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Comment by simiones | Hacker News Reader

So the way to scale the blockchain is to avoid putting transactions on it. If I promise you that if you give me your burger you'll have 5SAT from me, and later you ask for my water and offer to reduce my debt to 4SAT in exchange, did we use the bitcoin blockchain in our transaction?

With ligthning, you're not using the bitcoin network to process transactions. If we opened a lightning channel for our 2 personal bitcoin wallets, and I paid you 1000SAT over the channel, and then someone checked my bitcoin wallet, they would see that I still have all those SATs (of course, I can't double spend them).

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Jo sends $100 from Bank A to Alice at Bank B, then Bob sends $100 from Bank B to Jo. The banks will have no USD to settle at clearing as a result.

Did Jo and Alice participate in a USD transaction?

I think that is a great analogy. If you view Bitcoin on the main blockchain as M0 money supply, then side channels like the Lightning Network and other centralized payment processors that have been popping up can be viewed as M1 and more commonly M2.

If Bitcoin's original thesis of truly decentralized P2P cash still holds, then it should be viewed as an M0 money supply. Financial services and products build on top of and separately from the main chain make sense as analogues to reserve banks and payment processors that do not handle the majority of transfers in physical cash.

I don't like that analogy. Unlike M0 and M1, every BTC on the lightning network represents one BTC on the L1 chain. The L1 funds are locked in order to participate in L2.

Unlike current USD, but like USD before Nixon abolished the gold standard, right?

That's a promise that Lightning makes and that you can check in their code today, but it is not a fundamental guarantee the way that the bitcoin blockchain offers guarantees.

Sure, if you changed the code of lightning then it would work differently. If you changed the code of the L1 chain it could work differently too. How are those guarantees different?

Calling it a promise makes it sound like there's counterparty risk and you're relying on them not changing the code. Changing the lightning code would have no effect on your funds locked into lightning using the old code.

Yes, they traded in USD. But they did not use the Fed's accounting systems to do so.

Similarly, if I send you 1000SAT through the lightning network, I am trading in bitcoin, but not using the bitcoin blockchain to do so.

Sure, Lightning relies on guarantees offered by the bitcoin blockchain to promise payment security. But it's not the same thing, and the Lightning network could become compromised even if the bitcoin blockchain remain secure For example, if Lightning accidentally started adding an extra 0 to transactions, if I send you 100 SAT over the LN you could see that you are receiving 1000 SAT and send me some products. Later, when the channel is closed, the bitcoin blockchain would refuse the final transfer, but it may be too late.

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