Lightning Network
First, where I turned to the “dark side”
In August of 2017 when Bitcoin Cash was about to fork from Bitcoin, I was mad! I kept thinking, “Why are we splitting BTC into 2, this will dramatically affect the price of Bitcoin!” So I did my research. I watched a ton of Tone Vays videos and many others from BCH opponents. I started calling it Bcash and laughed with Tone when he said the price of BCH would go to $3. While using my Blockfolio app, I was auto registered to the r/btc subreddit (which I didn’t know existed) along with r/bitcoin. It became quite apparent that r/btc was pro-BCH and I noticed Roger Ver’s name was constantly popping up in that subreddit. “Hey, I like that guy”… I remember him from 2013 when I first joined BTC. He funded all the BTC startups at that point, and he was the reason BTC got adopted as quickly as it had by 2013.
Then things started getting weird. I started to notice a wave of posts stating “I just got banned from r/bitcoin for promoting big blocks”. They would show proof of the mod banning them and their reasons… and it happened again… and again, until I realized there was some serious censoring going on in r/bitcoin. Censorship? In a subreddit focused on the Blockchain, which is touted as our best method for fighting censorship? Whoah!
For a long time r/bitcoin and its leaders had said SegWit would be the solution to the blockchain congestion. “Why increase block sizes when we can reduce the amount of data going into them?” However, when SegWit was implemented and transaction fees kept rising, their response was “Coinbase hasn’t integrated SegWit” or “Once we all implement SegWit the fees will decline”, but the scaling of SegWit’s estimated impact was off significantly. Why were fees rising to $40 to send a few hundred dollars? SegWit is only able to trim off a few pounds of fat, it seems like a stretch to reduce a $40 fee back down to 1 penny. Then the attention was shifted to the next supposed solution: “Lightning Network will reduce fees once it’s implemented”! When will it get implemented? “Soon” was the answer. That was November of 2017 and LN had been in development for many years already.
Now we have a beta release of Lightning Network on the Bitcoin Mainnet. Who releases a beta on the Mainnet?
Lightning Network
The very simple explanation that proponents of Lightning Network use is that “The Blockchain is congested, so to reduce the congestion, let’s do the obvious thing and take most of the transactions off the Blockchain altogether”. In other words, “The highway is full, so let’s turn most of the cars into flying cars. Then we have less traffic, and use the highway only for very heavy trucks”.
The other argument supporting the Lightning Network states that by increasing the size of the blocks, the Blockchain will become bloated and there will be less nodes that are able to support it. This could lead to increased centralization of nodes, and a greater chance of a 51% attack. As we know, the Blockchain is already 160+GB and if we increase the block size, it might turn into 160GB/every month at some point. — However, are we not doubling our technology every 2 years? (Moore’s Law).
In LN you will need to take an extra step to “open a payment channel” with whoever you want to transact with. If you don’t have a channel open with someone you’ll transact with only once, you can route your payments through other people you have already opened a channel with. Through the “Six degrees of separation” you’ll eventually get to person you’re paying. Most importantly, each person you routed money through gets paid a miniscule fee. Keep in mind, each LN nodes you route money through needs to be online 100% of the time and must maintain a “reserve deposit” in their channel at all times to be active. This actually sounds cool. I put BTC in a channel, and people pay me to use my channel?
Then I thought, well, whatever money I put into that channel stays there, and makes me money. Wow, it’s kind of like I’m being my own bank. I get to make money with money! I bet a ton of early BTC adopters are gonna love this!
Then I saw a post on how people have forgotten the philosophical purpose of Bitcoin, the freedom it brings to world, and a true separation of Money & State. I saw an old post from Roger pointing out that Bitcoin can reduce wars by taking the power of money away from government. This meant government could actually be held accountable to the people, become productive and make less mistakes, instead of just printing fiat (paper money) to cover up its mistakes.
I remembered the financial crisis in 2008/2009 — I remembered how the banks’ greed and influence caused so many people to lose their homes and turned our economy upside-down. Then it hit me. If being a LN node is like being a bank, what will stop the banks from becoming the LN nodes? You see, once we deposit the money into a channel, we cannot use it again. How would we do our daily spending (like buying coffee) if our money is locked up somewhere? How can we cash out our gains? Well, what I fear is that eventually the banks will be the only ones who could afford to do so, and so will become, the majority of LN nodes.
And now my friends, we’d be back in the same centralized system of banks making money off our money.
Here are the major issues Lightning Network will have to solve before, in my opinion, it will ever be a truly viable solution to the scaling conundrum:
- How to route money through channels without a central routing hub? Mesh networks hasn’t fully matured, but even then, in LN not only do you need to decentrally:
- Find a route, like mesh networks
- But also, know the balances of each channel:
- — — Before you begin routing
- — — Also while you route, because the balances will change very quickly
- Mesh networks is tricky right now because of routing, LN adds a second layer of information (channel balances), so that would make routing in LN exponentially harder than mesh networks.
- The point of Bitcoin & Blockchain is to remove the middlemen, aka Banks. By adding in LN Nodes, we are adding in a banking system (even if it’s just you or I) instead of buying bigger hard drives. Banks make money, this means there will be money flowing to banks and less to miners (who secure the Blockchain). We’ve added middle men again!
- How will this get adopted in 3rd world countries? We’re adding additional steps and complexities to the system, which makes it easier to abuse people who don’t understand money and technology. We’re kind of saying “You’re too stupid to understand, so just go with it”.
- Bitcoin was very easy to use and I still remember presenting in 2014 and talking about how we could send money to Ukrainians when they were being invaded by Russia. What if the LN nodes go down in Ukraine? Or governments start regulating LN nodes? We’ll have removed the separation of Money & State.
- Why couldn’t we have just raised the block size to temporarily relieve the congestion and perfected LN before implementing it?
- — — Or at the very least, fork BTC and create a BTC LN chain to experiment with, instead of experimenting on the main chain?
- With your money locked up in a channel, upon closing your LN Node you’ll still need to pay a fee to post the final balance onto the main chain. Even if LN gets adopted, with billions of people around the world, blockchain fees will still be astronomical, which would disincentivize people to settle on Blockchain. This could force people to keep their funds locked into channels and slowly reduce the impact and value of the blockchain itself. “Ugh, I don’t want to pay large fees so I’m just going to open a channel with this person (or route money through banks/LN nodes and pay them a fee).” Remember, miners secure the network, and we’re taking money away from them and giving it to the banks…
What do you think? Where do you stand on the whole debate, and where do you think the solutions will lie when it comes to scalability on the Blockchain? The best part is — no one knows — but we’re working together to figure it out.
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