Bitcoin has a huge scaling problem–Lightning could be the solution
arstechnica.com
arstechnica.com
1. You need to have a computer constantly online or your counter party can easily steal all your money. This leaves you vulnerable to all sorts of attacks.
2. The lightning network works by routing payments through a network to your destination. The issue here is that the routing for the lightning network is extremely complicated and is currently an unsolved (and probably unsolvable) problem. The core issue is that you have to route money though a network where channel capacities are changing with each and every transaction. Imagine trying to route internet packets if the size of the links changed thousands of times per second.
3. It's relatively expensive to create and destroy channels at about two transactions per channel. Lightning proponents claim that this will be rare, but that can only be the case if there is minimal net flow of money. This is trivially not the case because users will be sending bitcoin more than they recieve and the reverse for retailers.
4. Lightning has huge capital costs. You need to lock up large amounts of bitcoin in these channels for significant amounts of time. There is a real cost for this in terms of the lost interest. Channels are certainly not anywhere close to free.
3 doesn't really apply, as channels can be used as middle hops to rebalance.
If I give money to you for a good/service and drain my channel. Then I buy more Bitcoin from coinbase, coinbase can route that BTC to me through you to rebalance our channel so it is all on my side.
4 isn't true, as "locking the BTC up" is basically making it available. Would you consider depositing cash into a checking account "locking it up"? Because that's the equivalent here. But also locktimes are normally a few days.
3. The issue here is that the flow for all channels across the entire network needs to be about balanced for things to work out properly. Once someone starts either net accumulating bitcoin or net dispersing bitcoin, then there will be problems somewhere on some link.
4. I can take money out of my checking account at any time at no expense.
3. Fees can and will help balance things out. If a channel is really unbalanced, negative fees can strongly incentivize rebalancing in many cases. If it starts to get unbalanced again, fees can increase to help reduce the speed that it unbalances.
4. You can also take money out of LN at any time (assuming your counterparty I cooperative). Only in the case of non-cooperation do you need to wait for locks to expire, and in that case you get ALL money from both sides of the channel, and need to wait for the lock to expire.
Id love it if my bank could give me 2x my money if it takes more than 3 days for me to get my money...
This isn’t what people mean when they imply liquidity. Needing consent and being able to unilaterally demand cash are different domains. The former is e.g. a holding in a fund or coins in a LN, the latter is a consumer checking account.
> Id love it if my bank could give me 2x my money if it takes more than 3 days for me to get my money
Or lost 90%. We had this in the era of free banking, i.e. pre Federal Reserve. We then split the speculation and transfer functions of our financial system and ended up better for it.
I don't understand what you are trying to say here. You don't need "consent" if you want to wait the 3 days, but if you get "consent" from your counterparty you can get it instantly. 3-days is about as fast as ACH. But if you want, you can feel free to open channels with shorter locktimes if needed.
>Or lost 90%. We had this in the era of free banking, i.e. pre Federal Reserve. That history is one Bitcoin is presently replaying.
But you can't lose money if LN is working correctly. The whole idea is that you sign the transactions saying "if this is broadcast under these conditions, you get all of my money" when you open the channel. It's literally not possible to fractionally lend on LN, because all money MUST be there, and signed, for you to use it.
I've had conversations with you before, and I'm fairly sure you don't understand the basics of Bitcoin as you keep repeating these things as fact, so I'm going to stop replying here. Please make an effort to understand it before you start denouncing it. Or at least explain why you think these apply to the conversation in ways that someone like myself who isn't well-versed in traditional banking systems but understands Bitcoin technically will understand.
You said, like a checking account, one “can also take money out of LN at any time.” I clarified that when people say “take money out at any time,” they mean unilateral liquidity. You can unilaterally demand cash or an instantaneous Fedwire transfer, the latter which costs 3 to 69 cents [1] (though some banks heftily upcharge this service), against your checking account balance. It takes a good deal longer to settle a LN balance (theoretically).
TL; DR The Lightning Network has some neat features, but pitching its liquidity as analogous to a checking account’s is disingenuous.
> you can't lose money if LN is working correctly
This applies to anything. In finance, things never work correctly because someone, somewhere, can be trusted to be an arsehole.
> It's literally not possible to fractionally lend on LN
The number of Americans who have lost a single U.S. dollar to this threat since the FDIC was formed is basically zero. The number of Americans who have nuked substantial fractions of their net worths speculating on Bitcoin is significantly greater.
[1] https://www.federalreserve.gov/paymentsystems/fedfunds_corep...
Is it really true that you can get easily the money out of your checking account if your bank declines to give it to you? In a traditional bank account, it is possible to place a hold on an account for various reasons, mostly when compelled by the government.
The traditional hierarchy of liquidity goes first cash, then Treasuries then checking accounts. Checking account balances (i.e. senior, registered claims on a bank) are junior to the first two (i.e. senior, registered claims on the U.S. Treasury and senior, unregistered claims on the Federal Reserve, respectively) for the reason you specified. I still contend a checking account will more reliably produce immediately-available funds quicker than a LN "deposit," even if one is a criminal.
This sidelines into why I believe illegal markets are the only place blockchains have a shot at being a currency. Shadow economies are substantial, between $1 and 3 trillion in the U.S. alone [1]. It's a different pitch from "replace the U.S. dollar," but it's more realistic. (I am not advocating anyone do anything illegal.)
Stepping back, it's pertinent to look at the Two Generals' Problem [2] which Satoshi's paper solved. It's a problem of exchanging information, not value per se. Blockchains are here to stay, but not--in my opinion--as currencies. Libor on a blockchain or legal documents "Docusigned" on a blockchain are far more compelling than "we'll make our light-speed payments system less reversible and better for illegal activity". They're also use cases which become difficult to justify if the "tokens" underlying them rise in value.
[1] http://www.imf.org/en/Publications/WP/Issues/2018/01/25/Shad... Table 4, page 11
With regards to channel capacity — fees in lightning are proportional to the amount of the transaction. If you are sending a transaction which consumes a large amount of capacity, you pay a high fee. Note how this is a fundamental difference from onchain transactions where fees are proportional to the amount of block space used.
Lightning is more akin to an atm. You pay a fee to take out cash, but you can then transact instantly all day with nearly no fees.
> If I give money to you for a good/service and drain my channel. Then I buy more Bitcoin from coinbase, coinbase can route that BTC to me through you to rebalance our channel so it is all on my side.
Could you point me to details about how cross-channel rebalancing happens?
Since lightning network channels are purely 1:1 (per the whitepaper); say you drained your channel to me, how does your channel with Coinbase allow you to route BTC to our channel without reopening a channel (requiring on-chain transactions)?
The whitepaper mentions hops, but I can't find any details on how they actually work.
> But also locktimes are normally a few days.
Does that imply that every channel needs to make an on-chain transaction every few days to reopen/keep the channel open?
Lightning transactions are less like TCP packets, and more like water in a pipe. If I put 1 ml of water in a pipe full of water, 1 ml comes out the other end, but it's not the same water.
It works like this:
I can give you 1 apple, but I contractually obligate you to give 1 apple to my friend Bob, and if you don't you get penalized. You won't actually give Bob the apple I gave you, you'll give him another apple that you have, and if you don't know exactly where bob is, you could give an apple to someone else, telling them to eventually give an apple to bob "or else". (in LN, the "or else" is actually cryptographically secure pre-created transactions)
Because of this, each 1:1 channel is actually a network of 1:1 channels that can move in both ways.
In my first example, there was an unwritten implication that you would have a connection to coinbase somehow through another channel. So if I paid you 1 BTC for something, and you have a connection with coinbase (either directly, or through another channel), then if I buy from coinbase they can send that money "through" you to recharge our channel, without you really "spending" any money. And you are more than happy that happened, because now I can buy more from you directly through our channel, so you might incentivize that kind of routing by setting an extremely low, or even zero, or even NEGATIVE! fee.
>Does that imply that every channel needs to make an on-chain transaction every few days to reopen/keep the channel open?
No, locktimes only come into play in the case of non-compliance. If we have a channel with a 3-day locktime, on day 2 we can agree to re-up our lock for another 3 days (really at any time we can), we can also agree to close it right now if we want, all off the blockchain. Only when you either try to cheat, or become non-responsive do locktimes come into play.
Like what kind of transactions/operations need to happen between nodes for two channels to get rebalanced?
> No, locktimes only come into play in the case of non-compliance. If we have a channel with a 3-day locktime, on day 2 we can agree to re-up our lock for another 3 days (really at any time we can), we can also agree to close it right now if we want. Only when you either try to cheat, or become non-responsive do locktimes come into play.
Right, I understand that it's for non-compliance, that's why I was assuming that this part has to happen on-chain.
Aren't timelocks enforced on chain? How can we agree to extend our timelock without committing that agreement to the blockchain?
I understand that the premise of timelocks is that if there's a conflict, the channel collapses and the timelock buffer period allows the victim a period to claim restitution (hence needing to stay online or have a service do it on their behalf).
So "rebalancing" is kind of a word for a side-effect of normal routing.
It's all based on fees. So if you have a channel with "the network" (either through 1 or more channels to a big hub, or some other way), and I have a single channel with you, then another channel with "the network".
Our channel started off with .5 BTC from each of us. Then I paid you .4 BTC so the channels are:
You: .9 BTC, Me: .1 BTC.
Nodes broadcast fees, so you would broadcast that for me to send money from me to you (either directly, or through a "hop"), it will cost 20 satoshis. But you can also broadcast that for someone to send money the opposite direction (from you to me), it's free right now. Someone that wanted to pay a 3rd party unrelated to us would try to find a route that went from you to me then to the rest of the network.
So really "rebalancing" is just incentivizing someone else to rebalance your channel by exploiting their selfishness and want of low transaction fees and to include you as part of a hop. Fees can even go negative, which would make it super beneficial for someone else to include your channel in their transaction (even if it's out of the way, or doesn't serve any real purpose) to get a bit of money from it!
Who actually broadcasts the fees can be found by looking through popular node software (each node only broadcasts one direction of the channel, and I don't remember which it is right now), as well as the broadcast system (which I genuinely don't know off the top of my head).
>Aren't timelocks enforced on chain? How can we agree to extend our timelock without committing that agreement to the blockchain?
Yes and no. They are "enforced" on chain in the sense that they can't be accepted into a block until a specific block number. But they aren't ever broadcast to anyone else until you are ready to use them. In essence all LN transactions are created, but kept secret until ready to be used. The whole concept of LN relies on the fact that if we make a transaction but never broadcast it, did it really happen? If you and me agree to make a new transaction saying "this expires in 3 days from right now", technically the original transaction is now valid once 3 days pass from it, but if you try to broadcast the tx that forces all the money to you, I can broadcast the transaction that proves that we did something else after that (our second "update the locktime"), and then gives all the money to me.
Every time we do something to transact, we also create a set of transactions that serve as proof that the old transactions are in fact "old" and shouldn't be accepted, and if anyone tries to broadcast them, we can invalidate them (and enforce a "penalty" to dissuade anyone from trying to cheat).
You can also hand your "revocable delivery" transactions to a 3rd party (or multiple 3rd parties) who can monitor and broadcast them in the case of cheating, but can't actually spend any of your money themselves.
So you could have a group of people watching the blockchain always online that can punish non-compliance, but you yourself are only online when you want to transact.
Obviously controlling your own "watching" system is most secure, but the vast majority of people aren't going to want to do it themselves.
And again, if the biggest worry is that someone will pay off multiple "watchers" then publish a previous version of a channel to steal money from you and hope that your proper node isn't online at any point during the locktime (or DoS your node to prevent you from seeing the bad transaction) to punish the thief and "steal" all the money back. I think we are doing a pretty good job!
I have to ask the million dollar question. Has this been threat modeled?
Transactions in LN are just as "reliable", and don't introduce centralization in any meaningful way.
As for the "modeling", I'm not sure what you want. The threats have been outlined in the whitepaper, and successfully tested in some capacity on testnet. And now they are being tested as lightning network is being rolled out on mainnet. There might be some formal "threat modeling", but i'm not familiar with what that would even look like or mean.
No better way to "threat model" than to try it out in a hostile environment where bad actors that have some kind of "exploit" can already use it to gain BTC.
> No better way to "threat model" than to try it out in a hostile environment
You just answered my question, sorry to say.
I know the technical side somewhat well, and apparently have a thing for explaining the basics in layman's terms. I have a feeling I don't know what you mean by "threat modeling", but that doesn't mean nobody does. And your choosing to make sly comments instead of explaining yourself doesn't fill me with confidence that you are being completely impartial here...
I don't take that. I'd go on a limb to say the majority of readers here are familiar with the concept of threat modeling. Since you don't want to look-up the term, instead slighting me for using it: What is called a threat model is in reality a vulnerability model created by a formal process. In software development, there may not have been a single threat model created by security people that didn't expose vulnerabilities overlooked or not paid attention to by developers of the particular app in question. This is done from an attacker's perspective by people familiar with that perspective, instead of from a developer's perspective which usually doesn't notice vulnerabilities in their own design. This isn't a slight on the developers but that the attacker's mindset and the specialized knowledge of security people are not normally conjoint with general purpose devs.
> instead of explaining yourself doesn't fill me with confidence that you are being completely impartial here...
Impartial? That sounds silly to me, but I know there are tons of people who promulgate their cryptocurrencies and network addons without regard to reality. I'm not one of them. I no longer have any position in any coins, having sold my coins fully in the latest run-up, and am not a creator or anything of any of them.
By the way, you come across as pushing for lightening partially not impartially, since you have danced around the two points I made in my first post. You seem to be an apologist for the tech, not someone who wants to get the right tech implemented. I don't know why you accused me of being partial, when all I did was point out two issues with your statement and asked a question. In reality, you don't seem impartial and should disclose your stake in this tech.
But in that case, yes, there is a section of the whitepaper dedicated to risks and threats to the system, and throughout the entire whitepaper an attacker's perspective is taken when explaining most aspects of the system, as well as some "formal" dives into specific risks referenced.
>By the way, you come across as pushing for lightening partially not impartially
I am absolutely not impartial, I very much believe in this technology and want to help explain it. However I don't think that I have at any point mislead or misrepresented the technology.
That being said, i don't actually hold any BTC currently due to personal events in my life, however I most likely will in the relatively near future. (as a side note, I always laugh at comments like this. There is no way to prove if I own or don't own BTC, and I don't personally think it's very relevant to some comments on a forum. You may feel differently, but in my experience most "bias" isn't in the form of possible monetary gain, but from the need to be "right")
>you have danced around the two points I made in my first post
If you mean that the #1 makes LN "far from workable", I feel I spoke to that directly already in the direct reply.
As for the comment of:
> According to you own words, the answer to poor transaction times is to make transactions less reliable and to introduce centralization.
I didn't say that, and if I implied it, it was a mistake. i don't think I ever brought up blockchain times at all. Bitcoin transaction times (assuming you mean blocktimes) aren't "poor", they are long enough to reduce orphan blocks and short enough to allow transactions to complete in a reasonable amount of time. I never thought bitcoin (without LN) could ever replace money, but was instead a separate type of "money" that can be used in specific cases. LN expands the possibilities here, but as for what it will do or the impacts it will have, I don't know, and i don't pretend to know.
And I feel I spoke to the "reliability" and "centralization" directly as well, but didn't' explain myself.
LN transactions are just as reliable as blockchain transactions, more so in fact. A run-up of activity can cause blockchain transactions to be caught in the mempool out-bid by others for blockchain space unless RBF or CPFP are used, which are both cumbersome and in some cases impossible. LN has no such issues. You will know before you make your transaction if it will "complete", and you will know the max amount of time that you will need to wait for funds in the case of noncompliance, as well as how much you will get as a "bonus" in that case.
And the centralization aspect is also false, as the "network" part of LN makes it so that it's easy to route around a "centralized" hub if you need to for any reason, and the routing protocol increases privacy by making it impossible for the hub to know the source or destination of the transaction unless it is one of them. Fees are the incentive that make this whole network work, and for more information you can read some of my other comments in this post.
The questions you posed were based on false information that I didn't say, and were wrong in my opinion, which is why I didn't expand on my very direct answer of "Transactions in LN are just as "reliable", and don't introduce centralization in any meaningful way."
Anyway I feel this conversation is getting a bit more agressive than I'd like, so this will most likely be my last reply. You can read into that however you want.
So a micro-transaction is a 10 cent payment that can turn into a 20 dollar fee plus 10 cent payment?
> 9.5 Forgetting to Broadcast the Transaction in Time
> If one does not broadcast a transaction at the correct time, the counterparty may steal funds.
You need to be online all the time (or at least frequently enough) so that you can publish a penalty transaction if your counter party tries to steal coins from you.
These services won't actually hold your money, just a transaction that sends all the money to you if someone tries to cheat. It's more of an escrow service than a bank, but the escrow service again doesn't actually hold anything valuable.
You are talking about LN nodes, which work a bit differently than you seem to think it does.
For starters, anyone can "refuse" to open a channel with you, but they can't "refuse" to pass along a transaction (well they can, but because of the routing system used, you don't know where a transaction came from, or where it's going to, so they have no reason to refuse it). So if coinbase refuses to open a channel with me, I can still send money using coinbase as a middle "hop", and they would never know.
And KYC/AML laws aren't really applicable at this level in the stack. KYC laws apply regardless of what i'm buying/selling (in most cases). If I'm buying from best buy, they need to know who I am. That has nothing to do with how I'm paying, and the "middle hops" are like routers more than banks. Even if an internet router is sending a financial transaction, that doesn't mean they need to follow KYC laws. It's the same with LN, if your node is acting as a "hop" for a transaction, you don't know who or where the tx is coming from, or who or where it's going to, and it's counterparty risk free. It's more like an internet router than any kind of financial institution, so KYC laws don't apply.
* The time lock on commitment transactions is typically set to be a few days, so you don't need to be online "constantly." At most you need to check in about once a day.
* As the white paper says, you can delegate this function to a third party, without giving the third party the ability to steal your funds.
* If the other party tries to steal your funds and you catch him, you get to steal all of his funds. So in practice I don't expect this to be a common situation. If the other guy believes there's at least a 90 percent chance that you'll check the blockchain on any given day, then the expected value of broadcasting a revoked transaction is going to be heavily negative.
This isn't not the case. You can outsource channel monitoring to other peers in the network such that if anyone attempts to cheat you, they can punish the cheater and claim a reward. Bitcoin makes various security assumptions such as 51% of the mining power is honest, users have access to perfect information about the blockchain, etc... The LN, if the software is designed correctly, is likely to more realistic security assumptions than Bitcoin itself.
>3. It's relatively expensive to create and destroy channels at about two transactions per channel. Lightning proponents claim that this will be rare, but that can only be the case if there is minimal net flow of money. This is trivially not the case because users will be sending bitcoin more than they recieve and the reverse for retailers.
Channel factories[0] address this problem such that you can move channels between participants without touching the blockchain. There are also ways to do this whereby you switch n channels for a single transaction that spends log n outputs.
[0]: Scalable Funding of Bitcoin Micropayment Channel Networks https://www.tik.ee.ethz.ch/file/a20a865ce40d40c8f942cf206a7c...
It's a fantastic idea, but I feel it more has usecases between popular hubs and less for actual users.
Although they also have the side effect of making the initial transaction on the blockchain up to 90% cheaper, so they are useful there too!
Won't actual users be connected to popular hubs? For instance Alice's connects to Hub1, Hub2, and Hub3 via a channel factory.
That's really interesting, and opens up a lot of ideas. Still, I think we should avoid trying to bring up channel factories for now. They are still a few steps away as they add more complexity to an already complex system. Focus on getting LN up and working, then add in nice-to-haves like channel factories slowly once vendors are on-board.
Given all the money flying around ICOs, it is pretty amazing that there isn't more money flowing into layer two. Hopefully that will change in 2018-2019.
It's an evolving software still in pre-alpha state. But the core idea is solid and if you follow the development you'll see the strides of progress that is being done on all fronts.
To your points.
1. Depending on the options you set to your channels, you could have a window of days (or anything the two parties agree to), to act in case the other party tries to broadcast outdated TXs i.e. steal funds. Also you don't need to have a computer constantly online, you can offload the task to Watchtowers, software dedicated to do that for multiple users concurrently. (You also can have multiple Watchtowers as backups). Also, I imagine it could even be a mobile app. So this is a non-issue.
2. Routing will keep being improved but it's already pretty good and the way you present it screams FUD.
3. Currently crazy low fees aside, LN basically enables the multiplication of on-chain TXs population. I think your assumption is that the retailer will close and reopen a channel for every LN payment they receive which it makes no sense whatsoever from any point of view.
4. If by huge you mean $100 of which the fee is $0.5, sure. You can add any amount you want on an LN channel. Basically it's like a hot-wallet, e.x you can add $1500 for $0.5 fee, and casually spend it for coffees and other small expenses with lower TX fees than a satoshi (since LN supports fees at the millisatoshi = 1/1000 satoshi level).
P.S: This FUD-wave is pretty pitiful, at least get some real arguments. I hope even more people start to recognize that a lot of people have incentives to attack new tech in order to push their narratives for their altcoins or w/e.
Now imagine a start-up in this state was hocking shares to college students and grandmas at a $140 billion valuation.
The point is that it's disingenuous to deem a new tech dead, while the engineers working on it sill say that it's not yet fully-ready for production.
The implementation and the protocol still evolves, but the core idea behind it is rock solid and the most promising way forward to help with scaling AND enable use-cases that would be otherwise impossible (see microtransactions & realtime millisecond scale monetary transactions etc.)
The latter being useless as a currency, per the article, without the former.
Also, note the core idea of LN (updatable non-broadcasted Bitcoin TXs with incentive-based security and eventual broadcast to the blockchain network) is a powerful idea and as we explore this scheme and more engineers get accustomed I am sure we will see even more exciting things.
- Onion Routing Protocol: https://github.com/lightningnetwork/lightning-rfc/blob/maste...
- P2P Node and Channel Discovery https://github.com/lightningnetwork/lightning-rfc/blob/maste...
This repo contains specs for a lot of parts of the LN, although probably there may be changes I imagine.
As for code, one of the implementations, LND (Go): https://github.com/lightningnetwork/lnd/tree/master/routing but there are at least 3 other implementations in the works.
https://github.com/ElementsProject/lightning (clang) https://github.com/ACINQ/eclair (Scala) https://github.com/mit-dci/lit (Go)
Isn't that kind of the point?
You conduct your day to day transactions outside the bitcoin network and (presumably) only need to hit the blockchain on rare occasions. Or so I assume not having read the whitepaper.
Having studied the history of money and banking in a previous lifetime I'd say it's more akin to gold backed deposit certificates with guarantees against double-spending and fractional reserves.
That's actually false. The protocol actually limits channels to a fraction of a bitcoin currently (something like 0.1 or maybe even 0.01 BTC).
Nothing to see here.
As for #4, I view it like a checking account. You need to have a bit of money set aside in liquid form in case you want to buy something.
Hence why a lot of us think it has no inherent value into the future. Of course, those in on the ponzi scheme will disagree with this sentiment.
Stellar is also a worthy contender although it wasn't designed with the purpose of payments, but decentralised currency/crypto exchanges.
The Lightning Network daemon codebase on Github is a beautiful well commented piece of Golang code though.
Not really. DAG/lattice based cryptocurrencies offer different security guarantees compared to blockchain based ones.
I'm not sure what domains see this problem crop up but I've seen it in quant finance strategy execution. Say you have 1k strats that you want to run in parallel but risk needs to bound the bank's per-equity positions globally. When the strats work on different subsets, DAG approaches aren't a problem, but when most of the strats trade APPL/IBM your once very wide (parallel execution) graph narrows significantly (becomes more sequential) as the strats need to check with risk w.r.t. AAPL/IBM sequentially.
NB: for this reason, causal approaches are pretty rare to see today (though it depends on the domain as high latency contexts don't really care).
Nano is also interesting, but limited. In terms of moving value around, I think Stellar is more compelling.
Aside: last week up I looked it up and sure enough there’s a ‘PonziCoin’ out there
On the flip side, with Lightning, it's possible to steal quite a lot of money if you have the ability to prevent transactions from being mined (i.e. if you can mount a 51% attack). In particular, you can prevent any penalty transactions against yourself from ever showing up on the blockchain.
In other words, Lightning will drive the profit available from 51% attacks up and will drive the profit available from honest mining down. What happens when they cross over?
"In 2014, the volume-based transaction fees [for Fedwires] range from 2.8 cents to 69 cents per transfer" [1]. They charge an extra 15¢ if the quantity is over $10 million and another 36¢ if over $100 million. These transactions settle instantly and almost every bank gives consumers access to them (albeit with varying surcharges).
[1] https://www.federalreserve.gov/paymentsystems/fedfunds_corep...
Has it though? AFAIK it still has lower transaction volume than bitcoin.
Let’s see how it works out when adoption grows. If it doesn’t scale, then the timing for off-chain scaling will be more appropriate.
To give something to back me up, just look at the charts of BCH and it's main competitors: Litecoin and Dogecoin.
total # transactions: https://bitinfocharts.com/comparison/transactions-bch-ltc-do...
-> Litecoin does more than 2x the traffic of Bitcoin Cash and Dogecoin. Remark that Dogecoin sometimes handles more traffic than Bitcoin Cash.
Transaction fee: https://bitinfocharts.com/comparison/transactionfees-bch-ltc...
-> Dogecoin clear winner, Bitcoin Cash about the same as Litecoin (but remark that Litecoin handles double the amount of transactions)
So to be honest, I think Bitcoin Cash is just trying to ride the "Bitcoin" name, because for applicability, it doesn't seem to have any advantage over its direct competitors.
I'm sorry, but I'm not impressed. Let's build a solution that scales better on-chain and uses a more power efficient mining algorithm.
Thats axiomatically impossible. Its the amount of energy required, not nhashes/etc, that disincentivize an attacker from rewriting history.
By design, the Lightning hot wallet can only hold small amounts of BTC (0.042 BTC currently), and yes, this would be essentially a hot wallet. The funds are held in a trustless, multi-sig, timelocked payment channel between you and your channel peer (which does not have to be the intended recipient). A channel can stay open indefinitely, and it will be possible to replenish it as needed. The idea is to have it function like a checking account. I fail to see how this is any different from a regular BTC wallet on your phone, or even your bank/investment app (except safer).If you're really paranoid about the funds in your hot wallet, you're free to create an m-of-n multi-sig wallet with somebody else you'd trust, which renders that attack vector useless.
Also, your LN wallet needs to remain online _only_ when it needs to transact. It can go offline the rest of the time with no problem. When it needs to make a LN transaction, it'll need to remain online for the duration of the transaction (a few seconds), or else the fund recovery mechanisms will kick into place.
So it does require the private key to your hot-wallet to be on an always on, networked machine, right?
And the hotwallet and lightning channel can only transmit, across all channels, as much as is in this hot-wallet, and each channel has a potentially higher and rising transaction cost to open as lightning network will generate more transactions to the blockchain, not less. So you can keep your cake safe, or eat it, but not both.
I'll take the bitcoin cash approach, please. Worse is better.
No. You can have the private key in an offline hardware wallet like Ledger, with the lightning app on your machine waiting for the device to sign it.
> And the hotwallet and lightning channel can only transmit, across all channels, as much as is in this hot-wallet, and each channel has a potentially higher and rising transaction cost to open as lightning network will generate more transactions to the blockchain, not less. So you can keep your cake safe, or eat it, but not both.
Let's break this down:
>lightning channel can only transmit, across all channels, as much as is in this hot-wallet
No. Each channel has its own limits, and there's no limits to the number of channels you can open.
> each channel has a potentially higher and rising transaction cost to open as lightning network will generate more transactions to the blockchain, not less If you want to open a lot of channels, yes, each one will incur a blockchain transaction. Keep in mind though that you don't need a channel per payment/per payment provider. Payments are _routed_ to your recipient via the network, in up to 20 hops, so you don't need to have a channel open to your recipient directly.
Also, in theory this should lead to _lower_ transaction fees on the network, not higher. Lightning transactions need to be segwit by design, so there's a 75% discount to each transaction. Since each channel can have an unlimited number of transactions on it, this should lead to a massive number of transactions moving out of the main blockchain into LN channels. Additionally, the channels can be opened whenever you want, so you don't have to wait till you're paying for your coffee to open the channel. If you don't mind waiting for a few blocks, you can open the channel for cents.
We don't know how this plays out in practice, of course, so we'll have to wait and see.
Edit: formatting
(Not because this is a good idea, but because I didn't know anything about the Lightning network.)
For example: « That means you can use a single payment channel to make lots of payments to many different people—all while generating just a handful of transactions on the underlying blockchain.»
I am no bitcoin expert, but AFAIK the bitcoin network can currently process in the order of tens of transactions per second, and that is a low number compared to the 50-100k transactions per second that VISA et similia are currently capable of processing.
So, many are "lots"? How many are "a handful"?
Seems like a large enough "overlay network" over cache reserves and bank accounts can be made barely traceable and pretty efficient.
For fast payments nothing beats a server with credit accounts. Naysayers will say that it defeats the purpose of bitcoin, but nobody thought bitcoin would entirely make banks and their fractional reserves system disappear. If anything, people will still want to borrow money.
Banks could function on top of cryptocurrencies, the difference would be that their clients would be able to withdraw their funds out of the banking system alltogether at any time, that is not just turning one credit into an other.
Still, many companies have always required a few confirmation blocks before accepting a transaction, regardless of the amount. Like currency exchange companies, for instance.
Why would banks function on top of something which has no use value, generates no returns and whose sole claim to be a useful asset rests on its fungibility, which is now inferior to that of currency except in cases of regulation evasion? If people are concerned credit instruments are too risky because debtors sometimes fail to repay, it makes no sense to swap it out of their portfolio for something with no more intrinsic value than a credit instrument but also no repayment obligations.
Before bitcoin, was there any currency that was also a payment method?
I would also add that though it's not great a payment method, it's not to a degree worse than payments in euros for instance. Bank wire transfers take up to three days in Europe. I don't hear anyone stating that this undermines the value of euro as a currency.
(And of course the reason bank credit has more recently become treated as currency and accepted as electronic payment is because it's exchangeable on demand, at parity to and often instantaneously for legal tender)
> bank credit has more recently become treated as currency
A bank credit is not a currency. The thing it is denominated into (EUR, USD, BTC...) is.
> And of course the reason bank credit has more recently become treated as currency (sic) and accepted as electronic payment
I think the real reason is that people had little to no choice in that regard.
Every currency has, by definition, native payment methods. (If it doesn't, it's a settlement system, not a currency.) Most simply: physical cash.
Electronic payment systems are more complicated. In some countries, consumers can directly access them. In others, e.g. the United States, consumers indirectly access the settling-in-seconds and costing-pennies Fedwire system through banks.
> Bank wire transfers take up to three days in Europe
Maximum settlement time for SEPA transfers has been 1 business day since 2012.
[1] https://www.ecb.europa.eu/pub/pdf/other/sepa_brochure_2009en... footnote on page 20
I had not noticed. It's still much longer than 10 minutes, isn't it?
Wrong tool for the task. Ironically, every transaction I’ve done in Europe used U.S. dollars and Fedwires, which close immediately and cost basically nothing. When people go off about petrodollars or whatever, the simple fact of American international payment superiority is often missed.
(The ECB has been taking about an always-on instantaneous system for a while [1]. I haven’t kept track of its progress.)
[1] https://www.ecb.europa.eu/paym/retpaym/instant/html/index.en...
For scalability and robustness, one server won't cut it. You need a whole infrastructure to handle lots of payments securely.
I see various exchanges having trouble with scaling to support all their (new) customers, and basically they are doing the "single server" that you are talking about. Only at deposit/redraw they need to go over the requested blockchain.
So in that sense, what is your view on the latest generation of cryptocurrencies which have instant transactions and 0 fees (such as Nano)? Since I consider them the BitTorrent of currencies, I don't see how any institution could beat that.
2. My mom does not know how HTTP works and she uses the Internet just fine. It's naive to think that users are going to be explicitly opening and closing channels, finding best path, etc. These can be built into wallets and abstracted out. Besides, Bitcoin of today is already too complicated for the "average" person.
Lightning network is actual innovation and the next evolution in making Bitcoin easier to use for the masses. One step at a time.