Cryptocurrencies, and especially Bitcoin, have been very much in the headlines over the past few years, not least during the coronavirus (COVID-19) pandemic which has given a boost to alternative economies.
Bitcoin remains extremely volatile, reaching highs and lows in value quite swiftly, but it has also been embraced by banks, companies, and even by one country, with El Salvador recently adopting the cryptocoin as legal tender.
LQwD FinTech Corp. (TSX-V:LQWD, OTCQB:LQWDF) is a financial technology company that develops payment network infrastructure and solutions on top of the Lightning Network, a scalable Layer 2 solution built on top of the bitcoin blockchain. The company’s mission is to develop institutional-grade services that support the Lightning Network and drive improved functionality, transaction capability, user adoption and utility and scale of Bitcoin.
The Lightning Network is a solution to mass scaling the usage of Bitcoin for microtransactions globally, dramatically improving upon fees, as well as instant settlement times. LQwD also holds Bitcoin as an operating asset establishing nodes and payment channels across the Lightning Network.
Proactive recently sat down with LQwD Fintech CEO Shone Anstey to learn more about the business.
Proactive: Can you tell us about the Lightning Network and how LQwD FinTech is involved with it?
Shone Anstey: The Lightning Network represents a technological change to how Bitcoin is now going to function. It actually represents a huge opportunity for the company. And within the space, what it does from a technology standpoint is it allows Bitcoin to scale from its current seven transactions a second, into the millions of transactions a second for much lower fees. Thus it makes Bitcoin into a true payment network, which is one of the reasons Bitcoin was able to be adopted in El Salvador and we're starting to see mass adoption around the world.
Within that space, LQwD FinTech is involved as a Lightning Network service provider. We make it very easy for companies to get onto the Lightning Network using our platform as a service. Companies can then use the network for their developers, for the API's, or use the interface to manage their own Lightning Network nodes and payment channels.
The Lightning Network itself is what they call a mesh network which functions in a very similar way to how the internet works. There is a series of nodes, which are just servers and computers, running Lightning Network software, which is open source so anyone can hop on and help build out the network in supporting services. It's a true decentralized system, and you have all these nodes running all over the world being able to cross-connect and pass transactions through.
When you have a node, you open up a payment channel and they can then pass transactions through to other payment channels until it finally gets to its endpoint. A very important part of opening up a Lightning Network payment channel is you must have Bitcoin on that channel in order for it to function. It's a technical requirement of the network, you can't just have an empty channel. This is where LQwD comes in on our second phase. We have Bitcoin on our balance sheet and we provide liquidity for our clients by effectively staking our Bitcoin and allowing it to be used to help maintain the network and in exchange for doing that we are able to charge micro fees for any parts of the transactions that go across the portion of the network that we are supporting.
The bigger the footprint we have, the more nodes, the more payment channels, the more Bitcoin we put to work as a company, thus the more potential we have to earn fees off of the network.
Coincurve.com is the company’s online digital platform for users to buy virtual currencies in a streamlined fashion. How has it been growing?
Coincurve.com is a straightforward platform that we inherited when we did the reverse takeover with Interlapse, which is now LQwD. We knew who they were and we really liked the team and it was a very good fit for our company. The platform makes it very easy to buy small amounts of Bitcoin - you can buy $500 worth of Bitcoin through Interact, which is their online banking payment, and it is sent to your non-custodial wallet. So you have this ability to buy Bitcoin very quickly, seamlessly and from our perspective we don't have the custodial responsibilities, it is simply sent directly to consumers.
So it's an excellent service we make commission fees off of it, very similar in aspect to an online ATM. It's not an exchange, you can't buy and sell against clients, you can’t trade, but you can buy the amount you need when you need to.
LQwD holds Bitcoin as an operating asset, how much does the cryptocoin’s volatility affect the company?
Well, we have our cash separated from our Bitcoins and we have our operating budgets that we work off of. But we're big believers in Bitcoin. I and other core members of the team have been in Bitcoin from early on – myself since 2012. We’ve gone through all the volatility, we've held on and we believe in and understand where it's going.
From a company perspective, we have it on there as a balance sheet item, but we require Bitcoin for our operation so it's very important that we have as much Bitcoin as we can because the more Bitcoin we can put to work on the Lightning Network, the more potential fees that we can earn. It's still going to be volatile but that is relative to currencies like the US dollar, the Canadian dollar, and Sterling. But when you look at Bitcoin in comparison to some of the other currencies around the world that are inflated away on a regular basis, whether it be in Argentina or an African nation, it is a much safer place and a portable place for people to put their money in.
That's where we're seeing massive Bitcoin growth because it's a way for people to shield their hard-earned dollars and convert them into something that the government can't take away from them by simply adding zeros or removing zeros.
The company recently filed a shelf prospectus to allow it to undertake an offering of up to $50 million. Although there is no immediate intention to undertake such an offering, what could you envisage for its uses?
So that puts a really quick mechanism in place that we have the ability to execute on very quickly for an overnight financing or a short form effective financing. Investment firms like that because it gives them the ability to get free trading stock without the long hold period and the company likes it because we get a very clear path to a financing when we choose to.
We’ve always intended certainly to buy more Bitcoin. On average, we estimate that of any money we raise, about 80% of it will go into buying Bitcoin for the balance sheet and for buying Bitcoin to put to work on the Lightning Network for our growth.
What do you think you bring to LQwD Fintech as its CEO?
As the founder of the company, I've been in tech for a long time - over 20 years - and I have been in internet technology since the mid to late 90s. We really see a lot of similarities between Internet Version 1 being rolled out in the 90s and early 2000s to what's happening here with Bitcoin, as Bitcoin is effectively just an extension of the revolution of the internet.
The internet is made up of seven layers of technology that make it function and they call this the OSI technology stack. And Bitcoin fits in there as the eighth layer - the trust layer. Money and payments are just the first use case, it's going to be so much more because you now have the ability to have a network provide a trust with another third-party intermediary.
I have been in this space for a while, have a deep understanding of the technology, and have had success within the space. The other company that I founded was BIGG Digital Assets Inc on the CSE which had some news out recently about being the first restricted broker-dealer public company granted a license for crypto, and that company has grown very quickly. What we've been able to bring to LQwD is that experience in the public markets, all the trials and tribulations of going through the crypto winter, all those tough decisions that had to be made and the ability to raise large sums of money and put it to work effectively.
With that, when I put out that I was working on this new Lightning Network project a couple of years ago - when I was no longer running BIGG but still on the board - I was able to attract people that we've had success with before and who had heard what was going on and knew that there is an opportunity. We've managed to bring in some key team members that I have worked with in the past, and are back in the fold, so it's very exciting.
So what should investors expect from the company in the near to medium term?
Well we have a platform that's up and running, and we've taken it through all the paces, and are very excited to be where it's at. We expect to make an official announcement about that at some point, then start the marketing aspect of it, loading up and looking for clients and client acquisitions for the product. That's the first part.
We have our routing nodes that are connected into the Lightning Network, which we are likely to be taken through their paces, and we're going to launch here fairly soon. Because they are public routing nodes we're going to be able to share a lot of data with the public. We want our shareholders to see where we're routing, we want to share the transaction volume and the growth of the nodes so they have a really good insight into what we're doing.
Right now we have the mindset of a Silicon Valley company. I've spent a lot of time down in San Francisco over the last number of years and we need to think like an American-style Silicon Valley company. What that means is that what matters right now is market share. We must get our footprint on the Lightning Network to be as big as possible, with as many routes and payment channels and get as much Bitcoin to work as possible. And where we look for success right now over the next six months is how many payment channels we're opening, how much Bitcoin is being put to work, how much transaction volume are we processing, and how many fees are we earning. Now the fees are small, but the fees are going to grow over time.
The fourth thing that we certainly have is our brand and then of course our earnings. But the first three are the most important at this point in time for the industry. The network effect is really important and that's what has carried a lot of great companies. The effect is so powerful that one of the things you just have to do is grow quickly and stay upright, and try not to make too many mistakes, and let the growth of the network carry you up so much faster than you've ever imagined.
So that's what we see coming and we see the network effect being absolutely in play with the Lightning Network and we're going to continue to put yourselves in the middle of that stream. There is huge value being unlocked over the next three to five years and we're positioning ourselves early.
We have a good team, and we have good backers, and we know we're playing in the right space. So, right out of that Silicon Valley playbook: You can be too early to an industry and you can burn out, you can be right on time, whatever that means, but you cannot be late. If you're late, you're finished. So you have to be early enough and you have to build into that wave and that's what we're doing here. We feel like we have our timings well and we’re continuing to push as hard as we can, hire great people, expand the team and move forward aggressively.
Contact the author at jon.hopkins@proactiveinvestors.com