I first heard from Jack Mallers in January 2020 and when I heard what he was doing with Strike I immediately posted the following message on Facebook:
I continued to watch everything I could find about him and his company.
Jack Mallers is a very smart 27 year old with a hoodie who operates from a women’s wardrobe in Crocs and he is proud of it! How do I know? Because he said it live on CNBC. Bitcoiners love his down-to-earth demeanor and his deep love, enthusiasm and devotion for Bitcoin. His contributions to the Bitcoin movement will forever reverberate in Bitcoin lore.
Lightning Network startup Zap Inc. was founded by Jack Mallers in 2019 and includes Mallers’ mobile payment app Strike.
Strike is a mobile payment app like Cash App, except that the Strike app operates on the Lightning Network. Older mobile payment apps like Cash App work on their own closed network. Strike works with an open payment network, Lightning. I will discuss the importance of open payment networks later in this article.
A very important clue as to why Strike can send payments using Bitcoin so seamlessly is that Bitcoin is a bearer asset that has liquidity around the clock. Essentially, Strike charges and credits Strike accounts with Bitcoin as the transmission medium over the Lightning Network.
I could end the article here, but read on for a more detailed explanation of Strike, including analogies that I like to use to help people better understand Strike, the Lightning Network, and open networks.
Here is Jack Mallers’ explanation of how Strike works in one of the latest Saifedean Ammous podcasts:
There are three steps to how Strike sends money over the Lightning Network:
- US dollars are debited from your Strike account and there is a Bitcoin to USD conversion where Bitcoin buys US dollars.
- A Bitcoin-to-Bitcoin payment is then made over the Lightning Network to deposit a bearer instrument and achieve finality in cash.
- Then a Bitcoin-to-Euro conversion takes place, in which Strike sells Bitcoin for Euro. Jack says with a smile that there is no dollar-to-euro exchange rate that Strike uses. Strike actually only uses “Bitcoin / Dollar” and “Bitcoin / Euro” to do the US Dollar to Euro conversion.
Simply put, US dollars (fiat currencies) magically transform into bitcoin and bitcoin magically transform into any fiat currency you want on the other end.
As science fiction writer Arthur C. Clarke says, “Any sufficiently advanced technology is indistinguishable from magic.”
My “down on the farm” declaration from Strike for a normal person would be: Strike magically sends money over the Lightning Network with a magical Bitcoin vehicle.
Strike uses the Lightning Network, which solves the two first-tier payment problems, Bitcoin.
- The Lightning Network solves Bitcoin’s variable time problem
- The Lightning Network solves the problem of the variable costs of Bitcoin.
Mallers’ vision of how Strike would work on the two payment problems came from illuminations he had while on vacation in Paris. He realized that these two variables are the same two variables that Visa fixes. His second revelation was the ability to use Bitcoin as a vehicle for transporting values around the world.
Mallers’ epiphanies required that he have a digitally native, owner-occupied asset that lived outside the control of any central party, corporation, or government. Bitcoin meets these first basic monetary design requirements.
Strike is doing what Google, Amazon, and Facebook did on the open network we know as the Internet, also known as Transmission Control Protocol / Internet Protocol (TCIP). The Internet is an open communications network where the best companies with the best user experiences compete against all competitors. Open networks enable real, free market competition. Strike is connected to the Bitcoin open currency network via Bitcoin’s open Layer 2 network, the Lighting Network, to send money around the world for free. Free, you ask?!? Yes, it’s free. So how does Strike make money without charging? Strike does not have to charge fees, partly because Mallers does not charge its counterparties for transactions, and it does so because of the millions of dollars that its company does business with. So how does Strike make money? Like all great business people, Mallers can’t reveal his secret sauce, but one way his company makes money is by collecting all change through his Strike debit card partnership with Visa. His company also charges merchant fees as a source of income.
By cutting its fees to zero, Mallers is essentially forcing all competitors to start from scratch as well. It is now up to each competitor to outperform Strike and their great user experience. We are facing a modern competition like the one we had in the open communication network of the Internet between MySpace and Facebook. Some of its many “MySpace-like” competitors are Western Union, Visa, and MasterCard. These competitors use their own closed networks and payment rails – which are not as efficient as the Lightning open payment network. Strike can operate with very minimal overhead costs due to its use of the open Lightning network. Visa, MasterCard, and Western Union all have huge overheads and there is little to no leeway to cut their costs because they wouldn’t make any money.
Strike’s use of the Lightning Network allows his company to be interoperable with any other company that chooses to use the Lightning Network. This is such a strong concept because every time a new company joins their company on the Lightning Network, the company gets better. This is because the services offered by other Lightning Network-based companies can be integrated with Strike’s service without the need to sign agent contracts or perform due diligence on those companies that are interoperable with Strike.
The Lightning Network is reminiscent of the Linux operating system, which was also an open source system (OS). Before Linux, Microsoft had a monopoly on its closed source operating system and people who wanted to use their software were at the mercy of Microsoft and how much they charged for their products and services. The open source operating system Linux made it possible to compete with the closed source operating system from Microsoft. Companies that were once limited to the Microsoft operating system can now use the Linux operating system as leverage to negotiate down the price of Microsoft’s products and services. Linux’s open source code enabled companies that were once subject to the whims of Microsoft to break away from the closed operating system and use a cheaper, open source Linux-based operating system.
The most important thing Strike achieves is instant, free payments between the parties. Previously, people in poor countries like El Salvador had to walk miles to a Western Union to send and receive their local fiat currencies. Along the way, El Salvadorans who want to send money are harassed by gangs demanding a 25% cut on the money they have to send. Western Union then receives its transfer fee of approximately 5% or more from the El Salvadorian. So if El Salvadorans started with $ 100, they lost $ 25 to the gangs and $ 5 to Western Union and now have only $ 70 to send to their families. The average minimum wage for an El Salvadoran is around $ 242 per month. So you can see how important it is for minimum wage workers in El Salvador to be able to send a total of USD 100 for free through Strike. This is why Strike and the Lightning Network are such a big deal!
When I first heard about Jack Mallers’ company, I immediately called a banker friend who had over 20 years experience and told him that Strike would be taking over the banking and payment systems. He went on to tell me that the banks were already using Venmo and Cell for similar purposes. Little did he know that Strike, unlike Cell and Venmo, which could be similar to Microsoft’s closed source system, is integrated into a “Linux-like open source operating system”, the Lightning Network. Personally, I believe that Strike will replace many payment networks. In my opinion, Strike will be the same for payment networks as Amazon is for retail stores. Grab your popcorn and watch the Bitcoin game theory play out. As Jack would say, “Mortgage on E4, your Move World payment system.”
This is a guest post by Jeremy Garcia. The opinions expressed are solely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.