Why lightning is just the beginning

Posteris
Posteris
Nov 7 · 4 min read

What started as a security feature, became one of bitcoins largest contention points. From the start, the 10 minute block time was meant to be a just-in-case measure to avoid too frequent block collisions and forking of the bitcoin blockchain.

Ever since, countless posts have been made on why it sucks, or why it’s a good thing. Either it’s too slow for any practical applications, or it’s blazing fast for what it represents; the first ever cryptographically secured decentralized storage of value.

10 years later this topic still sparks heated discussion. What direction will the Bitcoin ecosystem take in the coming years?

Lightning

One solution is to leave the protocol as it is, and develop new technologies on top of it.

Once blockchain was a proven concept and the technology stabilized, second layer solutions started emerging. Lightning network is exactly such a solution on top of Bitcoin that allows for faster and more granular transactions via payment channels.

The emergence of lightning is similar to how the world wide web emerged on top of the TCP/IP protocol of the internet. This layering phenomenon is not only isolated to technology. In fact, any system stable enough will benefit from more specialized subsystems being built on top of it.

Layering

As discussed in a previous post, we can draw inspiration from how the universe is generally organized to try to predict how any complex system will evolve over time. One such principle is hyper-locality which dictates that due to the speed of light, the systems that will thrive are the ones that are fine-tuned to their precise environments and locations in space.

Another principle is layering and compositionality. Essentially everything in this universe is composed of something else. Galaxies contain stars, which contain planets, and so on down to atoms and quantum particles. Any complex system with many moving parts and many types of interactions will likely see emergence of subsystems.

Efficiency of trade

To understand why, let’s think of some simple examples. Once upon a time your needs were met by barter. You traded your sack of rice for some jugs of milk from the farmer next door. Life was simple.

After some time this daily life became stable and regular enough for a bunch of farmers to organize into societies. In these societies barter became an obviously inefficient way to meet your needs as you had to go on complicated quests of trades to get the items you desire. Thus, an abstract representation of value was born: money. Suddenly you could meet your needs directly with units of currency.

Efficiency of life

A wildly different example concerns life itself. Why is the moon devoid of life, while planet earth is teeming with it? The answer is simple. Earth has stable enough conditions to support it. Try to imagine the form of matter that survives the longest on the moon. In the hostility of raw space, rocks do the job. On earth, conditions were so stable that a new form of matter won over rocks: life. These units could create more of themselves — something rocks cannot do. Therefore it is only natural that in the varied yet protected habitat of earth, things that can reproduce themselves would evolve next to what could not.

The pattern I am getting at is that stability over time in a varied environment leads to emergence of subsystems that can capitalize on earlier existing systems simply by being more efficient ways of organizing.

Efficiency of value

This brings us back to Bitcoin. Conditions are now ripe and stable enough for new subsystems to emerge on top of the bitcoin blockchain. Lightning is one such example, but I expect it is far from the last one. Once it is obvious Bitcoin is the winner of the war to be the decentralized storage of value, new use cases will be bootstrapped on top of it.

For example, central banks are now trying to create their own digital currencies. However, these digital currencies will inevitably go the same way of altcoins as centralized and easily manipulable storage of value. This will further cement Bitcoin as the winner. In the end, governments may be forced to bootstrap their local versions of currencies on top of the Bitcoin protocol. This may play out similar to how governments pegged their currencies to the value of gold, which gave us 100 years of prosperity in the 19th century.

Conclusion

The changing times we are living in have a lot to bring for the fellow Bitcoin enthusiast. Only time will tell if any of these predictions will hold true in the long run. Meanwhile, we can continue to draw inspiration from systems theory.

Stay tuned as the topic of changing times will bring us to the next pattern in the series — Seasonality and oscillations.

    Posteris

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    Posteris

    All things economics, value and digital scarcity