The state of Lightning Network
We write March 27, 2019. What about the Lightning Network on Bitcoin?
First, briefly repeat what Lightning Network is.
The Lightning network is a so-called Second Layer technology. It is an extra, second layer that is, as it were, above the base layer, the blockchain. By securing funds in the blockchain, they are available on the second tier and can be used with the reserved money to do multiple transactions without having to keep track of the blockchain.
Why Lightning Network
To make it possible to use Bitcoin on a large scale. The blocks of the Bitcoin blockchain have a fixed maximum size. It can fit 3,000 à 5,000 transactions. That’s 5 to 7 transactions per minute. A global payment network will not succeed with such a throughput . Lightning makes it possible to break that limitation. Instead of having to capture the blockchain transactions (on-chain), this happens on the Lightning layer (off-chain), between two parties. The number of transactions per second can now drastically increase. It is only still limited by the computer power of the two parties. You can think of 1,000 or 10,000 transactions per second. And simultaneously, millions of other people and machines can perform tens of thousands of transactions in their channels, in parallel. Theoretically, this leads to a network with a capacity where the current payment networks, such as those of credit cards will be crushed away.
How it works
I wrote about it before. Two parties that regularly make transactions with each other may decide to open a Lightning payment channel. They each set an amount in the blockchain (on-chain, using a smart contract). Then they can exchange off-chain within the limits of the deposited amount, infinitely many transactions with one another. At any time, one of the parties may decide to stop the channel and go back to the blockchain with the last mutual status. Two on-chain transactions, one to open and one to finish, allow infinite transactions between two parties.
But now it becomes even more fun: if I haven’t opened a channel with someone I’d like to send money to via Lightning, then that’s possible, through a joint party where we have both opened a channel with it. Money can therefore be routed over a “path” via “hops”. The condition is that all hops in the path have been given sufficient balance.
On-Chain you pay a commission to make use of the entire Bitcoin network. But off-chain the commissions are many times lower or they are even zero.
The sky is the limit, but also no need
Low or absent commissions make things possible that we do not yet know. Microbe payments are for the first time economically feasible. You can make payments via Lightning in milli-Satoshi’s. That is a thousandth of a Satoshi, which is a hundred millionth of a Bitcoin! And this can create “streaming money”, a continuous stream of very little money. Your salary can be paid per second, or you pay only for watching a movie as it plays. The sky is the limit!
But Lightning is also bitter necessity. Without Lightning, the blockchain (at constant block size) cannot become a global payment system. So much hope is based on the development of this new system. But how enthusiastic people can be about it, it has not yet proven itself on a large scale.
There are 6 development teams worldwide working on implementations of Lightning on Bitcoin. Acinq, Lightning Labs, Blockstream, Nayuta, Matt Corallo and the Digital Currency Initiativeat MIT. They all work within the frameworks ofBOLT (Basic or Lightning Technology).
The current state of the Lightning Network
On the drawing board Lightning is fun and nice, or even fantastic, but is it also going to work on a large scale? When the technique was launched a little more than a year ago, it was said by many that it would take a year to work properly. I think that this estimate was far too optimistic. We see a lot of development, but it is still a complex technique that is far from ready for easy use by “ordinary people”, the ultimate target group.
We look at some indicators to determine how it goes with Lightning.
Indicator 1: The Possibilities
- There are talks about apps that are full-automatic for the user to decide whether to perform a transaction on-chain or with Lightning, but there is still not much to be found about it.
- Also there is now “autopilot”. Autopilot takes care of the connection between the user’s wallet and the Lightning network by strategically opening a number of channels. This is not yet there in today’s mobile apps. On the contrary, you have to set it up in the current apps yourself and so you first need to understand Lightning before you can do anything with it. On the other hand, Auto-Pilot is already available in node software and it is a matter of time befor this feature is also available in apps.
- There are plans for “AMP”, Atomic multipath payments. That allows a lighting payment to occur over multiple routes in the same time to send higher amounts. This is not yet in the current version BOLT 1.0.
- Also the so-called “Watchtowers” are conceived and worked out. Parties who monitor the user’s compliance with the opposing party of a user in a channel and act according to the rules. The user can then go off-line without worries. The principle is conceived but the earning models for the Watchtower provider are not yet clear that it has been implemented.
- The promise of microbe payments has now been realized. At Satoshis.place You can paint on a digital canvas for the price of 1 sat per pixel for quite some time.
Out of 5 Lightning apps for mobile phones, there are currently 3 custodial. That is, a central party, the app operator for the user, opens a Lightning channel with the user’s money. So you have to trust that operator on his blue eyes.
Realistically, there are still some restrictions. The solutions are conceived but have yet to be developed and implemented.
Indicator 2: The size
The magnitude of Lightning could try to measure the number of channels that have been opened, or the total amount that has been put in by the users. But beware: this is not fully possible. Because Lightning Network users are not obliged to publish the data of their node. So there is always a part of the network that is unmeasurable.
The number of Lightning channels
At the time of writing, there are 7,655 nodes visible. There are 39,336 channels, which means over 5 channels per node on average. The growth of the nodes can be seen in this graph:
The same increase in growth in the recent 3 months is also visible in the number of channels:
The rising growth in the last graph is probably due to the availability of different mobile apps that make Lightning channels and payments possible.
In these channels 1,051 Bitcoin is currently recorded. In euros, that is now 3.7 million. And this has been the course since last year:
What is not to fix is how many times it has gone wrong in transactions. A transaction can fail in two ways: no route can be found, the transaction does not go through, or worse, the money put in is gone. The latter can happen when a participant has not been on-line for too long.
Indicator 3: The Lightning Torch
(Message goes through under the tweet)
It is intended that each recipient complements the ‘ torch ‘ with 10,000 Satoshi (10kSat) and forwards it to someone else in the world. The question is when someone disconnects this chain of trust and keeps the money for himself. Hodlonaut has now created a website about this action.
The torch has now been held by prominent figures such as Jack Dorsey, the CEO of Twitter. That Dorsey is pro-Bitcoin, is well-known. He has added Bitcoin to the Square pay app. And he also wants toimplement Lightning. Also the founder of LinkedIn had it. And many wish that also Elon Musk gets it. The torch also (after some hickups) went from the UKto Iran, then to a Iranian in the US and then to someone in Tel Aviv. Which obviously underlines the boundless nature of Bitcoin. The Dutch company Bitconic has been the 265th in the chain and the 268ste transfer has already taken place. The value of the torch is now around €130,-.
And that last, that value, turns out to be a pain point. The passing of the torch becomes more and more difficult. The sender and receiver must have opened a Lightning channel worth at least €130,-. With each other or through one or more hops, all of which must have been placed with at least that amount.
Indicator 4: What the BIS thinks of Lightning
To look at Lightning from a different perspective. The perspective of the Bank of International settlements. This “Mother of all Banks” sees Crypto and Lightning of course in the same way as blockbusters ever saw streaming. But the research they do is thorough.
In an article “Beyond the Doomsday Economics of” proof-of-work “in cryptocurrencies”,The author Raphael Auer mainly relates to the economic stimulus to secure the Bitcoin blockchain network in the future. He expects that by decreasing block rewards the security will crumble to the network as it undergoes a 51 attack. But he also goes into second layer solutions like Lightning Network. He sees two problems.
- The widespread finding of a path to route a payment is, according to Auer, worrying because not all participants in the network can be online continuously. (Also see the point above about Watchtowers).
- He also expects problems with the size of the funds that the participants are willing to put into the channels. Suppose the parties that you want to pay an amount are on average via 5 channels, so about 4 hops to reach, and the network would like to be able to support itself well distributed, then a deposit is required by all participants of 4 x so much money. The probability is, according to Auer, that users are not willing to do so. As a result, only a small group of commercial operators are going to offer this kind of ‘ fat Kane ‘, where they A) counting a price for b) which leads to centralization.
Bitcoin is currently in particular a storage method condition. It is safe, but slow and the capacity is low. To become a means of payment, Lightning Network can in theory offer a solution. Users enter a payment channel and can perform extreme and extremely small transactions outside the blockchain. They can also reach ‘everyone worldwide’ through a number of hops. There are a number of problem scenarios imaginable where solutions have been devised. We are in the midst of developing them.
Much remains to be done to make it as user-friendly as for example the Web browser and buy something in awebshop. But the fact that HTTP, HTML, CSS, TCPIP and SSL have completely disappeared under the hood, proves that it can be done.
The big question is whether Lightning is going to work on a global scale. There are different forces and without experimenting we do not know whether it will all stay in balance. And that experiment is exactly what Bitcoin is: The biggest Money 2.0 experiment ever.