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Comment by _heimdall | Hacker News Reader

Those second layers seen to lose the benefits behind bitcoin if I'm not mistaken. Most layer solutions act more like PayPal than anything else, with a trusted mediator taking offish transactions in their own system.

No more immutable ledger, traceability, fungibility, or censorship protections.

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You are not mistaken but interacting directly with traditional on-chain transactions is there if you want, possibly a little slower and/or more expensive.

I see traditional (haha, talking about crypto having traditions already) on-chain transactions for high value, low volume movements of coins. And Lightning (and BitPay, etc) solutions for low value, high volume.

You are also mistaken.

Please explain how the Lightning Network loses most of the benefits of Bitcoin.

You are mistaken.

The Lightning Network literally consists of Bitcoin transactions.

There are custodial solutions that serve each layer, but that’s orthogonal to the network itself.

Unless it's changed drastically over the last couple years, the lightning network attempts to effectively buffer transactions outside the ledger. Transactions are "deposited" into the network and passed around similar to marked bills. The bitcoin block chain is only involved when a transaction is initially moved to the lightning network and when one of more transactions chained into that are written back to the ledger when moved back out of the network.

This design has nothing to do with bitcoin other than the input and output formats. You depends solely on the lightning network itself and have given up all benefits from using a public ledger-based system. There is literally no way a layer two solution can offer faster transactions than bitcoin block times without requiring off-ledger transactions that aren't protected by the consensus protocol.

The protocol consists of passing signed multisig transactions back and forth through a network of payment channels. Every single one is a first class bitcoin transaction than can be redeemed by broadcasting to the base layer, enforced by consensus.

You have misunderstood since the beginning, because this is how it’s worked since the initial spec was proposed in 2015, years before it was actually implemented.

Here’s a book you may find informative: https://github.com/lnbook/lnbook

Right, so we are describing the same thing here. Transactions in the lightning network happen off chain and don't provoke any of the benefits of bitcoin's public ledger.

It's impressive that you could say I was completely wrong then proceed to describe the same system in slightly different wording.

When you say LN transactions “don’t provoke any of the benefits of bitcoin’s public ledger” what does that even mean? What benefits do you perceive are being lost?

Your initial description seems accurate, but then you erroneously claim this has nothing to do with bitcoin.

I don't view LN as having anything to do with bitcoin because it all happened off chain. The benefit of the consensus protocol is lost entirely since consensus is only reached once LN transaction chains are sent back to the bitcoin network and eventually make it into the blockchain. LN transactions rely on am entirely different network of transactions, validators, and (de)centralization tactics.

What are the benefits you see in LN that are worth the tradeoffs of abandoning bicoin's main chain consensus protocol?

The main chain is not abandoned, it’s used as a settlement layer.

If I hand you a paper bitcoin wallet worth a certain amount of satoshis, that’s still bitcoin. You rightly shouldn’t accept it because I know the private key and could rugpull those funds from your control. If there were cryptographic assurance to prevent that rugpull, owning that key becomes as valuable as the underlying asset.

Your flawed explanation is like saying the dollars spent on a Visa card aren’t using US currency because the transaction isn’t immediately settled in the eyes of central banks.

Edit: To be clear, there’s no credit involved in the LN transaction. I only used the analogy as a layman’s example. All LN transactions are fully collateralized and can be settled to the base layer at any time by either participant.

Upon re-reading this I think I identified the gap in your mental model: There’s no such thing as “LN transaction chains.”

Every LN transaction is literally a bitcoin transaction. Usually these are not broadcast to peers for settlement on the base layer, but the latest transaction always can be broadcast, just like any other Bitcoin transaction.

I don’t follow other L2s closely, so maybe this differs from Ethereum and its derivatives. But the Bitcoin Lightning Network is 100% Bitcoin.

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