The Future of Finance: How Open Networks Can Revolutionize Financial Services

Five years ago, I was introduced to blockchain technology as a founding member of Facebook's Libra project, an ambitious attempt to create a global digital currency. Initially, I struggled to grasp the utility of blockchain, but eventually, I experienced a breakthrough that revealed its vast potential applications. My team and I spent our first year learning, experimenting, and building; during this time, my mindset evolved. I went from asking, "What even is a blockchain?" to confidently declaring, "I can solve anything with a blockchain," and finally settling on the more nuanced realization that "You probably shouldn't solve many things with a blockchain."

As someone who has witnessed both the opportunities and challenges in the crypto world, I haven't seen many practical applications yet, but I'm confident they are on the horizon. The potential of blockchain technology dramatically outweighs the drawbacks. In fact, the transformative power of decentralization and its ability to democratize various industries is what fascinates me. So, what's my take on this?

It's All About the Power of Open Networks

I've witnessed how open-network technology has transformed industries throughout my career. Unfortunately, our financial systems are among the last major closed systems – outdated, inefficient, and limited. Big institutions prefer keeping them closed to minimize competition and boost profits. However, remarkable innovations arise when people have the right tools to address their issues and entrepreneurs can access open networks. This leads to significant growth in the market, as history has demonstrated.

Historical Parallels

We witnessed this during the internet's emergence in the mid-90s. Suddenly, anyone with a brilliant idea could challenge established software companies. As a result, the internet became the most significant economic expansion since the Industrial Revolution, giving rise to eBay, Amazon, Google, and countless new businesses.

Another example is open-source software, with its freely accessible source code and community-driven development gradually gaining ground over proprietary software. Linux, an open-source operating system, is a prime example, as it's thrived compared to proprietary rivals like Microsoft Windows and macOS.

In the 70s, Sony introduced Betamax, a better-quality proprietary format than VHS. However, VHS ultimately prevailed due to longer recording time and lower cost. A critical factor in VHS's success was its open licensing model, enabling other manufacturers to create VHS-compatible devices. In contrast, Betamax's licensing was more restrictive. This openness fostered competition, variety, and lower prices in the VHS market, ultimately securing its victory over Betamax.

The Potential Impact on Financial Institutions

Banks and financial institutions are understandably cautious about open networks, fearing their traditional models might struggle to compete. However, they can still thrive if they embrace change in approach and mentality.

This situation reminds me of the browser wars of the mid-90s when Microsoft found itself battling against the up-and-coming Netscape. Microsoft was concerned that Netscape's Navigator browser might disrupt its hold on the operating system market, and it responded by bundling Internet Explorer with its ubiquitous Windows OS and taking other steps to weaken Netscape's standing. Ultimately, Microsoft emerged victorious, and Netscape's downfall showcased the lengths incumbents will go to safeguard their market positions.

Today's traditional financial institutions face a similar challenge in the form of open networks. Many hesitate to embrace progress, fearing the cannibalization of their revenue streams. I believe these fears are misplaced. If financial institutions fully adopt open networks and adapt, they can leverage these platforms to become even more valuable.

With the internet, the software market expanded, and Microsoft adapted. Their customer base, demand for computers with their OS, and cloud services grew. As a result, their revenues and costs decreased, allowing them to pass savings on to customers. By embracing change and focusing on solving customer problems, Microsoft became one of the world's most valuable companies.

Financial businesses must adapt to survive the shift to open financial networks. Like Microsoft, they must lean into technology and prioritize solving customer problems.

Imagine banks, credit card companies, and other financial services unbundling their offerings and making them available to a much larger network. Merchants could choose specific services instead of paying a flat interchange fee. Consumers could select preferred fraud protection or consumer protection options. The cost of maintaining outdated networks will vanish, replaced by low-cost, efficient open networks, allowing value to move globally, instantly, and affordably. Institutions integrating and building on new technologies have real opportunities.

Blockchain's Role in Open Financial Networks

Though the future is always uncertain, blockchain technology stands out as a strong contender for revolutionizing the financial world. Blockchain's transparent, unchangeable, and verifiable ledgers help build trust in financial transactions, ensuring they're visible, tamper-proof, and open for anyone on the network to verify. Plus, public blockchains focus on accountability and transparency, which makes them great for enhancing the integrity and efficiency of financial systems and standardizing open protocols.

Conversely, traditional banking systems have their fair share of problems, like high costs, slow transactions, and errors caused by outdated tech, incompatible systems, and manual processes. And let's not forget banks often lend out customer funds and invest in assets with hidden risks.

The 2008 financial crisis is a prime example of how bad things can get when there's insufficient transparency or access to important data. Sure, information about the risks tied to mortgage-backed securities was out there, but it was hard to find and understand, leaving most people in the dark about the danger ahead. If blockchain technology, with its focus on transparency and accessibility, had been in play, it might have softened the blow of the crisis or maybe even stopped it from happening.

By tapping into the unique capabilities of blockchain technology, we can build a more efficient, secure, and transparent banking infrastructure that surpasses traditional systems' limitations and paves the way for a more equitable and open financial future. The big question is: which blockchain will come out on top?

Bitcoin's Journey Towards Standardization 

Bitcoin, the leading public blockchain, has gained widespread adoption and is supported by a large, active developer community, making it a strong candidate for standardization. Furthermore, with over ten years of stable and secure operation, Bitcoin has demonstrated its reliability and performance.  But, Bitcoin has scaling issues.

Under optimal conditions, Bitcoin would be able to process an unlimited number of transactions per second with ease. However, its capacity is limited to around 5-7 transactions per second, and on-chain transactions can be quite costly. To accommodate not just the current payment volume but also a significantly larger number of future transactions, we turn our attention to layer-2 solutions, such as the Lightning Network.

Lightning Network: The Layer-2 Solution to Bitcoin's Limitations

The Lightning Network, a fast-growing layer-2 solution built on top of Bitcoin, addresses specific scalability issues like speed and cost by moving funds off-chain and enabling swift transactions between Lightning nodes. As the network expands and attracts more users, it's rapidly establishing itself as the front-running layer-2 solution for Bitcoin. Funds are settled on-chain when parties complete their transactions or need to access them for other layer-1 activities, resembling the practices of traditional banking systems. For example, major banks regularly move money, keep track of debits and credits, and occasionally settle through the Federal Reserve's gross settlement layer, Fedwire, in the United States. 

An Open Protocol for Money

Lightning and Bitcoin together can reduce transaction costs to near zero over time – much like the internet did for information. Moreover, it's open and transparent while still preserving individual privacy. The only missing element is accessible programmability, enabling people to solve their problems independently. However, the ability to securely and efficiently program logic into the network will likely emerge over time.

Crypto Winter and the Importance of Real Value

The current crypto winter feels like a replay of the late nineties' dot-com bubble. Tens of thousands of tokens with little or no value were created, seasoned investors bet on everything crypto-related, and uninformed consumers speculated in buying and selling tokens without understanding their true nature.

Today's crypto counterparts of WebVan and are vanishing even faster than in the nineties. We've seen this story before. Ninety-eight percent of the opportunistic companies that didn't deliver real customer value will disappear, allowing the remaining ones focused on providing genuine value and addressing customer problems to thrive and expand.

Conclusion: Lightspark's Commitment to a Better Financial Future

At Lightspark, we're focused on tackling real-world problems and creating value for our customers. Our first goal is to make payments faster, more accessible, reliable, and affordable. But we won't stop there – we're committed to building even more features that help businesses thrive and grow. In addition, we're paving the way for a more dynamic and inclusive financial landscape by embracing open networks and the latest tech. So, join us as we work together to shape the future of finance in a way that benefits everyone – learn more at

The future of finance lies in open networks, and the time to build for that future is now.

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The Hidden Breakthrough Behind Bitcoin
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In today's interconnected world, the need for a seamless and universally accessible payment system has become increasingly apparent. Our conviction is that the way to do this is through the Lightning Network - a layer 2, open protocol on top of Bitcoin.
Kevin Hurley, Chief Technology Officer