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Comment by RyanShook | Hacker News Reader

Bitcoin transaction costs are very high so I’m assuming all these payment processor transactions will be off-chain. Do you think that having so many off-chain transactions that are essentially converting USD reduces the perceived value of BTC or raises it?

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Why would it reduce the value? Off-chain transactions are something the core Bitcoin team are very much in favor of.

That sounds like they are in favor of not using bitcoin.

They are in favor of not using the L1 Bitcoin blockchain for small payments. L2 solutions, both decentralized ones like the lightning network and centralized ones like Visa are still "using Bitcoin" as a currency, even though they are not using the L1 blockchain.

Instead of using Bitcoin, the transaction network, they are using their transaction network to transact bitcoins, the asset. The chain gets used primarily for settlements in this model.

If your purchasing power is calculated in bitcoin but your purchasing in some other currency, there is no real problem there. Bitcoin network can get used one per day for settlement, and the rest of the time use visa digital coins! Which they call dollars or euros, some differently named legacy meatspace fiat. Then bitcoin is free to just swim around in libertarian platonic ideal of freedom from societies obligations and rules

All trading within exchanges already happens outside the blockchain. This allows them to offer low or zero fees since transactions only cost money when users withdraw their cryptocurrencies.

I'd say it adds a lot of value.

It sounds more like Visa will let you settle your statement in BTC than actually using it as a processor.

It's just on-chain layer 1 transactions that are somewhat expensive. The lightning network solves this and works great, can do thousands of transactions per second and has close to 0 fees. Feels like magic to use it :)

It's magic until you realize you need to spend $15 to get off chain to buy a coffee. And then you realize you aren't ready to commit a bunch of cash to a speculative currency (or investment) so that you can buy coffee.

Also, you will need to file taxes for your coffee if your bitcoin goes up after you bought it. Fun!

The idea is to never go off-chain, so no need to close your channel(s). And aren't you already committing cash if you're "in" bitcoin?

The tax filing doesn't sound so bad in the long run. I'm sure someone will write some nifty tool to extract whatever payments you've done.

Arguably, the tax filing sounds like the single worst part of it. Imagine if you really used Bitcoin for every purchase you make in a normal tax year. Suddenly how much you pay in taxes depends on the path integral of the exchange rate over the entire period. That's an absolute accounting nightmare. Now you have a huge incentive to batch all of your purchases at market low points to minimize tax burden and you're stuck trying to beat the market just to buy groceries. That isn't something I want to have to think about.

Fair enough, that’s why I wrote ”in the long run”. Also, there’s always the option of moving somewhere that doesn’t have this issue. Well, unless you’re from the US and must file taxes even when you’re not even in the country, I suppose.

You may have been downvoted for a snarky tone, but this is the first time I've seen it mentioned here - bitcoin is taxed as a commodity in the US, each exchange is a capital gain or loss.

This is the poison pill for BTC in my opinion. I have a very small amount of BTC and this is the primary reason I don't have a larger investment, don't make more of an attempt to use it as currency, etc. The central banks/governments aren't going to give up their power so easily. They may have low-key destroyed crypto by considering them commodities.

The only way crypto can win* is if a plurality of people just choose not to follow the tax laws. It has to be enough people that it becomes unenforceable.

win* in this case is defined as being a 1st order currency largely unencumbered by central banking/government authority.

You can just borrow against it to spend it. No tax whatsoever and you hold on to your asset.

How do you eventually repay that loan (or at least pay interest)?

Guessing: you can sync up once a year (or even once every 5 or 10 years) and pay taxes on that transaction at that day's price.

That's ok if you are happy with shifting the tax date. I can definitively see how this decreases the accounting burden but not the tax burden.

>The only way crypto can win* is if a plurality of people just choose not to follow the tax laws. It has to be enough people that it becomes unenforceable.

That's impossible if you spend your Bitcoin via Visa.

If you buy euros with dollars, keep them, then buy dollars back, is that lunged as capital gain/loss?

In short, yes, in the US, with a few exceptions.

I believe currency trading has special tax treatments distinct from commodities.

https://www.investopedia.com/articles/forex/09/forex-taxatio...

Some exchanges will let you withdraw to a lightning wallet so you never have to interact with the base blockchain layer for smaller day-to-day transactions.

I would imagine most exchanges will have similar lightning withdrawal options in the future, if there's demand for it.

That doesn't solve anything, it still has to be synced with the chain so that the balance can be useful to anyone else. The average transaction is around $20 USD and has been around this much for a while. Opening and closing second layer channels is even more expensive than an average transaction.

There is no universe where 1.5KB/s in transactions makes sense. Any other cryptocurrency works better, ethereum and bitcoin cash already have more transactions than bitcoin and any other cryptocurrency works better.

It doesn't sound like you're familiar with how lightning works. It doesn't have to be "synced with the chain" except during channel opening and closing, which occur infrequently (like on the scale of weeks or months).

> ethereum and bitcoin cash already have more transactions than bitcoin

The eth blockchain is untenably huge (good luck running an ethereum full node), and ethereum fees are often higher than Bitcoin fees.

> The eth blockchain is untenably huge (good luck running an ethereum full node)

No blockchains are anywhere close to "untenably huge".

The ethereum chain is 639.43 GB.

https://bitinfocharts.com/

A $10 USD VPS could sync with that in under two hours. That is about $12 USD of hard drive space after 5 years.

This is about the same as downloading the five to eight largest games on steam.

> and ethereum fees are often higher than Bitcoin fees.

No they aren't. They are about the same, making them both unusable for normal transactions, but it should be obvious there are no technical limitations to making larger and/or more frequent blocks since ethereum does it already.

https://bitinfocharts.com/comparison/transactionfees-btc-eth...

> It doesn't have to be "synced with the chain" except during channel opening and closing, which occur infrequently (like on the scale of weeks or months).

Which means that no one can use that balance for weeks or months and some third party has to spot people the money in the mean time. That sounds like a credit card. Know what doesn't work like that? On chain transactions.

> The ethereum chain is 639.43 GB.

False. This is for some sort of pruned SPV node or something. A full node takes multiple terabytes. Even the fastest implementations take days to sync, if you're lucky.

https://tjayrush.medium.com/building-your-own-ethereum-archi...

> Which means that no one can use that balance for weeks or months

You clearly have no idea how lightning works, so why do you keep commenting as if you do? Nothing about this claim is true.

The difference is that what I linked actually backs up what I said.

Did you even read what you linked? It says "We’ve long ago depreciated the cost of the machines. The ongoing cost of running these machines is negligible."

Does that sound "untenably" large?

> Even the fastest implementations take days to sync

You realize it has been going for five years right?

> You clearly have no idea how lightning works, so why do you keep commenting as if you do? Nothing about this claim is true.

Your evidence of <<nothing at all>> is pretty weak. You basically replied to say "nuh uh". In other comments you claim that certain things don't work when other people point out there there are many examples of it working already.

How exactly does someone who gets a balance on a 3rd party lightning channel use that money on the main chain without syncing with the chain? Until they get it on the chain it isn't a bitcoin balance and to make that transaction is going to cost a significant amount.

It does. You don’t need to leave the L2 solution. Why would you when you have the possibility to transact for free? Liquidity on LN is growing by the day and as more and more people join there will be fewer and fewer reasons to settle.

Define works better. Has larger blockchains? All transactions don’t need to live in the blockchain.

It's 20 dollars now. Over the last year 50% of the time it's a few dollars.

It has been 20 or more dollars 5% of the time this year.

https://ycharts.com/indicators/bitcoin_average_transaction_f...

I'm not an expert on lightning network, but couldn't Visa position themselves as a central hub for lightning network transactions, so that most people can open a channel to Visa and they act as the clearing house for keeping all of those channels balanced?

I'd never want to send large BTC amounts through visa, but I would trust them enough to facilitate <$100 transactions for a ~3% fee (with some potion profit and some towards tx fees).

Or heck, maybe consumers don't need an actual channel, just let me send Bitcoin out on credit and pay my monthly balance with BTC. Maybe only channels to vendors that receive payments are necessary.

Not sure how much demand exists for this, but "We are the #1 facilitator of Bitcoin transactions" would probably be great for Visa's stock price if they could achieve it.

They could and they probably will if LN keeps growing. You wouldn’t need to trust VISA at all, LN is “trustless”. They would just be a cog in the wheel, like all the other LN “nodes”.

They could, the big difference is they would just be another player on the lightning network payment channel, perhaps a very big player, but not "own the whole layer" kinda big.

They could just build their own LN replacement. Why be a cog when you can have control over your journey?

The reason why crypto people love crypto is also the same reason why companies hate it. If you give people control then companies lose control.

Think of a WoW cash shop on Ethereum. Blizzard would have much less control over it than a central cash shop.

> Opening and closing second layer channels is even more expensive than an average transaction.

That's true if opening/closing channels require you to go to the blockchain, but channel factories will significantly ease the burden of 2nd layers on the blockchain.

Why use an outdated planet-killing tech such as butcoin underneath your level 2 bolted on solution when you can use something modern and do it directly on-chain?

I assume this is a bad-faith question, given how much it begs the question, but: there is no known solution to the double-spend problem that achieves the same security properties as proof-of-work without consuming energy.

Dumb out-of-the-loop question: then what's this talk of Ethereum moving to proof of stake? Whenever someone brings up that PoW is bad, people say Ethereum; whenever someone says why PoW, someone says because PoS isn't safe.

Short answer is it doesn't work now and is not known to be able to work.

Much easier to make promises than keep them.

Don't want to duck your question but: the reason this is hard to get a handle on is that it's really complicated.

It's not that the premises and protocols themselves are complicated — sure, they're technically sophisticated, but they can be explained simply. The problem lies in that it is very hard to predict the economic consequences and security guarantees of the various consensus mechanisms. Frankly, if Bitcoin hadn't been working flawlessly for the past 12 years very few people would guess that it would work.

There are two problems here: The first is that a lot of ethereum talk is just that; hot air with little substance.

The second is that PoS has significantly worse security properties than PoW.

The core reason is that "changing your mind" (rolling back the blockchain) is free with PoS, except for possible loss of value of the cryptocurrency, whereas it's extremely expensive with PoW. There are all sorts of band-aids you can slap on like ignoring block reorgs of a certain depth, but then you lose properties like network partition tolerance.

We shipped ethereum proof of stake December 1st, 2020. There are over 100,000 validators in the network, securing over $6 billion worth of value. This isn't hot air with little substance.

EDIT: adding source https://beaconcha.in

I don't understand how this viewpoint can persist now that we have quite a few PoS chains humming along in production: Cosmos, Tezos, Polkadot, Mina, Solana, Avalanche, Cardano, Eth2.

Edit: I suppose what you said is a fair statement; PoS security is different in that it relies on weak subjectivity. In particular, users can maintain security by syncing every X days, where X is based on the staker bonding period, and not accepting long forks beyond X. It's not equivalent to PoS security, but there's nothing really problematic about it IMO. Several years ago, one could make the case that this security model was untested, but not so much today.

To add to that, Algorand has the ability to prevent double spending, and is decentralized proof of stake.

Your knowledge is outdated, see the other responses.

Sorry, "butcoin" was a typo...

Visa is a competitor to the lightning network. What makes you think that people will prefer lightning over Visa?

It would raise it because more people will use it, but it would also eliminate all the usual "crypto" marketing reasons to put money into Bitcoin.

Yes

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