I first heard about Jack Mallers in January 2020 and when I heard what he was doing with Strike, I immediately posted the message below on Facebook:
I set out to watch everything I could find on him and his company.
Jack Mallers is a very smart 27-year-old who wears a hoodie and works out of a Crocs women’s wardrobe, and he’s proud of it! How do I know that? Because he said it live on CNBC. Bitcoin customers love his down-to-earth behavior, deep love, enthusiasm and dedication towards Bitcoin. His contributions to the bitcoin movement will forever reverberate in the bitcoin lore.
The startup Lightning Network, Zap Inc. , by Jack Mallers in 2019, which includes Mallers’ mobile payment app, Strike.
Strike is a mobile payment app like Cash App except for the fact that the Strike app runs on the Lightning Network. Legacy mobile payment apps, such as the Cash app, run in their own closed network. Strike operates on an open payment network, Lightning. I will touch on the importance of open payment networks later in the article.
A very important note about why Strike is able to seamlessly send payments with bitcoin is that bitcoin is a 24/7 liquidity asset. Basically, Strike debits and deposits Strike accounts using bitcoin as a transmission over the Lightning Network.
I could end the article here but keep reading for a more in-depth explanation of Strike, including comparisons 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 on one of the latest Saifedean Ammous podcasts:
There are three stages to how Strike sends money over the Lightning Network:
- The US dollar is deducted from your Strike account and there is a conversion from Bitcoin to US Dollars where you buy Bitcoin US Dollars.
- The Bitcoin-to-Bitcoin payment is then made using the Lightning Network to escrow and achieve the monetary end of the bearer financial instrument.
- Then the conversion from bitcoin to euros is done and Strike sells bitcoins for euros. Jack says with a smile that there is no dollar-to-euro rate that Strike uses. Strike actually only uses “bitcoin/dollar” and “bitcoin/euro” to accomplish the conversion of US dollars to Euros.
Simply put, US dollars (fiat currencies) magically convert to Bitcoin and Bitcoin magically turns into whatever fiat currency you want on the other end.
As science fiction writer Arthur C. Clarke puts it, “Any sufficiently advanced technology is indistinguishable from magic.”
My “down the farm” illustration of Strike to a Normie would be this: Strike magically sends money over the Lightning Network using a magical medium of Bitcoin.
Strike takes advantage of the Lightning Network, which solves the two payment problems of the first layer, Bitcoin.
- The Lightning Network Solves Bitcoin’s Time Shifting Problem
- The Lightning Network solves the problem of the variable cost of bitcoin.
Mallers’ insight into how Strike worked with regard to both payment issues came from vacations he experienced while on vacation in Paris. He realized that these two variables are the same as the two variables that Visa defines. The second epiphany had the potential to use bitcoin as a means of transferring value around the world.
An epiphany entailed for Muellers to have a digital asset that holds an asset that lives outside the control of any central party, company, or government. Bitcoin fulfills these basic monetary design requirements.
Strike does what Google, Amazon and Facebook did on the open network we know as the Internet, aka Transmission Control Protocol/Internet Protocol (TCIP). The Internet is an open network in which the best companies with the best user experience compete against any competitors. Open networks allow for real and free competition in the marketplace. Strike is connected to the open cash network, Bitcoin, via the open Bitcoin Layer 2 network, the Lighting Network, to send money across the world for free. Free, you ask?!? Yes for free. So how does Strike make money without charging fees? Strike does not have to charge any fees in part because Mallers does not charge peers for transactions, which is possible due to the millions of dollars his company handles. So how does Strike make money? Like all great businessmen, Mallers can’t reveal his secret connection, but one of the ways his company makes money is through the Strike Debit Card partnership with Visa, where he collects all the exchange money. His company also charges merchant fees as a source of revenue.
By cutting his fees to zero, Mallers is essentially forcing any competitor to start from scratch as well. It is now up to any competitor to try to beat Strike and have a great user experience. We are about to enter into a modern-day competition like the one we had on the open network of the Internet between MySpace and Facebook. Some of its “MySpace-like” competitors are Western Union, Visa, and MasterCard. These competitors use their own closed networks and their own payment rails – which are not as efficient as the open payment network, Lightning. Strike can operate with minimal overhead due to the open Lightning Network. Visa, MasterCard and Western Union operate with huge overhead costs and there isn’t much scope for cutting costs because they won’t make any money.
Strike’s use of the Lightning Network allows his company to interoperate with any other company that decides to use the Lightning Network. This is a powerful concept because the company gets better any time a new company connects their company to the Lightning Network. This is because services provided by other companies based on the Lightning Network can integrate with the Strike service, without the need to sign any agent agreements or conduct due diligence on those companies interacting with Strike.
The Lightning Network is reminiscent of Linux, which was also an open source system (OS). Before Linux, Microsoft had a monopoly on its closed source operating system and the people who wanted to use their software were at Microsoft’s mercy and how much their products and services cost. The open source Linux operating system allowed it to compete with Microsoft’s closed source operating system. Companies that were previously limited to using only the Microsoft operating system can now use Linux as leverage to negotiate lower prices for Microsoft products and services. Linux open source code has allowed companies that were once beholden to Microsoft’s whims to be able to detach themselves from the closed operating system and use a cheaper, open source, Linux-based operating system.
The most important thing that Strike achieves is instant and free payment between parties. Before that, people in poor countries like El Salvador had to walk miles to Western Union to send and receive their local cash. Along the way, Salvadorans hoping to send money are harassed by gangs demanding cuts of 25% of any money they have to send. Western Union then charges a transfer fee of 5% or more from El Salvador. So if the Salvadorans start with $100, they lose $25 to the gangs and $5 to Western Union and now only have $70 to send to their families. The average minimum wage for El Salvador is around $242 per month, so you can see how important it is for El Salvador minimum wage workers to be able to send $100, in total, through Strike for free. This is why Strike and the Lightning Network are such a huge deal!
When I first heard about what Jack Mallers was doing, I immediately called a veteran banker friend with more than 20 years of experience, and told him that Strike would take over the banking and payment systems. He proceeded to tell me that banks were already using Venmo and Zelle for similar purposes. Little did he know that unlike Zelle and Venmo, which can be similar to Microsoft’s closed source system, Strike was integrated into a “Linux-like open source operating system”, the Lightning Network. Personally, I think Strike will replace many payment networks. In my opinion, the strike will be for the payment networks as well as Amazon was for the retail stores. Grab your popcorn and watch the Bitcoin game theory continue to play. As Jack says, “Pawn to E4, your global payment systems.”
This is another guest post by Jeremy Garcia. The opinions expressed are their own and do not necessarily reflect the opinions of BTC Inc or Bitcoin Magazine.