Today, Fold has announced the integration of Bitcoin’s Lightning Network in their app that helps users spend the cryptocurrency at Amazon, Starbucks, Uber, and other major retailers. Unlike another retail-focused crypto payments app announced earlier this year, Fold is focused on sticking to Bitcoin’s roots and allowing their users to avoid issues associated with the legacy financial system such as Know-Your-Customer (KYC) restrictions and mandatory signups.
The Power of Lightning
Longtime Bitcoin users will remember Fold as one of the earliest startups built around the peer-to-peer digital cash system back in 2014. Back then, the app’s main functionality was allowing its users to save 20% on their Starbucks coffees by paying with Bitcoin. However, the company eventually ran into usability issues a few years ago as the Bitcoin network became congested and on-chain transaction fees rose to levels unsuitable for Fold’s use case.
“We noticed very quickly that Layer 1 was not going to be the ideal payment rail that we hoped,” said Fold CEO Will Reeves when reached for comment. “Long confirmation times and, especially, high on-chain fees made it unworkable for most consumer and retail situations. Because of those challenges, we’ve been very proactive in adopting and building on Layer 2 solutions, like Lightning, as early as we could so we could actually make bitcoin payments work.”
As a quick overview, the Lightning Network is a secondary payments layer built on top of the base Bitcoin network that allows users to transact with each other directly rather than publishing all transactions to the blockchain. This enables Bitcoin payments that are faster, cheaper, and potentially more private (see this previous post for a more thorough walkthrough of the Lightning Network and its possible implications on the cryptocurrency market).
The Lightning Network has seen steady growth as a means of making Bitcoin payments in 2019. Earlier this year, one online retailer revealed that the Lightning Network has already become a more popular payment option than any of the altcoins they accept. Additionally, the public beta of a non-custodial exchange powered by the Lightning Network went live in April.
For Fold, the Lightning Network enables faster, cheaper Bitcoin payments for their users, while also preserving the technology’s core ethos of decentralization.
Before adding Lightning Network functionality to their core app, Fold tested the new payments network with a pizza ordering service known as Lightning Pizza.
“We launched Lightning Pizza to test a hypothesis that if Bitcoin payments were as easy and rewarding as using a credit card, people would change their habits around spending,” said Reeves. “We were blown away by the results. An instant, one tap, zero-fee payment with good incentives spurred people to spend regularly via Lightning. Lightning Pizza sells tons of pizzas daily with thousands of repeat customers spending tens of thousands of dollars. There are many UX and technical issues to iron out, but bringing Lightning into the core Fold product is going to garner the same results and make bitcoin payments as easy as using a credit card. We’ll be quickly rolling out new features that make it just as rewarding and widely accepted as well.”
Startups Using Lightning and Rewards to Grow Bitcoin Payments
As mentioned above, early Fold users will remember that they used to be able to use the app to effectively get 20% off on their Starbucks purchases. While these sorts of kickbacks are not available as the app today, Fold plans to bring them back in the coming weeks for various retailers featured on the platform.
In this way, Fold’s rewards program is somewhat similar to another Bitcoin startup, Lolli, which is focused on improving the Bitcoin-related interactions between merchants and consumers. At the recent Bitcoin 2019 conference in San Francisco, Lolli CEO Alex Adelman discussed the company’s master planfor eventually leveraging their userbase to take Bitcoin payments mainstream.
Obviously, the last mile of Bitcoin payments is to combine the use of Bitcoin by merchants and consumers at the same time. For now, Fold acts as a gateway between Bitcoin holders and various retailers’ gift card platforms and digital payment systems.
Like many other Bitcoin startups these days, Fold also want to help build new tools for Bitcoin users on top of the Lightning Network. Additionally, the company plans to expand their list of participating retailers on their platform in the near future.