Bitcoin Q&A: Misconceptions about Lightning Network

These channels that have value locked up in them sound eerily like Nostro/Vostro accounts that the banks have to deal with now…

Out of curiosity Anntonop are you a Kantian?

There’s a lot of subtle tricks happening here. “You won’t have to ‘cash out’” — yes, you will. Just saying you can make more lightning transactions doesn’t solve the problem of wanting to settle the transaction on the chain.

There is a reason institutions are suddenly on board with crypto… and its bc they see a way to control and make money off working peoples earnings. The lightning nodes will be the middle man and their investing… add some regulation and they will basically be running a bank on top of the block chain and alot of miners will dissappear making onchain transactions almost not an option.

5:55 Andreas does not think that Lightning will form into a centralized hub and spoke system. Unfortunately, history and experience tells us that if the potential for centralization is present, it WILL happen. The is the fatal flaw of Lightning networks. We can do the experiment, but the outcome is determined by human actions that are entirely predictable at a large scale.

One of the best videos about crypto on YT.

Would it help to avoid bitcoin centralization if all who have bitcoin operate a full node?

The technical fundamental are always impressive Andreas, i really admire your work.
Still you miss the essentials that blockstream is a for profit company now operating in the so called 'B'lock'T'sream 'C'oin..

Seems to work well! https://www.youtube.com/watch?v=KOMkwCf2_7g

how to prevent double spends within LN?

I like the way how Andreas describes everything but I still think he did not provide any real answers why the Hubs are NOT a risk for centralization. The only argument he gave is that it is dangerous since a Hub holding a lot of value might become a target for hackers but in an ideal scenario there is no attack surface in the Lightning Network. So I wouldn't call this a real argument. Does someone else have arguments that counter the centralization claims? Would love someone to change my view on this

i have a question on LN: what if a person A buys a product using BTC on Lightning Network and sent it to person B and that channel was not closed yet. he received his product within the day. the channel is still not closed. he then uses traditional bitcoin tracsactions to move his funds to another bitcoin address. theoritically speaking is this possible?

my question really revolves around the scenario where 100 of thousands of transaction going on in LN in the future and it is not "proof of worked" on the blockchain yet. Who's to say that something won't fail on Layer 2 and everything in Layer 1 (blockchain) gets reverted in Layer 2 because of a catastrophic fail. after all were talking about money that moves physical products, services, etc that suddenly got lost in Layer 2 but Layer 1 records were delayed due to millions of 0 confirmation transactions that never got to the blockchain because it got lost/bugged/hacked/loopholed,etc

so really, is having Layer 2 viable when it comes to money? i get that we can do it with TCP IP. but with money with turing complete code full of bugs and probably 7 layers of it? is this viable or is this human ignorance unable to foresee outcomes.

You cleared my mind up. Thanks

On chain scaling it's much easier for noobs. It is senseless to lock your money up in the network, constantly opening channels, and locking more into the network. What are the pros of LN because I only see cons. With many other cryptos I can send instantly and almost free. What would incentivize me to lock up money I need in the LN?

A brilliant mind

Thank you! for explaining it. I now understand lightnight network much more clearly.

So, you need to open at least 4-5 channels with high fees just to be able to send payments via lightning network? I downloaded Bitcoin Lightning Network wallet, and I had to pay 20$ just to open one channel. Will this still the same case in the future? 20$ for each channel? That's really high. Somebody enlighten me. 😀

Which incentivizes the intermediaries to route transactions to the right destination? What if the intermediaries do not have enough bitcoin in their ballance?

excelent, magistral

SHOW ME YOUR KITTY! ?

Lightning is the same old hub and spoke system as the legacy financial system.

is off chain LN hackable ?

Thanks for your honest (as always) clarifications on Lightening network and centralization. You steered the path for my thoughts in the right direction.

I hace a poor understanding of LN. I found this thread in reddit, can someone with more knowledge pls explain if this points this guy is making hold any truth.

-Please know all this about lightning before getting too excited

Essentially, lightning only works as a scaling solution when everyone is already using it. It has no way to bridge the gap from no users(where it is starting) to everyone worldwide using it.

If the node you are trying to pay is offline, you simply can't pay. And you still incur fees when you settle your channels on the restricted blocksize chain.

Worse, it has numerous tradeoffs that will discourage the average person from using it. This amplifies the downsides that arise from it not being universally in use instantly, and will prevent it from ever reaching that state. Here are those:

1. You must be online all the time to be paid. And the person you want to pay must be online for you to pay them.

2. If you go offline at the wrong time and aren't using a centralized hub, you can lose money you didn't even knowingly transact with.

3. The solution to #2 is to enlist "watchers" to prevent you from losing money. More overhead the average person isn't going to care about or understand, and more fees that have to be paid. Or people will just be forced to use centralized hubs.

4. Two new users to Lightning will not be able to actually pay eachother without using a centralized hub because no one will lock up funds into the opposing side of their channels; No funded channels = can't pay eachother. Hence… Hubs.

5. Using hubs will come with a fee; They aren't going to lock up their capital on your behalf for no cost.

6. The entire system is vulnerable to a mass-default attack. Hubs are especially vulnerable.

7. Lightning will not be able to route large payments(no route available).

8. Lightning transactions are larger than normal transactions.

9. Lightning nodes must keep track of the full history of channel states themselves. If they lose this, they are vulnerable to attacks and may lose coins.

10. Attackers may randomly lock up funds anywhere along the chain of channels for extended periods of time(many hours) at no cost to themselves.

11. The network randomly may fail to work for a user under certain circumstances for no discernable reason as far as they can see (no route available).

And the issues directly related to the not having everyone on the planet on lightning at first:

1. Small payments consolidating into larger ones, such as a retailer who needs to pay vendors, will fail to route on Lightning, and the loop between the source of the payments(end users) and their destinations(retailers) is broken. This means every channel will "flow" in one direction, and need to be refilled to resume actually being used.

2. Refilling every channel will be at least one onchain transaction, possibly two. If this happens twice a month, 1mb blocks + segwit will only be able to serve 4 million users. Some estimates are that Bitcoin already has 2-3 million users.

3. Regardless of lightning's offchain use, Bitcoin must still have enough transaction fees to provide for its network security. Except instead of that minimum fee level being shouldered by 1000 – 500000 million transactions, it is only shouldered by ~170 million transactions with segwit 1mb…

So people can just hack your lightening wallet? 14:15

Actually I completely disagree with Andreas, that guys video was not “high production value”, to me the LN is retarded.

You say that bigger blocks will increase mining costs so will produce centralization but:
1-Even if we maintain mining costs, competition and places with lower electricity costs would continue increasing its hashpower so others will see how their profitability is lower and becomes even lower than their electricity costs.
2- if block size increases it's because there are more transactions, compensating the costs and even giving more profits.

You also said that the matter is not onchain vs offchain, it's private offchain (transactions inside exchanges) vs public offchain (second layer). That is a straw man fallacy! Yes, nowadays brokers do most of the transactions but obviously that is not the aim of cryptocurrencies, and in the future that will change.

There is no solution yet to P2P routing the transactions since about 30 years. And this is more complex that Internet, since routes liquidity varies with every transactions and then your's can fail if someone's used the liquidity of a channel before you. Without a solution there are needed some trustworthy intermediaries (like Internet uses). That is a step back in decentralization

routing is a problem . not a sollution( the p2p network of bitcoin is better already, why go back to bad stuff?). , keeping money in payment channels is a problem(no big company will ever keep money into channels, risk to high), opening and closing channels is slow and expensive and is a problem. why not use a fast onchain alt instead without all these risk and problems? ..

Andreas, I really enjoy your videos. You express yourself very well and everything is clear. I also enjoy the fact that you give your opinions on things and don't say "This is the way it is and everything else is wrong". BUT, to think that the internet is "open" and that people are free to do what they want is pushing it. I have a hard time believing that you truly believe that.

catching up … , thanks Andreas!

I don't understand why there are 100 or more downvotes. What are your arguments?