Demystifying the Lightning Network: Addressing Criticisms and Real Challenges
🍕 In this article, we aim to address some inaccuracies found in the article "What is the Lightning Network?" on Investopedia and present a clearer picture of what it is and the challenges it faces.
Today’s Bitcoin Pizza is the Sicilian. It is often topped with onions, anchovies, tomatoes, herbs and strong cheese such as caciocavallo and toma. Bon Appétit!
The Lightning Network has emerged as a crucial scaling solution for Bitcoin, offering the potential to enhance transaction speed and reduce fees. However, there are several misconceptions surrounding this innovative technology. In this article, we aim to address and correct some inaccuracies present in the article "What is the Lightning Network?" on Investopedia.
But first, What is Lightning?
In summary, the Lightning Network is a decentralized network of shared ledgers, which we call “liquidity channels”, between users created through Multisignature smart contracts. It acts as a fast payment layer on the Bitcoin blockchain, improving transaction efficiency, speed, and reducing fees. Today, it enables near-instant secure permissionless cross-border microtransactions from/to anywhere in the world. By utilizing liquidity channels, which only require mining operations on the main Bitcoin blockchain during opening and settling balances, the Lightning Network ensures compliance with smart contract terms in a trustless and decentralized manner. This makes it a highly effective scaling solution that upholds Bitcoin's core principles of security, privacy, and decentralization. You can experience it yourself by installing Phoenix wallet on your phone or setting up a fully-sovereign non-custodial Super Sonic Umbrel node for under $200!
If you don’t own any beetcoins you can buy some from Kraken or Bitfenix and withdraw them using the Lightning Network to your wallet.
Umbrel interface and some of its Bitcoin apps:
1. The Role of Fees in Network Security:
Contrary to the claim made in Investopedia’s article, fees play a vital role in maintaining the security and operation of the Lightning Network. A feeless network would compromise privacy and incentivize malicious behavior. Bitcoin's Lightning Network, like other scaling solutions, does not eliminate fees entirely. It strives to provide cost-effective transactions while maintaining the security and integrity of the network. If fees are to be reduced down to zero, then you are the fee.
Additionally, it is important to note that scaling solutions such as centralised custodians, sidechains, Fediments, Opendimes, Ecash, and projects like Ark are alternative approaches to scaling. Each solution has its own set of advantages and tradeoffs. Scaling is an ongoing process that requires continuous adaptation to accommodate the growing number of network users.
2. Addressing Closed-Channel Fraud and Hot Wallet Concerns:
Investopedia seems to think that channel partners need to trust that neither of them will close the channel after committing a transaction and that the only way for users to guarantee a fair outcome is for them to trust a third party we call a “Watchtower”.
The Lightning Network employs robust mechanisms to prevent fraudulent channel closing instances, provided both nodes remain online. Protocol breaches are trustlessly detected, ensuring the security of transactions. Watchtowers are essentially other users who can detect fraudulent channel closures if your non-custodial lightning wallet, which we call a 'node,' goes offline. So your relationship with your channel peers will only require trust if your node goes offline. However, if you ensure proper setup, harden your node, and maintain its hygiene effectively, it will remain online for the majority of the time. But connecting to a watchtower is a good practice. I usually just ask my friends to be my watchtowers instead of paying a professional third party.
Considering that non-custodial Lightning Network wallets, which again we call ‘nodes’, require continuous online presence, if you’re a merchant or someone who happens to receive a lot of payments, it is advisable to sweep funds periodically from Lightning Network channels to an on-chain cold wallet.
3. The Diversity of Lightning Network Implementations:
The article claims that the company Lightning Labs “runs” the Lightning Network as if it’s some sort of centralised server. In reality, users run the Lightning Network on their computers using many Lightning-compatible software programs, such as Lightning Labs' LND which is indeed one of the most widely used implementations, but also Blockstream's Core Lightning, ACINQ's Eclair, and Spiral's LDK.
4. Investing in the Lightning Network:
The Lightning Network primarily uses bitcoin as its native token. To invest in the Lightning Network, one can acquire bitcoin. Additionally, there are opportunities to invest in businesses surrounding it such as exchanges, wallet applications, Lightning banks, and start-ups. Furthermore, contributing to the open-source development and education community is a valuable way to support the growth and advancement of the Lightning Network.
5. Clarifying Jamming Attacks and Research:
Jamming attacks, including the mentioned Flood & Loot attack, have been a topic of discussion since 2015, and several research papers and proposals have explored potential solutions. While the conditions for successful attacks are rarely met, it is important to remain vigilant as the network grows, especially during periods of increased onchain transaction activity. For those interested in further research, a promising solution can be found in this paper https://eprint.iacr.org/2022/1454.
Constructive Criticism and Key Challenges:
To provide a balanced perspective, it is crucial to address some of the challenges faced by the Lightning Network. These include the need for new non-custodial users to obtain inbound liquidity, the requirement for non-custodial users to remain online for trustless transactions, constraints imposed by onchain activity, poor automated liquidity management, and the need for improvements in path-finding algorithms. These challenges can be mitigated through ongoing development and innovation in the Lightning Network ecosystem.
If you want constructive criticism of the Lightning Network I would suggest you read these articles:
🧄 Why the Bitcoin Lightning Network doesn't work (yet)
🧀 A problem with Bitcoin's Lightning Network liquidity and ideas to address it
🍅 Current State of Lightning Network Privacy
Conclusion:
The Lightning Network represents a significant advancement in the scalability and efficiency of Bitcoin transactions. By debunking common misconceptions and clarifying important aspects of the technology, we hope to foster a better understanding of the Lightning Network and its potential for revolutionizing the world of digital payments. While challenges remain, continued research, development, and community involvement are driving the Lightning Network towards a more robust and inclusive future.
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