Zap's New Product Lets Merchants Take Dollars Over Lightning Network

Zap founder Jack Mallers speaks at the 2019 Lightning Conference in Berlin.

That's how Zap CEO Jack Mallers described his lightning wallet's new U.S. dollar clearing system in a phone interview with CoinDesk.

Mallers compared Zap's new infrastructure development to swiping a Visa card, but using Zap's web of lightning nodes to settle charges.

"Merchants can accept bitcoin and lightning payments with the same infrastructure, except they never touch the asset. Soon as we get the cryptographic proof that the lightning payment was made, we just credit their bank account immediately. They're still dealing in dollars," Mallers said.

While Zap does not collect private keys to operate and maintains the same privacy standards as before, Mallers said, the startup is inherently "Short" bitcoin when users transact with its new product.

"If you are wanting to send a $100 lightning payment with your Chase bank account, someone has to send that bitcoin for you and then in return we're getting dollars from your Chase account. That means that we're inherently short $100 worth of bitcoin," he said.

Zap uses algorithms in real time to hedge its position, Mallers said.

Zap's lightning clearing system is the startup's second major product upgrade in less than six months, with Zap integrating a fiat-to-bitcoin buying feature into its wallet last September.

As a merchant service for lightning, Mallers said Zap sits in a product niche compared to other crypto firms, fraught with its own difficulties.

Marijuana dispensaries in Boulder, Colo., are already using Zap's new clearing service, offering discounts for joints purchased with lightning-backed dollars.