Taproot Assets – Bitcoin As A Medium Of Exchange

What is Bitcoin and who is it for? There are a myriad of slogans available on Twitter to cover this. Bitcoin is for everyone… no wait, it’s for everyone! Bitcoin is a store of value. Bitcoin is a medium of exchange. We could make a classic appeal to authority and declare that Bitcoin is exactly what Satoshi described, “A peer-to-peer electronic cash system.”

Bitcoin becomes what we make it. It is at the service of the people we choose to build for. If we want Bitcoin to be a store of value or a medium of exchange, we need to build the protocols and services that make it possible.

Sometimes it’s more interesting to ask specifically: Who are we building for? Are we building for Americans looking for a long-term investment? Are we building for a store owner in Brazil? A reseller in Türkiye? A software developer in Nigeria?

If we want Bitcoin to become a medium of exchange, we need to focus on the users who need it most and Taproot Assets is the tool for this task.

Taproot resources

Taproot Assets allows us to take the assets and units of account that people want and need today as a medium of exchange and move them into Bitcoin infrastructure on the Lightning Network.

From a technical point of view, Taproot Assets is a protocol that allows the minting of assets on the Bitcoin blockchain in a very block space efficient manner using taproot transactions, made possible by the November 2021 Taproot soft fork activation. Client-side validation is used, the protocol is opt-in and no consensus changes are required. Fungible assets are tradable on the Lightning Network, and you can use this protocol on the mainnet today!

Taproot Assets is a flexible protocol that is already opening doors to a wide variety of use cases, but the primary use case is stablecoins on Lightning.

For those who would like to learn more, here are the documents, while the tutorial and demonstration videos can be found here.

So why is this such a powerful tool for adoption?

Meet people where they are

It’s easy to immerse yourself in the Bitcoin world, where we use Bitcoin, talk about it constantly, and delve into all the things it solves. That passion and curiosity are powerful. But the real magic happens when we connect that world to the people outside of it.

Most people don’t have the time to study monetary theory or economic history. Free time and disposable income are not the norm in the world. Stay humble. If we want Bitcoin to serve the world, let’s meet people where they are. And we can: we have the tools and skills to build things that are truly useful: products that people love not because they’re based on Bitcoin, but because they solve real problems.

Adoption will not only come from our extraordinary knowledge of Austrian economics, but will come from building things so useful that people can’t help but use them. The true measure is in usefulness. The true measure is in the users. Number of people go up!

Stablecoins

So let’s talk about stablecoins. Love ’em or question ’em, stablecoins have clearly found product-market fit. The invisible hand has spoken!

Let’s look at some numbers:

In Brazil, around 90% of crypto transactions are tied to stablecoins, mainly for payments and remittances.

Tether estimates it has 434 million users worldwide, transacting $31 billion daily. About 13% of the total USDT supply is held by savers who are likely emerging market users with no other access to dollars.

Tether (USDT) has a market capitalization of $153 billion and recorded a total volume of over $10 trillion in 2024. It is followed by USD Coin (USDC) with a market capitalization of $61 billion. (Numbers from CoinGecko as of this writing.)

Utility

Why did people choose stablecoins? Utility.

Most people around the world do not have the luxury of HODLing through a bear market. Most human beings do not think about the complexities of fractional reserve banking. They are busy living: busy being fathers, mothers, small business owners, doctors, carpenters, farmers, teachers and students. All the things that make the world go round.

Most people are simply looking for an improvement in their daily lives, and it’s our job, as money experts, to give them what they need.

They need stability and convenience.

Infrastructure adoption

According to the history of Bitcoin adoption, first we reach the store of value, then the medium of exchange, and finally the unit of account – the final boss! But if we facilitate stablecoins, are we preventing bitcoin from reaching the unit of account? No. Bitcoin will be a unit of account if and when the world needs it, if and when we make it available.

Those who choose to use a stablecoin on the Lightning Network will do so because it is the best option for them; it is the option that offers the greatest utility. They do not think about “adopting Bitcoin” and do not intend to adopt Bitcoin, the unit of account. But they will adopt Bitcoin, the network. They will adopt Bitcoin, the payments infrastructure.

We often think about replacing the Visa network, and to do so we need to be more useful than Visa, which processes transactions in 175 different currencies.

Our Turkish reseller is an expert in what he does and not an expert in decentralized network technology. He will choose Lightning over Visa when it becomes the best, most convenient and easiest option to run his business. And for many businesses, Lightning is already the fastest, most cost-effective option.

Let’s imagine the owner of a precoiner shop in Brazil. He runs his business by transacting using a stablecoin via a Taproot Assets Lightning wallet. It moved to Bitcoin infrastructure. She was inspired to do so by a simple, easy-to-use mobile wallet that simplified her business, reduced costs and reduced risk. This wallet allows you to make global, incredibly convenient, instantly settled transactions and to do so in a wide variety of currencies. It came for the utility of this medium of exchange, but is now one step away from losing its precoiner status.

And, if the global collapse of fiat money finally arrives on a random Tuesday afternoon, she will just press that button to switch from fiat to sats because she is already using the Bitcoin infrastructure.

A multi-asset network

The potential and utility of a Taproot Assets-enabled multi-asset Lightning network is vastly underappreciated. Seriously: it’s a medium of exchange like the world has never seen before.

App creators and their users can have any unit of account they like (US dollars, Brazilian reals, euros, etc.) and everything is routed via Bitcoin. Taproot Assets Lightning transactions require Bitcoin liquidity. These transactions support and grow the Lightning Network and enable myriad options. Alice can send a payment in USD, but Bob can receive BTC. Alice can send another USD payment that will be routed through the Lightning Network, through liquidity called sats in the core of the Lightning Network, to Carol who chooses to receive a euro-denominated stablecoin.

Our Turkish retailer can sell goods to the Brazilian store owner using a stablecoin. Not only can it interact with businesses around the world frictionlessly, but any regular Bitcoiner can also transact with both using Sat, seamlessly. There’s no need to touch that stablecoin if they don’t want to.

And it becomes even more beautiful. Let’s imagine this scenario for a moment…

(https://x.com/MichaelLevin/status/1885402488955662448)

A global, scalable, instant-settlement payment network that is significantly cheaper than Visa – a payment network that now gives users the ability to transact with whatever currency they prefer. This is the genius of building with Bitcoin as the infrastructure: people adopt the network before they even know it’s Bitcoin.

Conclusion

If we want to see Bitcoin as a medium of exchange, if that’s what we’re building for, it’s our job as experts to give people what they clearly tell us they need: instant, low-cost, stable-value transactions. In other words, multi-asset Lightning.

Now, obviously Taproot Assets is a versatile protocol. It can and will be used for all sorts of things, including use cases that appeal to the American public who view bitcoin primarily as a long-term investment. Yay, permissionless innovation! With this protocol, we are helping usher Bitcoin into the era of its own medium of exchange.

This piece is an article featured in the latest print edition of Bitcoin Magazine, The Lightning Issue. We’re sharing it here to showcase the ideas explored throughout the entire issue.