What Are Lightning Prisms?

Lightning Prisms explained

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Bitcoin is often spoken about as hard money, with a robust protocol that cannot be changed; while these ideas should be championed, it often leaves people thinking that Bitcoin cannot be upgraded or used in new and innovative ways.

Despite some parts of Bitcoin being hard to change, it still programmable money, which means that it can be used to create new and innovative payment applications. The Lightning Network, for example, is a second layer for Bitcoin that allows for more efficient and cheaper payments. It does this by allowing payments to be made off-chain, which means that they do not need to be confirmed on the Bitcoin blockchain.

The Lightning Network has opened up a whole new world of possibilities for Bitcoin payments since it is not directly limited by the throughput of the base chain for every transaction. This means Lighting can be used to create micropayments, which are small payments that are too small to be made with traditional payment methods. It can also be used to create recurring payments, pay specific prompts like API calls or stream funds as you consume a certain resource or data feed.

The programmable nature of Bitcoin and the Lightning Network means that we are only scratching the surface of what is possible with Bitcoin payments. One feature we’re only now starting to explore is payment forwarding and splitting.

What are Lightning prisms?

Lightning Prisms allow for more complex payment routing and splitting instead of the traditional one-payment, one-destination payment we use today.

A Lightning Prism is identified by a Lightning Address or a similar static address such as LN-URL or BOLT12. While the payer only interacts with one address on their side, the funds could be split based on different rules and sent to multiple recipients. Prism payments are all forwarded payments; the interaction address holds no funds since every prism acts as a proxy for diverting funds in some programmatic way.

Lightning Prisms can be used to create more complex payment routing schemes, such as multi-hop payments or payments that are split between multiple recipients. They could also be used to create new types of payment applications, such as subscription services or tipping platforms.

Think of Lightning Prisms as email aliases of forwards on the SMTP protocol. An email account user could have one front-facing email address like contact@thebitcoinmanual.com, which customers interact with, but when an email is sent to this address, that email is either copied or routed to other addresses such as the accounts, customer service, and marketing departments depending on the query of the email.

Prisms would bring that same functionality to payments on the Lightning Network.

Examples of split payments

If you’re still struggling to wrap your head around why Prisms might become a popular method of payment on the Lightning Network, let’s look at a few examples of how sats and payment paths can be manipulated. 

Sharing revenue with the original author

Nothing in this world is created in a vacuum, and we all draw inspiration from each other, and if we want to share in the value we create, prisms could do that. 

Let’s say I’m creating an article, and I find some cool charts that make my post even more interesting, but I did not create the charts; the obvious thing would be to link to the original source, but why stop there? Why not put up a prism on the post to divert a portion of the tips the article gets to the creator of the charts? 

During my research, I came across Gigi’s post referenced below; he also mentions the option of splitting Zap’s income on Nostr. Let’s say you’re a small creator, and you put out a hot take on Nostr, and a larger account picks up your post and reshares it, and the larger creator gets a bunch of satoshis zapped because they have a loyal fan base and a wider reach; you might get some trickle down in followers but not much else. 

Using a prism that reshare could net you a portion of the income and get paid along with social engagement. 

Payment for collaborative work

We all know that two heads are better than one, and more hands make for light work, and when we work together, we can leverage each other’s talents to create value. 

The problem with single payments is someone needs to act as a custodian and later distribute the income between the various parties, and that might not sit well with everyone. Also, everyone has different lives and needs for capital. To solve this in the fiat system, we created a short-term delay in payment, we call it wages or a salary, but with programmatic money, do we still need to stick to these concepts?

The way single payments work also brings in things like contracts to try and ensure we get our fair share, but they are not without complications, which can lead to deals never being done. 

In a Lightning Prism world, you would be encouraged to collaborate with others, create works like a book, podcast, website, or documentaries, provide research, and create a part of a physical item that another person assembles; the possibilities are endless. 

Instead of having to check in on how sales are going and if you have any income, this flow becomes automated. As sales of the item pick up, depending on the agreed share in the prism, you would get your compensation immediately with every sale. 

Revenue share with creators and a platform

Platforms like YouTube, Patreon, Medium, Substack, and more attract content creators to their sites by offering them access to their audience. If a creator can maintain an audience on these platforms, the service would reward the creator financially. 

The problem with these platforms is that you are locked into their financial rails and their payment options. If the platform only supports PayPal, you alienate possible sales from users who opted for a competitor like Venmo or Cash app. As a creator, you are at the mercy of the fiat rails a platform chooses to support, and there is no way on earth a platform can support all the fiat payment methods, especially for a global audience. 

Fiat payments also carry liabilities like chargebacks and clearing times, which is why these platforms also need to take a larger cut to reduce their risk and then delay payments they issue to creators. 

In a Lightning Prism world, the payments are open globally from day one; any payment rail that can speak to Lightning anywhere in the world is now a possible paying customer. The user can pay for the content, and the platform receives their share, while the content creator gets paid immediately, everything is settled at the point of payment. 

In a system like this, you would get a larger revenue share because platforms reduce their payment carry risk. Creators no longer need to wait a month for a payment if your content goes viral; you get to see those funds flow in immediately, which encourages users to create more content and also as a signal as to what content works. 

Revenue share with commerce and social causes

Many businesses collect additional payments or charitable causes, or they divert a portion of their funds to charities they wish to support. Still, accounting can be a pain. A pain that can be alleviated by setting up programmatic forwarding, either based on a set amount of satoshis or a percentage of the purchase. 

These prisms would also allow the charities to get instant access to funds generated from businesses and customer donations without having to burden the business with additional accounting or managing of these payments. The charity also can immediately act immediately based on the amount of funds they generate daily or weekly. 

It also means these charities don’t have to deal with so much volatility in the Bitcoin price since they receive payments at different price points rather than waiting to get one payment delivered in a monthly lump sum.

Income for Uncle Jim nodes

When you run a node for your friends, family or local businesses, you’re banking on them, making regular payments so you can pocket from the routing fees. However, routing fees don’t always result in this endeavour being worthwhile for many local node runners, and if the financial incentive to route isn’t enough, users will be forced to centralise around certain nodes. 

Some Lightning node runners will operate due to altruism and their belief in the network long term, but this cannot be the way we run a network, grow it and attract liquidity. 

Instead, Lightning node runners who run sub-accounts for friends and family could agree to a Lightning Prism subsidy as a way to supplement routing income. In this example, I could offer up my node and my liquidity to my friends and family, set up their Lightning Address and charge them 1-3% of their payments for using my node. 

A user can then decide is the percentage is worth using a localised custodian like myself or opting for another node operator or a large custodian. 

Rebalancing channels

When running the Lightning Network non-custodially, you constantly have to worry about rebalancing your channels so that you have the capacity to send or receive. If you don’t have the capacity to route a payment, the payment will fail. 

This payment failure could result in your payment failing or your failure to receive payment; additionally, if payments are routed through your channel will also fail, you would lose out on potential routing fees. 

Lightning prisms could be a way for users to set rules to certain channels programmatically, and if a certain capacity threshold is hit, finds can be diverted to another channel or trigger a rebalancing payment between two of your own channels. 

Obscuring payment destinations

If you like to make it a little harder for your satoshis to be traced, you could have a public Lightning Address that routes payments to several addresses; some of those accounts routed accounts might be custodial accounts, it might be your own Lightning wallet, or it might be sub-accounts on your node. 

You could build all sorts of weird and wonderful ways to route satoshis to make it harder to follow the find destination. This is not to say you will attain complete privacy, but just make it a bother for those who are prying eyes to avoid watching you because it’s too much of a hassle. 

Prisms are a work in progress.

The development of Lightning Prisms is still in its early stages, but there is a lot of potential for this technology, so we should see different iterations and versions as developers try to make it work with current Lightning wallets and infrastructure.

Do your own research.

If you want to learn more about Lightning Prisms on Bitcoin, use this article as a jumping-off point and don’t trust what we say as the final say. Take the time to research, check out their official resources below or review other articles and videos tackling the topic.

Are you a Bitcoin and Lightning fan?

Have you been using Lightning to make micro-payments? Stream sats or engage with apps? Which app is your favourite? Do you run a Lightning node? Have you tried all the forms of Lightning payments? Which one do you prefer?

Let us know in the comments down below.

Disclaimer: This article should not be taken as, and is not intended to provide any investment advice. It is for educational and entertainment purposes only. As of the time posting, the writers may or may not have holdings in some of the coins or tokens they cover. Please conduct your own thorough research before investing in any cryptocurrency, as all investments contain risk. All opinions expressed in these articles are my own and are in no way a reflection of the opinions of The Bitcoin Manual

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