Node Reputation and Liquidity in the Future of Bitcoin Payments

How the Lightning Network Scales Bitcoin and Earns Yield – Jesse Shrader 

Episode Overview

 Episode Topic:
Jesse Shrader, co-founder and CEO of Amboss Technologies, joins PayPod to discuss how the Lightning Network is transforming Bitcoin from a slow, expensive currency into a scalable, real-time payment solution. He dives deep into how the Lightning Network works, its complexities, and the role of reputation and liquidity in making it a viable global payment system. Jesse also shares his insights on the potential of machine-to-machine payments and how Lightning can solve long-standing issues in traditional finance.

Lessons You’ll Learn:

  • How the Lightning Network improves Bitcoin’s scalability and reduces transaction costs.
  • The concept of channels and liquidity in decentralized payment networks.
  • How Amboss Technologies is simplifying Lightning Network adoption for businesses.
  • Why node reputation matters and how it builds trust in decentralized networks.
  • How Lightning enables machine-to-machine payments, paving the way for a new era of digital transactions.

About Our Guest:
Jesse Shrader is the co-founder and CEO of Amboss Technologies, a company focused on building infrastructure to support the Lightning Network. Amboss provides tools to enhance the efficiency, discoverability, and liquidity of Bitcoin transactions. Jesse is passionate about the future of decentralized finance and the role of Bitcoin and the Lightning Network in transforming global payments.

Topics Covered:

  • The key challenges of Bitcoin transactions and how the Lightning Network addresses them.
  • Understanding the concept of channels and liquidity in the Lightning Network.
  • Earning yield from routing payments and building infrastructure.
  • The role of node reputation in creating a secure, scalable payment network.
  • Real-time machine-to-machine payments and how Lightning makes it possible.

Our Guest: Jesse Shrader

Jesse Shrader is the co-founder and CEO of Amboss Technologies, a company dedicated to simplifying the Lightning Network and making Bitcoin payments faster and more efficient. His journey in the world of Bitcoin began with a passion for decentralization and financial freedom. He realized that while Bitcoin was a revolutionary technology, it faced major scalability issues, particularly in terms of transaction speed and cost. Through Amboss, Jesse is helping businesses integrate Bitcoin payments seamlessly, without requiring specialized crypto knowledge.

Amboss Technologies focuses on solving the complex challenges of liquidity, routing, and node reputation in the Lightning Network. By offering tools that help businesses navigate and connect to this decentralized payment system, Amboss allows them to send and receive Bitcoin payments in real time, with lower fees compared to traditional Bitcoin transactions. Jesse’s mission is to make Bitcoin not just a store of value, but a viable currency for everyday transactions.

Jesse is passionate about pushing the boundaries of decentralized finance and is committed to building infrastructure that allows Bitcoin to scale for real-world use cases. Through Amboss, he’s providing a platform where businesses can tap into the power of Bitcoin and the Lightning Network, ensuring that this technology can be a trusted, efficient solution for global payments.


Episode Transcript

Jesse Shrader: The strangest concept and the hardest to understand about lightning, but we really focus in on that because because it’s such a hard problem, we realize that there’s actually a market here where I could pay you to put your Bitcoin in a certain structure, and you don’t need to trust me, but you could get more Bitcoin out of it. So it essentially means that you could earn a return on investment just by holding Bitcoin in self-custody without needing to trust anybody else.

Kevin Rosenquist: Hey there and welcome to PayPod, where we bring you conversations with the trailblazers shaping the future of payments in fintech. My name is Kevin Rosenquist. Thanks for being here. Bitcoin was never meant to be slow, but it was always meant to be secure. So how do we make it fast, scalable, and usable for everyday transactions without breaking its core principles? Enter the Lightning Network and more importantly, enter and boss. My guest today is Jesse Shrader, co-founder and CEO of Amboss Technologies, a company building the connective tissue of the Lightning Network. In this episode, Jesse breaks down how lightning works in simple terms what makes routing and liquidity so complex, and why node reputation is key to the future of decentralized payments. We also talk about machine to machine transactions and real time payments without credit or debt. So please welcome my boss, Jesse Shrader. All right. Let’s start with defining this lightning network. So in layman’s terms for anyone listening who’s not real familiar with it, how would you describe the Lightning Network and how it enhances Bitcoin’s ability to scale?

Jesse Shrader: Yeah. So Bitcoin overall really emphasizes, uh, security. So really taking your time and every transaction happens about ten minutes on average. We don’t really know when the transaction is going to get processed because overall the it’s controlled by miners that are, you know, essentially trying to guess the right inputs to solve a problem. But overall, lighting is focused on scaling up Bitcoin transactions to make the actual finality happen much faster. So what it is, in essence, is one Bitcoin transaction to almost create a joint account between two people. So you and I for example, could have a joint account which are called channels and participate in a network. So with this joint account we’re really just arguing about what the payout, what the bitcoin payout of this joint account would be. And so any update to the payout of our, of our joint account is essentially a Bitcoin transaction. And the payout is assigned Bitcoin transaction. So I actually have everything that I need to get to like to recover my funds. So overall I don’t need to trust you anymore because I have your signature on a payout transaction, and so I’ll be able to broadcast that onto Bitcoin and get my money out of this joint account structure. But the structure itself is useful. And so when you have a whole bunch of people with your channels, you know, between different participants, it’s possible to not only transact with the people that you’re connected to, but the transactions can actually hop. So it could go anywhere in the world, almost like I have a friend, and that friend has a friend, and that friend has another friend. And so basically, I know Kevin Bacon now. Um, or it’s that was like the old reference about like degrees.

Kevin Rosenquist: Yeah.

Jesse Shrader: Six degrees of separation. So really it kind of hooks everyone together. And it does so in a way. Um, and really the key takeaway is you have a payment network now that doesn’t involve any credit or debt. Um, and still has near-instant settlement. So that means the cost of a transaction. I don’t have to pay for all the mining that Bitcoin does. And the cost of a transaction really boils down to the cost of propagating a digital signature, which is essentially nothing. So that opens up a ton of possibilities where I’m really one way to look at it is Lightning network is a whole construct of side ledgers to Bitcoin’s blockchain. Um, but it’s all using the exact same digital signature technology that Bitcoin is. And so I can settle up to Bitcoin at any point. So in a nutshell, that’s what Lightning Network is, uh, a series of sidechains, uh, or a side ledgers to Bitcoin’s blockchain. And I can settle them up at any point.

Kevin Rosenquist: So with Amboss Technologies, you’re building tools for reputation for liquidity routing efficiency. When you first launched in boss, what problem were you most focused on solving?

Jesse Shrader: Well, I had a personal one. Um, that was, I tried to make a bitcoin transaction to buy gifts for my family. Um, I went on to Overstock.com, and I. I think I would, like, bought some fancy knives, uh, for, for my parents. And the transaction fee at the time on Bitcoin was basically at all time highs. So it was $60 of transaction fee in order to make this transaction and purchase it from Overstock.com. Overstock had a 15 minute timer for the funds to arrive. Well, like if you know anything about Bitcoin, the average for a transaction to confirm is ten minutes. And it happened to not happen in those 15 minutes. So Overstock actually said, oh, you didn’t pay in time. And then the funds arrived after and they had to refund it to me. And then they’re like, okay, try again. So I’m basically having to pay another transaction fee on top. So I was you know I love Bitcoin. It gives people so much freedom. It gives like an alternative to to banks. But really when it comes to the payments there’s some major issues that needed to be addressed. How does Bitcoin scale its transactions to serve the world? How can you have a better experience where transactions happen faster? So really, I wanted to get to that future. Um, and I had heard about the Lightning Network, and as I was starting to dive into it, realize there was a lot of things missing in the ecosystem. Uh, chief among them was discoverability. Like, how do I find other people that are also using the Lightning Network that I could connect to in order to hook into their network? Mhm. So that’s where we started with an explorer.

Jesse Shrader: How do I find other people that are using this network. And then the next problem was liquidity challenges. So when you have a completely debt free payment network, what you introduce is liquidity challenges. And so basically all of the money needs to be present in the direction that you want to pay before you pay. It’s almost like using a gift card. You know, you have to load the gift card first before you can spend from it, right? It’s not like a credit card where you get handed this thing and, well, I could pay later. If you live in a gift card world, basically you’re going to run into some liquidity challenges. So we built a marketplace around that where I could get someone else to almost like buy a gift card from me is one way to think about it. But really, I had to be able to receive payments. And in order to do that, I basically have to sell a gift card to me, which is like I have to get someone else to open a channel in my direction is the strangest concept and the hardest to understand about lightning, but we really focus in on that because because it’s such a hard problem, we realize that there’s actually a market here where I could pay you to put your Bitcoin in a certain structure, which I mean, as far as this being very abstract, it’s also very lucrative. So it essentially means that you could earn a return on investment just by holding Bitcoin in self-custody without needing to trust anybody else. So really just an extension of all the Bitcoin principles, but taken into the realm of payments and global settlement.

Kevin Rosenquist: Yeah. And you can you can earn yield. We start talking about this before we record, uh, that you can earn yield by routing payments on lightning. So that’s kind of what we’re talking about. What can you can you walk us through a little bit more of how that Works. And who’s doing it?

Jesse Shrader: Yeah. So let’s just think about a network that we’re all familiar with, like, uh, a transportation network, you know, a series of highways. And if every highway was a toll road, that’s essentially what we have in the Lightning Network. Every road that you take, you’re going to pay a toll to someone, and you’re paying that toll to the infrastructure owner. So the same thing applies for the Lightning Network. If you and I have a channel, um, a lightning channel then, and someone else wants to use it. Well, I get to charge them a toll to pay to you. And so that way, like, if Alice wants to pay it through me to you, basically Alice is going to pay me a small amount, a tiny fraction of what the traditional payment processing would cost, and I would be able to earn a return on that investment.

Kevin Rosenquist: Okay. I like your analogy. That’s good, that’s good.

Jesse Shrader: Additionally, um, because I’m creating infrastructure to reach you. Uh, then you might pay me, uh, just to create that infrastructure in the first place. And it turns out that that is a far more lucrative thing than actual routing of payments. Just first creating the structure is what we’ve seen historically on our marketplace is 1 to 4%. Apy is what people are actually earning in Bitcoin terms. And then the payment routing is usually less than 1%. But really it’s a derivative of how much transaction volume is going through this decentralized network.

Kevin Rosenquist: My boss has kind of a focus on node reputation. If I if I’m understanding that correctly, why does reputation matter in in with a system like Bitcoin? And how do you build the trust into the infrastructure without sacrificing privacy.

Jesse Shrader: That’s a great question. Bitcoin itself is pseudonymous. Overall you have like a bitcoin address which just looks like a random string of numbers. Yeah. Um, as soon as you. And it has no history until you spend from it and then it’s like or you spend to it then. Well, you, you’ve got coins that, you know, maybe have some history. For Lightning Network you’ve got maybe a more durable identifier. You’ve got like a public key that says, this is my node, and you’ve got a whole bunch of public connections to other folks. So I’ll run a node, you run a node and we can, you know, connect to each other and that, that we we can opt to make that public. So it becomes public infrastructure. It’s on the map. Okay. So overall when it comes to like reputation let’s see. You’ve got a good maybe a experience with me. Uh, but also just how many connections I have and the size of those connections. So say, for example, if someone, you know, carved a, uh, a trail to me, well, it wouldn’t really add much. It’s not saying that there’s a whole lot happening, but if someone built a six lane highway, uh, to me, well, it’s a different story, um, altogether. Someone’s putting up. Or you could say six Bitcoin towards me. All right, $600,000. Um, clearly there’s something interesting happening. Um, so there is some, like, reputation that’s derived really from the network structure. Um, or just my behavior, um, depending on how we break up our connections. Um, there is, there is a history there that is accumulated.

Jesse Shrader: Um, if we break up nicely, we just part ways. Um, there’s evidence of that. Or if I say no, you actually, uh, should have given me more money. And we have a dispute. That’s also public information that you can see on the Bitcoin blockchain because you know Bitcoin really operates like the court. And so now I’ve got kind of a rap sheet of any mistakes I’ve made. And overall. So like an bosses job is just to in this directory where we can look up any node on the network. Each one has a bit of a history. And you know, the longer that you are active, kind of the more, uh, the more history you have, the less risky you are. And because, you know, you’ve got a clear history that I could see. So it really does matter. And when I go to sell infrastructure, uh, sell channels, that reputation comes into play. Um, who am I connected to thinking about, like, other types of social networks. If you were to go to a conference, you know, there’s thousands of people at the conference. Um, does it matter which person you shake hands with? I think, of course it does, because each of those individuals at a conference has a different set of connections. Actions. A different reputation. Who can you reach by making a good relationship? And so these types of network concepts, from transportation to social networks, come into play for this financial network that is fully decentralized, where we don’t have people doing external credit assessments of us, and anyone can really participate.

Kevin Rosenquist: We’re where do you see the most promising and and maybe more importantly, sustainable use cases happening right now for for lightning.

Jesse Shrader: Overall, one of the things that I’m most excited about going forward is machine to machine payments. Right now, if I were to, you know, swipe a credit card, you know, I’m going to pay at least $0.10 to actually process the transaction plus 3%. Yep. And the payment isn’t going to settle for, you know, days to weeks potentially. And there’s chargeback risk. Why would an AI or a machine like want to use that system at all? Because if I’m providing a query to you, and maybe it cost me a couple of cents of compute. Well, there’s no way that I can accept a credit card. One I can’t get a bank account to. That pricing model for the settlement doesn’t work for me. And there’s chargeback risk. So overall, I want to like as an AI, I would want to actually reduce the cost of my transactions. And I would try to reduce the amount of risk and trust in the system and do something that actually works for machines, which is just basically Bitcoin works because it’s a random number that is essentially generated and that’s your identity. And overall I can receive a payment for the cost of a digital signature, which is something that computers would do very well. So the speed of transactions and the volume of them looking forward is a huge opportunity for the Lightning Network.

Kevin Rosenquist: One of the themes that I feel like on this show is, is the archaic payment system of the US say, you know, I mean, like, you know, other countries have adopted real time payments more. They’ve adopted crypto payments more than we have. We’ve been slow to the slow to the the party. But, um, do you think that this is something like what you’re talking about right now? Could that really move the needle and to finally get us away from these long, expensive processing times?

Jesse Shrader: I think so. I think overall, the US administration seems to be embracing this technology. Right, which is a great sign. I mean, it’s it’s refreshing to actually have that almost like a more tech forward stance or, you know, we’re we’re actually moving forward, um, and embracing this technology is part of that. Like, yes, of course, there’s like a whole bunch of affinity scams and other sorts of things, but there is real innovation that is happening, and being open to it is super important because the Swift system and in, in some respects the US dollar, you know, may not be around for forever. Um, generally, global reserve currencies last for about 200 years. And I think we’re beyond that at this point. So I expect that there will be a change ahead. And I think the most peaceful future that we can have is to actually go towards Bitcoin, where countries don’t need to trust each other. Um, and really it’s, it’s a matter of, of math of, you know, does it pass the verification or doesn’t it? I think Dan Shapiro called bitcoin a truth machine. And I really like that framing because it just it uses mathematical proofs to to check, don’t trust, verify.

Kevin Rosenquist: It’s interesting because, you know, such big infrastructure, such big companies are always going to be obviously hard to kind of reshape how business is done when you have these payment rails and you have these big banks that that have a lot of interest, you also have the general population that does not understand what the point is, what you just said about the unique ID and all the different stuff, they would just like you have to, you know, just stare at you like, what are you talking about? So how much does the public need to be educated for this to kind of come to fruition versus, or do they just need to have an easy way to access it that works for them and looks nice and makes sense.

Jesse Shrader: I think there’s a lot of opportunities to improve the user experience, so that people don’t need to understand all of the things that I talk to you about um, this network structure. Um, all of these channels that are involved, I mean, people don’t understand the Swift system and they certainly don’t understand COBOL. So like overall, I think we’re all these things are kind of obfuscated at this point. I think, you know, some innovation, you know, would be like the experience of Cash App. You have something, you know, very simple to use. You can send Bitcoin transactions, you can send lightning transactions. And like you can get paid micropayments now to your lightning address, which is one of those innovations that just make the invoicing process much simpler. Just looks like an email. But I could send money to it, which is cool. And I think what we have going forward is a system. Lightning enables a lot more interoperability. So one example that you all might be Familiar with is having a balance in Venmo and having a balance in Cash App. And why can’t you transfer between those two? Um, we’ve got this kind of like fractured financial system when it should all. I mean, it’s using the same currency. Why shouldn’t they be able to talk to each other? Um, they don’t want to play nice and the like. You know, the US consumer is the one that really pays the price for that. Um, where you’re going to. Yeah. And, you know, I don’t I don’t want to have to choose. Um, really it’s Bitcoin speaks the same language. So you just have common standards. Um, so to make this open to anybody, I think that’s.

Kevin Rosenquist: Like, you know, whatever side you’re on. Why why do they not talk to each other? Very well. Why is the texting so weird? Why does it. You know, it doesn’t need to be this way. We all have a phone. A phone should talk and work together no matter what. Yeah.

Jesse Shrader: Exactly. Yeah. Like I want to be in the group chat. Uh, but overall. But you’re going to change the color of our bubbles. Um, that’s the the AI chat or iMessage? Uh, whatever. Clearly I’m Android.

Kevin Rosenquist: My iPhone friends are always, always complaining to me.

Jesse Shrader: So yeah, just having open standards really unlocks a ton. Um, and that’s, uh, that’s what the whole open source movement has been about. Um, we create protocols and specs for these things to actually work together.

Kevin Rosenquist: I wonder if it’s just. Is it just like we have this, this ingrained competition thing, like it’s it’s us versus the other guy instead of like, hey, there’s plenty of room for all of us. Let’s build together and make this amazing ecosystem. That is it’s a competition aspect.

Jesse Shrader: I don’t totally know. I think like Europe in some ways is like ahead. They just have like the Iban and they get so confused and like, why? Why do we have so many finance apps in the US? Whereas like, well, you know, in Europe they just have an on and it just it works everywhere and it kind of has almost has instant payments. Yeah. But overall it you know, it’s it’s a uniquely American problem to have this abundance of finance apps like all of these credit offers. It’s just a weird system. But overall, uh, the rest of the world doesn’t really operate like that. Right. Having been to, like Argentina, you know, where they got, like, rampant inflation. I see, you know, Bitcoin and Tether accepted almost in every storefront where like I could actually pay like using bitcoin for different services. And it wasn’t even an issue. But people in the US were like, well, okay, I’ve heard about this Bitcoin thing and they’re like stuck on the investment piece of it and not.

Kevin Rosenquist: That’s that’s a.

Jesse Shrader: Big part. I could save on it. Yep. Um, and then they’re like, okay, but so I buy bitcoin. What can I do with it? Um, because basically nobody accepts bitcoin in the US because, well, one, we’ve been lulled to sleep by, you know, a strong dollar and in not having to think about, you know, inflation and all of that. And we’ve got this abundance of finance apps. Yeah we’re very privileged in the US. But when you go internationally you see it way more. And you know all the Bitcoin innovation. It really matters much more for the people outside of the US that aren’t blessed with the dollar than than the US people.

Kevin Rosenquist: We also have credit card companies offering us all sorts of rewards. Right? I mean, that’s my wife and I do that. We have a credit card and we put everything on it and we pay it off because then we get we get free travel or we get discounts on travel and stuff like that. So, you know, they’re trying to incentivize us to keep doing things the way we’re doing it. And, uh, and it’s it’s it’s working. I mean, honestly, it’s it’s working. They’re doing their they’re doing their they’re doing a good job of keeping themselves in, in play, that’s for sure.

Jesse Shrader: Yeah. Having read anatomy of the swipe. Um, I, I love that book to just understand how how these payment systems work. Um, and it was kind of, uh, jaw dropping to learn that the merchant is paying 3% for the transactions, and then they bake that into the prices. And then we we celebrate the idea that I’m getting 1% back. That’s true. But it’s like, wait, who’s paying for that? Right. It’s me.

Kevin Rosenquist: Right? Yep. And I’ve been on the other side. I’ve worked for places where you look at what you’re getting charged for credit card charges, and you’re just like, oh my God, we have to pass this along. And it’s, you know, you’re not a lot of states. You’re not allowed to say credit card fee, although a lot of things are loosening on that. Um, so that you can start saying that you have to you’d have to say like cash check discount or something like that so that you could word it properly and all that. But yeah, you’re right. I mean, you know, the businesses don’t want to just eat costs, so you’re going to pay for it one way or the other. Yeah, that’s a really good point. So, you know, to finish us out here you know running a startup and Bitcoin infrastructure obviously comes with its own unique challenges. What advice would you give other entrepreneurs thinking about building in this space?

Jesse Shrader: Overall I think there’s really strong builders, if you can at all leverage those those people that are building on this in this space. And a lot of the people that build on Bitcoin are extremely mission driven. But while they’re very skilled on the technical side and diving into the technology and, um, much a lot of strength on the back end, uh, actually would need help with, I think there’s a lack of product people really, that are able to understand the different needs that this technology still has as a growing and evolving technology, and also a skilled business people that, you know, have been entrepreneurs before or have have connections on that front or would be able to learn things because there’s a lot of deep technical talent and I would think it’s almost wasted, like not building a business. Um, but kind of constructing that, putting together that team is really a valued skill, uh, for the Bitcoin ecosystem. You know, if this technology is going to take off and be successful, um, there needs to be people to take charge and, and build it. So very open to entrepreneurs building this space. There’s also a lack of investment in Bitcoin specifically, uh, which may be, uh, something that investors may want to pay more attention to because if there’s a shortage of capital. You may get much better valuations for these companies. That would be are incredibly disruptive to the existing financial system. And you know, if you want to tap into the next PayPal or any of the, you know, early payment payment providers, payment companies are the time to invest in those is now that are building the tools to actually make this whole ecosystem a success. Uh, given how disruptive it is.

Kevin Rosenquist: Yeah, it’s exciting times, no doubt about it. I’m excited to see where this goes. All right, well, just Jesse Shrader, the company is. And, boss, thanks so much for being here. I really appreciate your time.
Jesse Shrader: Thanks so much for having me, Kevin.