What is the Lightning Network
Lightning Network is one of the most exciting developments in the blockchain ecosystem, allowing for zero-fee cross-chain payments secured by existing blockchains. To find out more about how lightning network works, how it facilitates cross-chain payments, and what this means for cryptocurrency adoption read the original post on Rados.
I'm also having great hopes for the Lightning Network. Whatever the bigblockers say, I do believe we do need 2nd layer solutions. However, many small-blockers are hailing Lightning as the silver bullet for solving network capacity problems - but I really don't think the Lightning Network will be any silver bullet.
Many big-blockers are using the phrase "vaporware"; if I've understood it right we do have "proof-of-concept", but it's a long, long way until we can get "lightning support" into the more popular wallets.
(Lack of) network effect - I believe that in one year time it will still be more probable that two arbitrary parties can transact through some alt-coin than through lightning.
The lightning network do need some on-chain capacity - moving bitcoins into the lightning network takes two on-chain transactions if I've understood it correctly, and if one is not able to close the lightning channel the funds aren't secure. With bitcoin fees just growing and growing, this may be a major problem.
One has to move funds into the lightning network to be able to use it there, and out of the lightning network to be able to use it as bitcoins (if I've understood it right). With this constraint, the Lightning Network is not much different from being an alt-coin - one can move "bitcoins" around using i.e. ripple, bitshares, ethereum and probably lots of other altcoins.
Centralization risk; the easiest way to get connected to the lightning network in any meaningful way will probably be to connect to the largest hub available. Hence we'll end up with one (or in best case a handful) of hubs routing almost all of the traffic.
Vaporware means something that doesn't really exist. And we already have real lightning transactions on litecoin blockchain, not to mention numerous testnets. I do agree that critical mass is important in order for lightning to truly shine. I think as soon as major wallets update their software we'll see adoption skyrocket.
I understand your skepticism, but I think in one year we'll see two large ecosystems emerge: the bitcoin ecosystem, with numerous bitcoin forks (like litecoin) entangled with the original chain via lightning networks, and the ethereum token ecosystem. Ethereum will most likely be more popular in the western world, while bitcoin's ecosystem will have a stronger support in the asian world.
It does take two transactions to set up and teardown a payment channel. However, payment channels themselves have expiration dates, and once the channel times out your funds will be released to you. While a payment channel is active your funds are secure, but you cannot spend the amount you've staked to open the payment channel until you close it.
It's kind of like an ultrafast altcoin, except without its own token. The benefit of a lightning network is that you don't need to use exchanges in order to achieve these fast transfer speeds, and you don't need to pay fees on the altcoin blockchain. Moving funds in and out of lightning network will be a simple, streamlined process from a user's point of view. Take a look at "zap wallet" prototype that litecoin's community is building.
That is true, and this is why lightning network is not an altcoin killer. For some transactions it makes more sense to do them slowly, but anonymously, i.e. using Monero. For other transactions, like buying a cup of coffee, you'd probably use the cheapest and most convenient option. Different scenarios call for different solutions.
At the end of the day both you and I are simply speculating at this point, only time will tell how this all turns out. And that's the most beautiful and exciting aspect of modern cryptoeconomics.
Using the "vaporware" word on lightning ... that's really contested. Yes, there exists implementations that are ready-to-use or nearly-ready-to-use, but there doesn't exist a network and there doesn't exist users, and we still don't know if there ever will.
One of the characteristics with vaporware is that the marketing people are (ab)using the promise of the upcoming product to keep customers from escaping to competitors; "yes, we're well aware about problem X in our product ... but don't worry, soon enough we'll have our VaporFantastic 3.0 out and it will for sure solve problem X!". Or, in Bitcoin speech: "yes, the 1 MB block size limit is causing too high fees right now ... but don't worry, soon enough lighning will be out and it will make it possible to transfer an unlimited amount of micro-transactions nearly for free!"
I really hope the statement "lightning is vaporware" will be proved false in the very soon future, but ... we will see ... and I think we need bigger blocks nevertheless.
Indeed. The tech can be ready, but if nobody cares to use it then it might have never existed. Still, at least with litecoin Charlie Lee is working with wallet developers, so I presume there will be a web version much like MEW. And your point about forking is valid, that's why I think litecoin is still undervalued. It's the most similar codebase to bitcoin and already has a good volume. If it all boils down to choosing a bitcoin fork to use, why not choose the one that's shown it's stability.
Agree on bigger blocks.
Now, say I move 0.1 BTC into the lightning network and I do lots and lots of microtransactions there. When the channel times out, the transaction cost for closing the channel is like 0.2 BTC. What will happen?
(this is an honest question - I haven't read the white paper, I don't know the answer to this).
Hey, they say there might be negative fees for some transactions https://bitcoin.stackexchange.com/questions/42639/what-are-the-trade-offs-between-transacting-on-lightning-network-and-bitcoin-mai/42653#42653
I think people will keep using bitcoin as they already do. But businesses will probably be paying large lightning node operators for an always open lightning channel to receive payments without commission. And services like Stripe and Paypal will develop in crypto world. This will lead to a more widespread adoption of bitcoin and litecoin, which will lead to price increase. Just don't forget to cash out before it bursts if you think that centralized regulated payment providers for cryptocurrencies will be the end of it.
Negative fees for moving lightning funds from too-well-funded lightning hubs to the not-so-well-funded lightning hubs, yes, but to close the channel it's needed to pay the fee for the on-chain transaction, and that fee will never be negative. What happens if the channel cannot be closed due to lack of blockchain capacity?
Opening a payment channel requires two parties, but a payment channel can be unilaterally closed by either one. So in this case, the economic incentive to close the payment channel is on the person who has received more funds through the channel rather than on the one who has spent money. Basically, as long as one account has enough money to pay for the payment channel to close, everything should be alright.
The interesting edge case is when neither party has enough funds to close the payment channel. In this case, if I understood correctly, the payment channel will simply time out, and all the funds will be returned to the original state, as they were before the channel was open. Minus, of course, the payment channel opening fee that one of the participants has paid.
Exactly what i'm worried about, the lightning network might look perfect on the outside but the chance that this could potentially centralise bitcoin is very worrying and could completely ruin the coin once people find out that could or might be the case. Great run down on the lightning network though.
What I like about lightning network when compared to Ethereum's proof-of-stake plans is that LN is open and explicit about the centralization risks and is an opt-in mechanism. If you don't want to use payment channels you don't have to.
Ethereum's proof-of-stake is just another "rich get richer" scheme, where ethereum whales get to stake their ETH and earn the profits. And then we're suddenly in a situation where instead of requiring 51% hashpower to hack the network you simply need to have 51% market cap. Which, if history teaches us anything, will happen sooner or later.
just read between the lines here: https://ethereum.stackexchange.com/questions/11182/will-a-higher-stake-make-more-money-in-pos
speaking of centralization: https://rados.io/posts/sell-bch-before-it-s-too-late
I share your worries, and I believe most of the active crypto community members do. I think it'll be a niche thing targeted at mass market. Think cheap (or even free to the consumer) bitcoin/litecoin paypal, so that people can pay for coffees, clothes, food and what not.
For more complex transactions you can still use either the traditional bitcoin blockchain, or just abandon bitcoin in favor of an altcoin that emphasizes decentralization and trustless economy.
Crytocurrency is great, but it is against the existing currency system. So, I think banks will not support it but people should love it due to no fee and lightning fast.
If you can't beat them - join them. When cryptocurrencies reach a certain critical mass banks will swiftly reengineer themselves.
And also, just maybe, those will be new banks, created specifically for crypto
You are right. I am wondering what the new banks for crypto can benefit the users. If the crypto banks exist means it should have some fees and the account holder can no longer be anonymous (which can be good in terms of dealing with money laundering). So the users will not be happy about this.
yeah. or basically just mandate all exchanges to comply with AML/KYC, and make that the only legal way to convert between crypto and fiat. Let crypto be unregulated, but perform checks when someone wants to cash out.
I don't want banks to support it. I would love for banks to crumble as we all move on to a currency that we can control.
This day is very far away~
Because the economic nowadays are all base on the monetary policy, but I think in no longer future, both currency and crypto currency would play an important role in different countries.
Nice information...
Thanks @rados :)