Be careful what you wish for when looking for VC funding

I was listening to a particularly interesting BTC Lightning Podcast. Kevin Rooke was talking to a young developer who is working on a new form of Lightning Service company.

The problem with Lightning Nodes as I've covered in great depth, is that they need to be run 24x7 as a connected server. This is a big commitment in order to be able to receive funds. Lightning is not a blockchain system and there is no way to reliably receive payments to your own wallet for which you hold the keys without a server being involved.


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There are some hosted services for Lightning Nodes (like the one I use for @v4vapp at Voltage) but they have to keep a server running for me and that server needs access to the entire Bitcoin chain data which is 500Gb and growing (even more than the highly compressed Hive chain).

Enter Azz and his Valera startup. He's come up with a way to virtualize these node such that he's 10,000 times more efficient than what anyone else is doing. His solution has a software and hardware component because he wants to run a centralised hosted solution but for the Lightning node "owners" to retain control and signing rights via a hardware key they keep with them.

But something he said on the podcast about whether to go open source or not caught my ear. You can listen here: https://podverse.fm/clip/zccDzb2RC

Somewhat edited and long transcript but at the end I have an important point to make.

So the biggest choice about open sourcing it is Indra is effectively Valera's special sauce, we have what no one else has .... But there is from an investment standpoint, when we're pitching to investors and stuff, they don't want to see our tech just go from being completely game changing to then basically been given out for free because they won't get returned from it.

The company basically won't be profitable. And we won't have the early on advantage that we do currently. Because currently we can do things for 10,000 times cheaper than everything everyone else can ... we don't want to sort of give it away. I don't think it's ready to be given away for free quite yet. ....

If centralization becomes a problem and other lighting companies are struggling to keep up with adoption relative to us, which would be really good but also really bad at the same time we're open source it, right?

The we there's a difference between us wanting to keep our head start a bit and us completely trying to dominate the market and kill basically get rid of everything, every other company that's trying to do stuff too, because that's just unfair, right?

And also it's not the way to grow a community or any ecosystem. Right? That's, that's like turning, that's like turning FinTech into just where or just catch up. Right, that's this. I mean, from from a purely capitalist point of view that sort of might be the one most people take is, then yes, it would be awesome just for us to have complete advantage and complete control over the whole market. But we we don't want to do that.

I suppose in the current world we live in, it's more of a hyper capitalist sort of view, which is purely profit, use the data, use privacy, individual sovereignty, doesn't matter, as long as you can basically completely break humans down to a data stream, right? That's not what we're about, we're about, you know, changing the world, but we still want to, you know, work as an actual company. ....

At the moment ... it will be closed source. But if it does, like actually start being a problem, but not just if, if it starts being a problem, then yes, it is worth open source. And we won't hesitate to....

Ideals

I love the idealism and admire the principles and passion. Obviously I don't think there's any way in which Azz has nefarious goals in mind. But he's building a system where even if he doesn't hold the keys to other people's Lightning nodes (and therefore their Bitcoin) he'll be able to turn them on or off.

Technicals

It's also unclear, unless the server side is open sourced and anyone can run it, whether a customer of his service, who he no longer services, can use their hardware key and whatever other private keys they have to recover their Lightning node and the channels within which Bitcoin is held in trust. But even assuming they solve this technical issue, the problem is the business model.

Vulture Capitalists

It's been a shockingly bad year for Venture Capital this year and if we only look at VC directed at anything to do with crypto, we're talking apocalypse now.

So if you're starting a company with a view to raising VC funds, you better be amazing. And if you are amazing, unless you can build your tech out to profitability on a tiny budget, by the time you've raised your $3m seed round the VC's will own you.

They're not going to let another Mark Zuckerberg or Daniel Ek manage to retain close control over their own company with funky share types again soon. The era of cheap money has gone, BTC value is in the toilet and the interest rates are marching up. Any VC's that haven't been wiped out by Terra Luna, Celsius, FTX and the cascading shitstorm, aren't going to be handing out the candy very easily, and it will have razor blades in it if you get it.

I'm sure Azz is genuine when he says that if his solution is so successful it pushes all other hosted Lightning service providers aside, he'd then consider open sourcing it. The problem is, if he's taken the VC route to get there, it's not clear he'll be in a position to do that.

Lightning has enough centralising pressure, this might well be the next big thing to centralise Lightning.

Crypto VC

Lightning startups think, because they don't have a "shit coin" associated with their project, they will be different and the VCs they're taking money from will be different. Good luck with that. This is crypto VC: they're not going to be substantially different because Bitcoin and Lightning are not "shit coins".

SPK Network, V4V.app and Hive DAO

Which brings me back to the unique way in which my own work is funded. It may not be as sexy as being able to say I've raised a $3m dollar seed round (my wife would be more impressed with that), but already there is a way for Hive to convert to and from Lightning, it will be completely open source and anyone will be able to run it. Perhaps by then easier to use multisig options on Hive will mean we can even take away some of the trust which is tied up in the way @v4vapp works right now (and on which I'm happy to stake my Hive reputation).


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This is the way

And the same broad outline applies to SPK Network handing out the governance tokens for the system they are building whilst keeping no more for themselves than anyone else with a stake in Hive gets.

Whilst I don't think @v4vapp on Hive is the path to my own future financial well being, I believe it adds so much to the entire Hive project, that my ongoing and increasing stake in Hive will be worth more. This is the sweat equity I hold and all of you who hold Hive, whether you vote for the proposal or not, stand to gain if this happens.

Send Lightning to Me!

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The DHF is a very special and unique thing - fully decentralised, user voted funding of not insignificant amounts for projects which support the only fully decentralised content and DApp blockchain.

👍🏻 For sure. Don’t know anything like that.


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You picked a very good point @brianoflondon. If VCS invest THESE days into crypto related projects they will be even more picky than normal and want to see profits. The centralization/decentralization is a very good aspect of this. Hopefully crypto will stay kind of free, at least some major projects. I understand that you need more regulation for a stable coin for example that copied the Dollar with Hundreds of billions of Dollar but you have to differentiate the other projects.
Hive is seen as one of the most decentralized chains around and this is one thing I like about it.

Now I'm curious, what's the current size of the Hive blockchain? How much data on daily average is being stored? I'm not sure if you can point me to sources with relevant coverages for this as it would be really helpful when creating "Hive based" contents on @icoverage

I see that if VCS gets involved, can become centralized. Then eventually may have to pay for the services. I rather it be open source like now, and can send thousands of satoris in seconds, and importantly it's decentralized than the other way round !

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started listening the podcast. crazy thing is that that kid is 16 years old 😂

I remember being at a VC conference in London about 5 years ago and let me tell you that they weren't too comfortable with crypto as if it was tapping into the way they are funding projects. And the reality is that nowadays funding can be done decentralized and that will be much healthier than standing in the hands of power of VCs.

Venture Capitalism is the best part ;-)

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 last year (edited) 

Question, can the solution just be redundant nodes? Just a backup instance in a situation the server experience some issue?
Second, how disruptive is the open source model if his main butter is software as a service and the REAL sauce is on the infrastructure.
Third, on the topic of capitalism, even if they are closed source, anyone could come up with similar services and create competition and innovation. So it doesn't matter they aren't FLOSS maybe the next one is. The key is not to block competition by patenting something and gauging the market.

Lightning has a severe fragility around two nodes with the same private keys joining the network simultaneously.

If this happens the result is a pretty swift loss of BTC as the channel partners all detect something strange going on and claim all channel balances belong to them regardless of how much sits on the side of the node which tried to exist twice.

There are technical solutions but this stuff isn't trivial. This also makes running a large mission critical node quite complicated.

My personal view is too many developers in Lightning are chasing cool tech and too few are figuring out services that expand the need for Lightning to exist and be useful.

I understand so is way different than having like a DNS A Record type solution with multiple parallel servers to keep the site up. Or a heartbeat app on a cluster.