The more I experiment with Lightning Network, the more I’m convinced: it’s a nice technical solution for the wrong problem.
Here is why.
What is Lightning Network
According to https://lightning.network/ , that goal of Lightning network is to enable scalable, instant payments, at exceptionally low fees based, using a Network of Bidirectional Payment Channels.
Is that what we need?
How the Lightning Network works
If you are new to this concept, you can read how it works in my previous article “Bitcoin Lightning Network: run your node at home for fun and (no) profit ⚡🤑”, but here is a super quick recap.
In the simpler explanation, we have our Alice and Bob that open a channel and make several off-chain transactions back and forth. Then Bob opens a channel with Charlie, and Charlie with Dave: now Alice can make transactions back and forth with Dave, without a direct channel to him.
It’s wonderful, isn’t it?
How the Real Life works
Now, take some time and think about your real life: how many times you are exchanging money back and forth with someone else at instant speed? (Note the emphases on back and forth and instant)
If you ask me, in my day by day life I don’t exchange money back and forth with anybody:
- I buy breakfast in the morning, but the bar owner will not buy something back from me.
- I pay my lunch at the restaurant, but the owner will not buy something back from me.
- I do some shopping at the supermarket or in retail shops, but they don’t buy anything back from me.
All “b2c” transactions are one direction only.
Well, one could argue that the retail shops need to buy good and services from some sort of suppliers, so they can use the LN. Let’s call those transactions “b2b transactions”. Again, according to my view, also in b2b transactions the money flows in one direction only, from the retail store to the supplier.
One could then argue that economy is “circular”, so at the end, after several transactions that involves retailers, suppliers, government, etc.. the money will flow back to the “end users” via their salary.
My point is: do we need instant transactions for those transactions?
As today, b2b payment transactions are delayed by nature: a supplier is paid in advance or maybe after 30 days, but not instantly. Low “enough” fees and fast “enough” transactions is all we need, any crypto currency with such features can do the job.
In real life we need scalable, instant and almost zero fees to move money in unidirectional channels, from retail users to merchants.
Lightning Network is building a solution for a peer-to-peer economy, where Alice exchanges money back and forth with Bob in bidirectional channels: Lightning Network is solving the wrong problem.
Are you a merchant? Are you thinking to accept payments via Lighting Network? Think again…
To receive money, you need inbound capacity, so you need to convince someone else to open a channel with you. You can open all the channels that you want, but if you don’t have inbound channels, you can’t receive payments.
Not an easy job.
Yes, there a few “solutions” for this problem, but the fact the we need some solution or workaround to enable a merchant to receive payments, is a clear indication that the LN design is faulty: it’s unable to address what should be the main use case for its existence.
Let’s have a look to the promising development involving Lighting Network: Atomic swap, Atomic Multipath Payments, Loop, Trampoline Payments, Turbo Channels… all trying to solve 2 basic problems:
- There is not known algorithm to reliable send a payment of a given import from one arbitrary node to another arbitrary node.
- The more the network is used, the more the balance is moved from end users to retailers, and the odds to find a route to make payment decrease.
But I believe in human imagination and creativity, so let’s suppose that we solve the (yet unsolvable) problem of finding the available routes from a node to another node (in a 1 million node network) in a decentralized way, the problem of finding a route with enough inbound capacity to make a payment, the problem of rebalancing the channels in an efficient way, and all keeping the network “decentralized”. There still one more thing that I can’t grasp: what’s the economic incentive to run a Lighting Network node?
Routing fees are by design extremely low: the owner of LNBig.com (currently the top node by capacity) declared on reddit that he earned $5.74 in January 2019. So, he is managing 20 nodes for free, or better, at loss, because he need to pay the bill for the servers (electricity, network connectivity…). This is clearly not sustainable in the long term.
Furthermore, he is “locking” several bitcoins in the channels, hundreds of thousands of dollars, while he could use them to earn some form of interest (using lending bots, Compound, Dharma…)
Please, throw tomatoes to me
I would like to ear your opinions on that topic, and please convince me that I’m wrong: I want to continue to believe that The Future is Bright for Lightning!