their balance sheet.
Incorporating Bitcoin into its corporate treasury has clearly been a winning strategy for Microstrategy. Since adopting a Bitcoin strategy, Microstrategy’s Bitcoin investment has exhibited remarkable performance, significantly outpacing returns from other traditional asset classes.
By incorporating Bitcoin into its balance sheet, Microstrategy has successfully achieved multiple financial objectives. Amid a period of soaring inflation–reaching multi-decade highs, the company managed to not only safeguard the purchasing power of their holdings but also capitalize on the substantial appreciation of Bitcoin’s value.
This strategic move generated capital that enabled Microstrategy to allocate resources toward productivity-enhancing investments, such as its innovative Lightning Rewards program. This program is designed to foster employee engagement, and it exemplifies how the adoption of Bitcoin as a treasury strategy can yield considerable productivity gains and propel overall business performance to new heights.
Over the past decade, US corporations have experienced a decline in productivity growth due to several factors, including diminished worker engagement, reduced investment in research and development, and the high costs of global payments. These issues have collectively stifled productivity and international trade while redirecting resources and capital away from investments that could enhance productivity.
Fortunately, the emergence of Bitcoin and the Lightning Network offers promising solutions that could potentially reverse these trends and revitalize US productivity. By leveraging the breakthrough technology of Bitcoin and Lightning, corporations can create innovative incentive structures to boost workforce morale and engagement, minimize global payment costs, and preserve the value of their treasuries over time, thereby spurring increased investment in research and development.
The beauty of Bitcoin and Lightning is that builders will continue to innovate and bring better tools and services to market, making it easier for corporations to adopt this technology. In addition, corporations that adopt Bitcoin and Lightning are incentivized to help the technology grow.
This was evident when Jack Dorsey’s Block took its Bitcoin reserves and allocated them to the Lightning Network to help increase liquidity on the protocol.
Today, we find ourselves on the cusp of a transformative moment, as the influence of Bitcoin and Lightning Network promises to reshape businesses across all sectors of the economy. Corporations that realize the power of Bitcoin and the Lightning Network are poised to outpace their competitors, while those that struggle to adapt risk being left in the wake of this technological revolution. Mirroring the profound impact of the Internet years ago, these technologies stand poised to significantly enhance the efficiency of corporate operations, thereby jumpstarting a much-needed productivity boom that has been absent over the past decade.
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Sam Callahan is the Lead Analyst at Swan Bitcoin. He graduated from Indiana University with degrees in Biology and Physics before turning his attention towards the markets. He writes the popular “Running the Numbers” section in the monthly Swan Private Insight Report. Sam’s analysis is frequently shared across social media, and he’s been a guest on popular podcasts such as The Investor’s Podcast and the Stephan Livera Podcast.
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