The promise and peril of Lightning Network

Each Bitcoin is divisible into one hundred million pieces, called satoshi, but the minimum cost for a Bitcoin transaction right now is probably about 18,000 satoshi, approximately 2.5 USD. Any amount of Bitcoin under a few dollars is “uneconomic”, essentially worthless.

Lightning Network will enable uneconomic Bitcoin transactions to move outside of the Bitcoin blockchain.

These uneconomic transactions are valid for the Bitcoin blockchain, but they can never be settled there. No miner will include them in a new block. They are bound to the network from which they originated.

For example, Coinbase will likely share its Lightning Network with Amazon, Ebay, Walmart, banks, individuals and the US government.

If Coinbase does not like the connections that are branching from one of its direct connections, then Coinbase will disconnect from that node, potentially stranding uneconomic LN transactions.

Lightning Network and other second layer networks will greatly facilitate the use of Bitcoin in everyday commerce, but will introduce a layer of politics and game playing that will be impossible for the average user to comprehend, let alone navigate. This will inevitably give rise to trusted intermediaries and trusted networks. Secondary markets will arise for buying and selling uneconomic Bitcoin transactions at a discount.