Yeah, I read up on Lightning. Thanks for that, they have some interesting ideas.
The way it works is it creates a bunch of automated contracts between pairs of users. Say you buy coffee from starbucks every day. (not mustachian!). You can set up a "payment channel" which is a peer to peer connection of sorts with starbucks and put some money in it, maybe $100 worth of BTC. Every time you go to starbucks, they debit your payment channel.
The novel part of lighting comes when you want to make a small payment to a vendor to whom you don't have a payment channel. The network will try to find someone who does have a payment channel with the vendor. Then you pay someone, and they pay starbucks. This works recursively, so you can have a fairly long payment chain.
I didn't study it in detail from there, but it sounds like they're trying to borrow from routing in ad hoc networking to find connections to the vendor that you're trying to pay.
These micropayments are all aggregated and eventually pushed back to the real block chain.
Good marks to the lightning team for doing something about scalability! But...
The 3 big problems with Bitcoin as it is today are:
1. If you lose your private keys, you're screwed.
2. If your private keys are compromised, you're screwed.
3. The bitcoin network itself doesn't scale.
Lightning tries to improve #3. But it exposes a much larger attack surface by doing it, making #2 worse.
And... there's no guarantee the lightning network will actually scale globally. The risk areas are
1. Ad hoc routing just doesn't work very well.
2. The network performance will depend heavily on a bunch of stochastic behaviour on the part of its users.
This will be an interesting experiment, but it's not a clear solution to the tribulations of BitCoin.
Just a couple of notes on the lightning network. This comes from experience as I have been running a lightning node for 2 years now.
Lightning network is already scaling the bitcoin network. I am not sure what you mean by: "ad hoc routing just doesn't work very well". I can honestly say that after using the Lightning Network for 2 years and using it to do most of my online retail purchasing, I've only had a couple transactions fail due to routing after the thousands and thousands that I've sent. Since there are inherent privacy gains when transacting on the lightning network due to its onion routing properties, there is no true measure of how many transactions are taking place on the network. However, just with my node alone, I've notice a massive uptick in the number of transactions that are being routing through it each month by other users. For the first year and a half, I saw at most a handful of transactions routed each month. Now, consistently over the last 6 months or so I've been seeing 200+ transactions being routing through it. The size of these transactions have also been consistently getting larger with many transactions in the $200-$500 range. Every transaction that takes place on the lightning network is a transaction that doesn't need to take up block space on-chain.
One of the biggest mistakes in critiquing bitcoin is people thinking that people will be paying for coffee with on-chain bitcoin transactions. This is not the evolved design intention of bitcoin. It is intentionally designed not to scale by the number of transactions so that instead the network can scale outward and remain as decentralized as possible. Bitcoin is a settlement layer much like the infrastructure in traditional banking. The on-chain settlement layer is to be used as a settlement layer for aggregated transactions on secondary and tertiary layers in the financial system. Similar to how a central banking and federal reserves settle balances between financial institutions that are closer to the citizens that are transacting. Banking customers will transact with the bank and then the bank will settle those the net balance of those transactions with a clearing house, fedwire, reserve bank or other financial institution. This is a decent article that explains what this layered financial system will look like on the bitcoin network which will allow it to scale.
https://medium.com/galoymoney/lightning-as-a-retail-payment-system-part-1-7463c46342efThere will be many layers to the bitcoin network with the bitcoin blockchain acting as the secure final settlement layer to it all. For example, the Liquid Network is a side-chain that allows for instant and scalable transactions to take place between exchanges that allows instant settlement between traders and exchanges while still being backed by the same bitcoin blockchain security.
Furthermore, there will likely be interoperability between many of these layers using what is called atomic or submarine swaps. This will allow value that is stored on one layer/network to be instantly exchange for value that is on another layer/network. We are already seeing many of these services crop up in unique and interesting ways. For example, a new bitcoin wallet called Muun allows the user to seamlessly send and receive both bitcoin on-chain and bitcoin on Lightning network with just one balance using submarine swaps all while staying completely non-custodial. Therefore the user doesn't need worry about managing lightning channels or balances. They can send bitcoin to a lightning network invoice and bitcoin they have in their Muun wallet will go through a trustless submarine swap service that will pay the lightning invoice.
Technology in bitcoin is ever changing and there are constant improvements in both scalability solutions and user interface. One of the last things I am concerned about with bitcoin is that there won't ever be an improvement in scaling or user interface improvements that will carry the technology into the future.
This brings me to another point about usability and security. There was a recently publish NYTs article (not going to bother linking to it) the other day that focused on the failures of people storing their bitcoin in the earlier days when its value was practically worthless (so they didn't bother with even basic security) and when backup technologies were nascent. To call such failures a failure of bitcoin itself ignores the improvements made in the technology since the early days as well as the ingenuity of humans to problem solve in the future. Yes, bitcoin requires a lot of personal responsibility when it comes to security if you choose to minimize trust on third-parties (which you should). That means it is important to educate one's self on the technology that you're working with before ever taking on large sums of money. But, there are actually a lot of technologies that are very unique to bitcoin in the financial world that could open up new pathways for improved security benefits. Things like multi-sig and timelock contracts can be used to help secure funds using third-party services without giving up full ownership of your keys. Yes, backing up your keys or seed words requires a lot of personal responsibility, but there are a lot of options out there these days to help with this such as hardware wallets, encrypted backups, cold storage hardware, and using multiple backup solutions to ensure fault tolerance and minimize user error.
As far as proof-of-work and its energy use, I don't think it is appropriate to villanize energy use that isn't inherently clean or dirty one way or the other. I feel that by pointing blame and energy usage in industries that aren't inherently dirty or clean takes blame off of the industries that need to be much more pressured to clean up and reduce their emissions like the fossil fuel industry. In fact, that is what the fossil fuel industry specifically wants people to do; put blame on other industries for their energy use because it takes the spotlight off of them. We need to focus our efforts on cleaning up our energy grid by reducing our fossil fuel dependence. By virtue of a clean energy grid means that bitcoin also becomes a clean technology (emissions-wise). Yes, we also need to reduce our energy consumption as a whole (especially with urgency), but bitcoin as an industry can actually help accomplish that goal for energy industry in several ways.
For one, the energy market inherently lacks arbitrage. We don't have an economical way of transporting energy from one market that carries an abundance to another market with unsatisfied demand. Furthermore, energy solutions that are put in place to provide energy to a market are often scaled based on future needs as opposed to today's demand. Bitcoin can be used as a means to economically transfer the value of that energy that is produced and allow that value to be brought to market in the global economy. This allows for renewable energy to be bootstrapped with immediate economic return. There are also now solutions that can be used to help reduce inefficiencies in the energy market such as gas vent flaring which emits larges amounts of greenhouse gases. There is a company that deploys bitcoin miners at these vents and then allows those vents to produce energy that can then be brought to market in the form of bitcoin as opposed to being wastefully vented. Bitcoin as a form of energy market arbitrage is an extremely valuable thing that I feel is under-recognized. The idea that bitcoin will someday consume all the energy in the world is a fallacy and grossly ignores all the countless ways humans waste energy in this world that actually does take place in markets with demand that produce no value to human life.
I hope some find this interesting. Bitcoin is far from being perfect and there are certainly a lot of problems that still need to be solved (like the risk of DoS attacks on Lightning nodes). But I don't think it is appropriate to make a claim that bitcoin is a failure (speaking generally here) because of the problems it faces today. I have no doubt that there will continue to be ingenious solutions as the technology matures that will both provide greater security for those that use it while also scaling to allow more people to take part.
