Crypto investment strategy for Lightning Network and Layer 2: Galaxy

  • Alex Thorn went from the beginning of his career as a paralegal to that of “viking bitcoin” at Fidelity.
  • Now Thorn is leading the Galaxy Digital research team and digging deep into the Layer Two landscape.
  • He explains why investors shouldn’t overlook the Lightning Network and what he considers the most undervalued networks.

“Bitcoin and crypto can disrupt the hierarchies that exist in the world in many ways, whether financial, social or political,” said Alex Thorn.

Disruption is a topic Thorn spends most of his time as the enterprise-wide research manager at Galaxy Digital.

Thorn didn’t start his career as a crypto expert, but rather on the ground floor of Fidelity’s legal department, as a paralegal and rose through the ranks to become one of the top forensic investigators. of the cabinet.

He was an early believer in bitcoin and ended up joining Fidelity’s Bitcoin Task Force and ultimately led his research on the blockchain.

It’s also what earned it the nickname “bitcoin viking” from Fidelity CEO Abby Johnson.

“This is how not only did I get up, but I walked through this giant organization that I worked in,” Thorn said. “I was early for bitcoin, and Fidelity was early for reviewing it… and they said financial services or banks would be disrupted by something like bitcoin? And rather than hide it, they got it. will look directly and I was one of those first, I found myself in this position where I knew a lot about something that could be very dangerous for our business. “

Today, Thorn assesses full-time disruption at Mike Novogratz’s Galaxy Digital, more recently exploring the potential of Layer two scaling solutions in a new report.

Layer two solutions

Layer two networks bring scalability to Layer 1 blockchains, such as bitcoin or ethereum, which are slow and expensive, so it is difficult to use them to solve large-scale problems in the real world.

“The reality is that everyone wants to use bitcoin and ethereum… but how we evolve these two main blockchains is the bigger story,” Thorn said.

One of the most promising solutions are rollups, which execute transactions outside the main blockchain and then publish the data to the network. This improves speed while still being secured by the layer one solution.

There are two types: zero-knowledge and optimistic. Optimistic rollups assume transactions are valid by default and only if a submission is challenged will it be calculated on the main blockchain to determine where the fraud occurred. Zero-knowledge must provide proof of validity for transaction data, which makes it difficult to submit invalid transactions to the main blockchain.

The consensus in the industry is that zero-knowledge roll-ups are the most technically sound, but still in their infancy, Thorn said.

The two key players, Optimism and Arbitrum, have yet to deploy and the average investor has no way of getting exposure to these solutions yet.

Alex Thorn, Research Manager, Galaxy Digital

Alex Thorn, Research Manager, Galaxy Digital

Digital galaxy

“It’s still very early days for some of those layers two,” Thorn said. “In the meantime, a lot of volume and activity is being met, or is being siphoned off and demand is being met by simpler technological solutions like sidechains.”

Sidechains are almost a shortcut for scaling. They operate in parallel to the main blockchain but are technically not layer two, as they have their own independent blockchain, consensus and security mechanisms. This means that they sometimes have security gaps.

Polygon is one of those side chains.

“One way that could happen is with a very functional side chain that ends up connecting to multiple blockchains,” Thorn said. “So it becomes its own interoperable blockchain, it’s an interesting way to do it and Polygon has a lot of traction.”

Despite Polygon’s success, Thorn believes zero-layer interoperability solutions are underrated right now. These connect several specialized blockchains in a scalable network.

“I generally think there are interoperability protocols, like polkadot or cosmos, that are probably undervalued by the market,” Thorn said. “It’s a sure thing to say from a purely research point of view, [that] these things are actually very powerful and no one really knows how to use them yet. But I think as the market learns to use these interoperability tools, they will realize how important they are. “

Lightning network

Another innovation that Thorn says is still under the radar is the lightning array.

“Bitcoin’s Lightning Network is an incredible innovation that people are sleeping on,” Thorn said. “They miss the fact that there is a global, instant, and basically free payment layer that was built on top of bitcoin. It literally works, it’s a way for people to send anything. from pennies to thousands of dollars instantly. “

The Lightning Network is a layer two scaling solution for bitcoin that was originally offered in 2015 and is now used as the backbone of El Salvador’s bitcoin payment network. Twitter and Substack also use lightning for bitcoin payments.

The Lightning Network uses state channels, which allow individuals to transact off-chain and only commit the final state of the transaction to the main blockchain when the channel closes.

Thorn said the wider crypto community sees this as obsolete and largely ignores it. But the bitcoin community has really pushed for the Lightning Network. The solution works and is one of the most widely used Layer Two solutions, Thorn said.

And he reopened the case for using bitcoin in payments again.

Most investors believe that bitcoin could challenge gold and rise 10 times its value from around $ 41,000, where it is currently trading. So then why spend it? said Thorn. At the same time, there are some very clear use cases for payments. The adoption of bitcoin by El Salvador is one example. Thorn believes that it can be both a means of payment and a speculative asset.

“That’s why a lot of people didn’t pay enough attention to it,” Thorn said. “But when you start to see real nation states using it, you know it’s real.”

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