Speaking for myself, I have high hopes for Bitcoin as a freedom technology. It’s climbing the adoption curve rapidly as a store of value. Hopefully the Lightning network gets it the rest of the way to medium of exchange. Lightning offers the same security and permission-less guarantees as the base blockchain, but adds instant settlement and ultra-low fees.
Digital cash is the goal, right? The problem with cash as we use it is that is a poor store of value because it is not a real commodity, but just a liability of the government. Bitcoin with Lightning could be both.
edit: Britain and the whole world should run from CBDCs at warp 10. That’s a total financial panopticon.
Unfortunately the lightning network re-introduces payment processor middle-men which is unacceptable in my opinion. Yes, anyone can open a channel with a merchant, but it will take at least 2 expensive on-chain transactions (open/close the channel) and it requires you to commit some capital to the channel which you can’t use elsewhere in the meantime.
Payment processors would also have the ability to censor transactions which is antithetical to the core ideals of Bitcoin and cryptocurrencies as a whole. This kind of processor structure would be fine in a cryptocurrency like Monero where the processor would not be able to see the sender address, recipient address, or transction amount. But in Bitcion where all that information is visible it is infeasible to use lightning network and maintain censorship resistance.
Lightning also completely fails in its original design goal which is to allow scaling while preventing node centralization due to expensive hardware requirements. Since a lightning node must maintain open channels with other nodes to operate, and since open channels require commitment of capital, and since the number of open channels required scales directly with number of users and merchants, only the wealthy with the deepest pockets can afford to operate a useful lightning node.
But I do agree that we should avoid CBDCs like the plague.
1. On chain transactions are fairly cheap and have been for a long time. What do you mean by expensive?
2. How can payment processors censor transactions? I don’t think you understand Lightning. It’s onion routed, similar to TOR. Routing nodes only know previous hop and the next hop, which they already have open channels with. They don’t even know if the previous hop was the first, or if the next hop is the last. Why/how could they censor it?
3. An open channel does not lock anything. When you commit funds to a channel, you can use those funds in the Lightning network. It’s not like they’re useless until you close the channel. That’s like saying that putting dollars on a pre-paid card is “committing capital” that you can’t use elsewhere. No, you’re just using an alternative payment method.
4. It doesn’t completely fail. It is somewhat more centralized than the layer 1, but that is to be expected. It’s good enough and private enough to be useful for most things. The blockchain doesn’t go away. You can still use layer 1. You can still use coinjoins or mixers or atomic Monero swaps if you want.
1. I see current fees are around $1.90/txn these days. My bad, it’s been quite some time since I’ve made a Bitcoin transaction. If on-chain transactions are cheap, what motivation does a user have to use lightning?
2. I actually didn’t know it was onion routed, that’s good! There is still the possibility of censorship at the edges though, which could propagate throughout the network via “I won’t open a channel with anyone who opens a channel with X”. Although this issue exists in most federated systems like Mastodon and Matrix. I don’t know a way to solve it other than full anonymity. I’m assuming it’s public knowledge who has an open channel with who.
3. My understanding is that opening a channel locks the funds into that channel. As you said you can still use those funds for lightning transactions, assuming that the other party is well connected and you can route to your destination via them.
4. I do agree that it can be useful for most things while at the same time failing its design goals. The thing I’m extremely wary of is creating a system which handles 99% of use cases perfectly but accidentally degrades the service for the rest. If lightning gets enough adoption that it handles 99% of Bitcoin traffic then I’d expect 2 things to happen. First, a small set of hub lightning nodes would emerge which everyone would route through. These nodes would be subject to KYC/AML laws by governments and would be required to begin censoring transactions in the manner described in #2 by refusing to open a channel with anyone who either is a node that does not comply with KYC/AML, or an individual who has not jumped through enough hoops. Second, anyone who makes an on-chain transaction that is not lightning related is instantly suspicious, like handing someone a brown paper bag full of cash. I think this would be an unfortunate state for Bitcoin to end up in as it would have become the very thing it sought to destroy.
On atomic swaps. I think they’re really great. The only issue is I can’t imagine myself ever converting Monero to Bitcoin for fear of ending up with coins tainted in some way that I’m not sophisticated enough to discover until it’s too late. I don’t have a solution for this.
Finally I want to say that I appreciate your response, as there is more nuance to the lightning network than I initially presented. Admittedly I was a little overzealous with my comment above, but I’m glad we can have a honest discussion about things. Rare on the internet these days!
1. Honestly, you could be right about fees. I don't keep up with them normally. I use the Strike app for buying Bitcoin, which doesn't charge any fees, including on-chain fees. That said, $1 or $2 might or might not be expensive, depending on how you view the role of on-chain transactions. I see on-chain transactions as "I'm using this to buy a house or car, not a cup of coffee."
2. Private channels exist. Most channels are private. Only channels used for routing must be public. So if you're just opening a channel for payments, the only way for a third-party to know would be use to on-chain analytics to maybe catch you. The actual channel wouldn't be broadcast to the Lightning network. Definitely not perfect, this will always be a downside of the transparent ledger.
3. Yup, this is ultimately the real problem with Lightning, which is that it tends to centralize around large connected nodes. Hopefully, payment splitting will resolve some this.
A lot of people worry about tainted coins, but I think regulators will realize that's a losing battle. Eventually the whole network will be tainted coins.
Interesting read! Apparently its concepts were taken over by https://en.m.wikipedia.org/wiki/GNU_Taler but I've never seen that in use before so idk of it's the dreaded never to be done micropayments thing or not but hey, it's a start, and less dead than mondex.
Digital cash is the goal, right? The problem with cash as we use it is that is a poor store of value because it is not a real commodity, but just a liability of the government. Bitcoin with Lightning could be both.
edit: Britain and the whole world should run from CBDCs at warp 10. That’s a total financial panopticon.