Bitcoin Q&A: Misconceptions about Lightning Network

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Bitcoin Q&A: Misconceptions about Lightning Network

Bitcoin Q&A: Misconceptions about Lightning Network

[QUESTION] “Have you seen the video ‘How the Banks
Bought Bitcoin’? It says the Lightning Network will… centralise Bitcoin so that a few players have the power.” I have seen that video. I’m not going to do
a point-by-point rebuttal of that particular video. I think it contains a number of misstatements.
It makes some incorrect assumptions, then from those… draws very broad conclusions that are
not really supported by the evidence. It is predicting a level of centralisation in the
Lightning Network or any second layer technology. I think there’s a couple of things to say about that.
First of all, it’s assuming Bitcoin itself isn’t [somewhat]… centralised already. What we know is that in
some areas of Bitcoin, there is already centralisation. In the absence of second layer technologies, there are two ways to resolve the increase
in demand and limited capacity. 1. Increase the base block size. What that does is push
the costs of scale on to those who operate nodes. [This] will lead to centralisation of mining and
centralisation of node ownership, at least in my opinion and the opinion of many others. 2. Push transactions off-chain,
not into a second layer that continues… the security model and trustless nature of Bitcoin,
but simply to push it into private databases. We’ve seen that happen as well in Bitcoin.
The vast majority of transactions happen offline, off-chain, within the databases of large
exchanges and merchant providers. So this isn’t a choice between on-chain and off-chain. It’s a choice between off-chain private and
off-chain [trustless] in a second layer environment. I think that’s important to realize, because centralisation
occurs at different points of the system. It’s not a matter of having a completely decentralised
versus a completely centralised system. Different aspects of the system may have different
degrees of centralisation. Furthermore, I think… the Lightning Network is quite broadly misunderstood. One of the fundamental misunderstandings is that
the Lightning Network is simply payment channels. That’s not true. A lot of people think that in order to operate a Lightning
Network payment, you [must] have a payment channel… to, [for example], the coffee shop
where you want to buy a cup of coffee. [But] if that was the only way the Lightning Network
worked, it wouldn’t be very effective. If you had to open a payment channel
every time you wanted to make a payment, the cost of the funding transaction and
settlement transaction would be huge. The second misunderstanding is that, in order for the
merchants to be paid or the recipients to be paid, they have to close the channel and [there
has to be immediate] settlement on-chain. In fact, that’s not true either.
First of all, all payments [can be] routed. That means [the Lightning Network] isn’t just payment
channels, it’s channels connected to each other. If I want to visit a web site on the internet,
I don’t need to open a VPN to that web provider. I can have a connection with someone else on the
internet and they will route my packets to the website… as long as there is a path that reaches from
my computer to the computer of the provider. That network has some degree of centralisation.
With the Lightning Network, if you have the ability to… create a path from your node to the person you want
to pay, then you can route a payment over that path. Once you open a channel, you don’t have to
open a channel [with] the person you want to pay. You can open a number of channels. I think the best
approach [for doing that] is to let the client do it for you If you’re running a Lightning Network node,
for example [with the client made by] Lightning Labs, one of the implementations… the Lightning Network
daemon (LND) has a system called autopilot. Autopilot will open channels for you so you don’t need
[to manage it yourself]. It’s in the background. It simply opens channels with as many people as
it needs to be well connected, so it can find routes. It also closes channels when it needs to,
[such as] when the other party doesn’t respond. Finally, once you’ve opened the channel (or several
channels) and you can route payments through them, you don’t have to close those channels
in order to use the funds that you receive. You can use them to make payments again over
the Lightning Network. You don’t have to cash out. You can keep your funds within the Lightning Network. You can also refill channels through a
number of different technology options. One of those is essentially to route a
payment to yourself, in the inverse direction… of the channel you used previously,
to shift the balance back towards you. There are a number of other tricks. Mostly these things
will be done by the wallets, not manually. I think there are a lot of misunderstandings
about how the Lightning Network works. Some people [took] those misunderstandings and, with
some very glitzy graphics and high production values, have created this impression that the LN is inherently
[prone to] centralisation, a hub-and-spoke topology. I don’t think that’s true. Of course, we won’t know until
we run it. [But] we’ve already seen a number of people, [including myself], running Lightning nodes on mainnet.
This experiment has just started. I am very hopeful for the future. I think it [will] be a great
addition to the technologies we use in this ecosystem. [But] if you don’t want to do that and instead you want to
use [only] on-chain scaling to do all of your transactions, [you can] and there are alternatives.
There are a number of alternative chains out there, including Bitcoin Cash (BCH), Litecoin (LTC),
Ethereum (ETH), Monero (XMR), Dash, and many others, that you can use to do your transactions. I simply think
that we will do better with Lightning on Bitcoin. [QUESTION] “How do routes across
Lightning Network payment channels form? How does a node find an optimal path?
If each channel needs funding to stay up, won’t that lock a lot of value?” Let’s take the first two parts of that question first,
which is a really interesting question. There’s two really important
models for routing that we see. One model is where intermediate hops at each point… decide [what] direction to transmit
the packet they’ve just received. This is the model [which] is used on the internet.
One funny way of describing this is called a “hot potato,” where someone hands you a hot potato,
you hold it in your hands and want to get rid of it… as quickly as possible because it’s hot, so you pass it
along to the nearest person [with] their hands out. The model of internet routing is a bit more sophisticated
than that, of course. Routing decisions are made by… [each] intermediate routing node, because
[they] know the source and destination information. Using the destination information, it decides how
to get closer to that destination in the next hop. That’s not how the Lightning Network works. Even on the
internet, there used to be a model where you could do… what is known as source routing, where the source
of the IP packet could define a priori (e.g. in advance) the intermediate hops that the package should go
through. The intermediate hops wouldn’t make any… routing decisions, they’d simply pass it to the next IP address listed there. The originator decides in advance… what route the package should follow.
That’s called source routing. [They would transmit] it and then the
intermediary nodes simply follow that information. That’s how the Lightning Network works, at least now. There can be a number
of different routing implementations. The routing implementations are completely
independent from the underlying network, so you can… have different routing strategies being implemented. The one we see now in the beta-tested testnet
version of Lightning today is a form of source routing… that uses encrypted layers called onion routing.
It’s a source-based, onion-routed network. The node that starts a payment receives information
about all of the available channels out there, [such as] the capacity that each channel has
and the fee each channel charges. Based on that information,
it constructs an optimal path. The optimal path may be [one which] will result
in the lowest amount of fees, for example. Once it has constructed a path (and it [will
construct several] because the first path may fail), it encrypts each hop in the path and embeds it, such that
it wraps the routing information in layers like an onion. It takes the final destination, the final hop, and encrypts
it to the public key of the node before the final hop. Then it takes that information and encrypts it
to the public key of the node before that, and then works backwards wrapping encryption around,
until eventually it has this “onion” of routing information. The outer layer is encrypted only to the first node that it
needs to reach. It transmits [the encrypted route]… to that first node. That first node can only read
the outer layer; it knows where to send it next, one hop. It unwraps [the outer layer of the encrypted route],
sends it to the next node; that node can only read… [the next hop] where it needs to send it.
It can’t see the source where it came from. It can only see that it came from the immediately
previous node [in the path] and immediately next node. It doesn’t know how long the path is,
it doesn’t know which position it has in the path, which makes it very difficult to reconstruct the path. To summarize: the source decides how to route
[the payment], the source constructs a path based on… information it has about payment channels
that are possible routing candidates. Once it has constructed a viable path, it wraps
each element of that path in an encrypted packet, creating a layered onion of routing information, so that
each node can only read one hop ahead or behind. [It] doesn’t know where it’s going [to end up]
and doesn’t know where it came from. Then it transmits that, which starts unwrapping
the route layer by layer, until it arrives at the destination. The destination node is the only one
that realizes it is destination node. The origin node is the only one that knows
it didn’t receive this from someone else. Every node in between doesn’t know
anything [about the origin or destination]. The second question that Mit asked…
Let me repeat that and start again. “If each Lightning Network channel needs funding
to stay up, won’t that lock [up] a lot of value?” This is a really interesting and insightful question
because – yes, in order to use the Lightning Network, you [need] to have enough value in the channel
to transmit the payments you want. In fact you have to have that value on your
end of the channel as capacity to send. That’s why you would normally open two or
three, four or five channels to other nodes that give you a number of paths
into the Lightning Network. You would fund those with amounts that are enough
to do the kinds of payments that you want to do. If you wanted to route some [bitcoin] that is greater
than the amount you have in your channels, you’d have to open a new channel, or you’d have to
fund one of your existing channels with more money. There’s a couple of ways to do that.
For example, one way would be to… buy some bitcoin and instead of having the
seller send it to [a normal] bitcoin address, [they could] send it to your Lightning Network address,
which would then [increase the value of] your channel. [This would] allow you to make a bigger payment. Of course you can’t spend what you don’t have. That
means you will have to lock value into the channels. Ironically, this is what prevents centralisation of “hubs,”
because if you try to create a Lightning Network node… that connects through many channels to many other nodes and has a lot of value available to route, that means you’re holding a lot
of bitcoin value in those channels. Those channels are hot wallets, which means
the possibility of someone hacking your node… and causing it to transmit all of that value
away is quite high. You become a target. So that’s a disincentive to running
very highly funded, centralised nodes. It’s much better to have more channels [to and from]
more nodes and to have a mesh network. [QUESTION] “A few articles have talked about AML regulation, how it might be applied to Lightning nodes. Are node operators likely to
face a lot of [legal] risk? Why?” That’s very difficult to answer at this point
because in many cases it [will be hard]… to see how these regulations would be applied to
individuals running software on their home computers. It’s difficult to see how you would
even find these individuals. In most cases, the Lightning Network is intended
to be used for smaller amounts of money, so each of the payment channels would
probably not have a very large balance. In many places, anti-money laundering regulations
apply to flows greater than a certain amount. How these regulations would be applied to people
who are not banks or money service bureaus… Characterizing them all as banks is preposterous.
Attempting to prosecute everybody who is running… a Lightning node would be preposterous. It would only lead to more stealthy implementations that
simply hide better, so that you can’t tell somebody is… running a Lightning Network node. A lot of [these concerns] came up initially when people asked… “If I run a Bitcoin node, propagating other people’s
transactions, does that make me a money transmitter?” There was a lot of concern about people
being prosecuted for running Bitcoin nodes. None of that came to fruition. None of that
actually happens, not in any liberal democracy. In fact we’ve seen very few examples and most of those
were focused on banning miners, even in Venezuela It’s probably illegal to run a Bitcoin node in North Korea
— but then again, what isin’t? “[Will] node operators likely face a lot of risk?”
I don’t think so, not really. [But] I’m not a lawyer, so I can’t advise you. I think any country that tries
to apply AML regulation to Lightning nodes… will end up pushing those nodes outside of the country,
where they’ll have even less visibility and control. It won’t change the operation of the network.
The internet is open. We can route to a Lightning
Network node no matter where it is. It can facilitate routing of
payment[s] no matter where it is. In most cases you don’t need to know where it is;
that will only make the Lightning Network stealthier. [AML] is unlikely to be an effective regulation. [QUESTION] “Please explain what using
a Lightning-enabled wallet will be like. There’s a lot of confusion about channels,
the need to open and close them.” I remember a time when I was using
the internet and DNS didn’t exist. There was a lot of confusion about what
IP addresses had interesting services. I remember memorising the IP address
of the main FTP server at Berkeley, because that’s where they stored the Berkeley
software distribution, the first open-source stuff. If you wanted to download BSD, you had to
[find] someone who knew the FTP server because there were no DNS names to find it.
That was a very difficult internet to use, that nobody would use today. The early iterations of Lightning Network are like that.
They bring a lot of engineering details to the surface. You, as a user, see all of the gnarly bits that
should really be hidden behind the user interface. In my opinion, a Lightning-enabled wallet [should]
look exactly the same as a multi-currency wallet, preferably something like Jaxx, which is one that I like.
It has multiple currencies, you can send and receive… in multiple currencies. If you want to send,
you scan a QR code and then hit ‘SEND.’ If you want to receive, you hit ‘RECEIVE.’
It shows you a QR code that somebody can scan, or you can copy it to a clipboard.
That’s how a Lightning wallet should work. You should have two buttons: SEND and RECIEVE. If you
want to send [a transaction] and you scan [an address], it should tell [you] if what you’re scanning is
a Bitcoin address or a Lightning Network channel. If it’s a public key from a Lightning Network, you
should route the payment over the Lightning Network. If what you scanned is a [regular] Bitcoin address,
it should either use an on-chain transaction (because it also has an on-chain wallet capability)
or use a gateway that converts a Lightning Network… payment to an on-chain Bitcoin payment.
Therefore you can’t tell the difference. You can’t tell when you’re making a Lightning Network
payment or an on-chain Bitcoin transaction. It will look exactly the same [in the wallet].
You won’t need to open and close channels… any more than you need to configure the routing table
of your Wi-Fi router or the VPN of your home computer. It knows how to route IP and it does it for you.
It does it invisibly in the background. You don’t tell your BitTorrent client
how many other [peers] to connect to. Yon’t tell your TCP/IP stack where to route packets.
That should be an implementation detail. It should be hidden by good engineering.
The interface should be as simple to use… as any Bitcoin wallet today: scan a QR, send, [done].
Simple as that. [QUESTION] “I’m interested in running a Lightning node. Where is the best place to start?” I found the best place to start was the Lightning Labs
implementation, Lightning Network daemon (LND). But that’s not the only one. You can also use c-lightning,
an implementation by Blockstream’s team. You can use Eclair from ASINQ, which is the third
implementation. All of three of these implementations… are what’s called BOLT-compliant. BOLT is a set of interoperability standards.
BOLT stands for “Basics of Lightning Technology,” which is what we call a backronym in this industry,
where you [choose the letters of the acronym first] then you figure out what words
would make work as an acronym. The nice thing about BOLT is that it makes sure all
implementations that are BOLT-compliant can work… with each other; they can open channels to each other, they can communicate on the network. [It creates] one unified, multi-implementation Lightning
Network. I’ve used LND, I haven’t used the other two yet. But I will be playing around with those two over time. You can find those at “” and
“” There’s also a Github repository. There’s a few interesting Medium articles that
[explain] how to run a Lightning node on mainnet, which is the main network, or on
testnet if you want to run it on testnet.

98 thoughts on Bitcoin Q&A: Misconceptions about Lightning Network

  1. I wish someone would volunteer their time in order to increase the production value of your videos, because even though they are very good and informative, people respond better when there's graphics, graphs and whatnot.

    I am NOT skilled enough, unfortunately.

  2. Will the transactions be cheaper?Because from my undestanding you pay fees on lightning and then on first layer blockchain so it sound like it will be more expensive for one time use and less expensive maybe if i do multiple transactions on lightning?

  3. Questions:

    – If we can securely route transactions between nodes using onion encryption, THEN why did we have to invent BlockChain to securely store data without counterparty risk?? Why are we using such a massive amount of energy/electricity to secure the blockchain?

    – Isn't LN network the following old story?

    "Back in the old days when people using Gold as medium of exchange they realized that gold is too heavy (high fees) to use for daily transactions…so they started to give their golds to money changers (LN nodes) and use paper instead in daily transactions…then money changers realized no one comes back to redeem their gold & so they start printing more papers (tokens)…"

  4. My question: There will always be people losing their private key or dieing without anybody knowing their private key to access their bitcoins. If the overall supply decreases over time, wouldn't that be a problem for the future of bitcoin?

  5. I'm sorry Andreas, this is a very good video, and I fully realize that block chain size is an exponential problem that must be solved, but I cannot agree, that the best way to scale the block chain, is to simply step away from it. This is still the most counter objective idea I have ever heard. The point of bitcoin is to give people a solid, easily transferable, store of wealth, that does not rely on intermediate parties. Instead you are supporting a system, that all but cant be used without third parties, doesn't transfer actual wealth, and amounts to little more than a convenient way of exchanging IOUs. I think that the bitcoin developers, have made a fundamental error in judgment*, especially when it comes to people that have held coin for years. No one wants this, the users don't want it, the miners don't want it, and a good percentage of the original developers don't want it. The value of bitcoin, the *REAL value of bitcoin is not in the coin, or its proof of work, but in the block chain itself, it always has been. When you lose a wallet, you only get your coins back because of the block chain. The block chain is the bank, so to speak, I think many of the people who are in favor of the lighting network have gravely underestimated the amount of trust that has been placed in it, and the extent to which people will fight to keep it that way.

  6. hi, can someone receive payment if offline? since you need to open a channel to receive payment i would suspect that the answer is no

  7. Hello Andreas. I am huge fan of you. Could you pleas have a look at the below question:

    I am very new to Bitcoin and I have limited understanding of the technology.

    I wonder if introducing random selection can work to improve speed and scalability.

    The idea here is to make the difficulty of solving the mathematical puzzle less difficult and produce more blocks and then introduce random selection by the protocol to select successfully verified blocks instead of waiting for longer chain to be formed. If this approach will work then it will achieve the followings:
    Faster speed and improve scalability.
    More decentralization since you do not need extremely powerful mining hardware.
    Needless to say, this will create less incentive for miners since it is not enough to be only faster, you need some luck as well since randomness is introduced. However, still you need to be very fast in producing blocks to increase your chance of winning.

    Do you think such approach will be workable or it is completely nonsense for any technical reasons.

    I appreciate your thoughts on this.


  8. Andreas what do you think about lightning network could cause a centralization? Since it breaks with the established in the white paper of Satoshi Nakamoto, bitcoin does not need intermediaries, but the channels are managed by users who act as intermediaries.

  9. Andreas et all…I have an issue that I thought this to be the best forum to ask. Sometime around 2009 or 2010 I purchased 100 bitcoin. I paid with a debit card. A couple of years later, I had forgotten about bitcoin, and my hard drive crashed. I can't find the laptop anymore, so wondered if there is any way I can identify the bitcoin I purchased. I am aware that bitcoin isn't as secure or anonymous as others so I think I have some hope here. I didn't download it to a wallet because I didn't know what to do with my ownership. Any help with this would be deeply appreciated!!!

  10. LN is not Bitcoin, its not bitcoin until its written back to the chain. Until then it is messages flowing around a network with routing issues. Why even use bitcoin?
    It is not a fix for Bitcoin.

  11. Andreas do you see Bitcoin as a micro-insta-payments currency in the future or it will keep being just a store of value?

  12. Who pays and how the commissions for those lightning network transactions and how are they calculated and in what point? I'm 100% sure nobody will make those transactions for free.

  13. Andreas, I recommend that you add more tags in your videos, "lightning network", "bitcoin lightning network", "bitcoin lightning", and add the "How The Banks Bought Bitcoin" tag as well as "Banks Bought Bitcoin" tag, so your video shows up next to that bullshit video, otherwise everyone that sees that video will assume it's true and will not see your video.


  14. Thank you for the video!

    This video does not contradict the content of "How the Banks Bought Bitcoin" does it?
    They simply have two different philosophies about how the end result will look and who will be in control?

  15. @aantonop what do you think about EOS? and will it make Ethereum obsolete? How would the token migration unfold? Steem works great. Bitshares needs more volume but is excellent. Now the EOS operating system.. It seems like Dan is one step ahead of everyone.

  16. 1. "LN node operators being prosecuted is preposterous"
    Oh? What about TOR? There are exit node operators who have been prosecuted/arrested/convicted for content that their node relayed. It's not unthinkable that the same could happen on LN.

    2. Is censorship possible on LN? Let's say there's a hated organization or an individual with an unpopular opinion. Could their transactions be blocked if enough nodes wanted to?

  17. Hi Andreas….

    Q1. wont the associated encryption of onion tor routing make it hard to retrieve lost funds should something go pear-shaped mid-path during transmission?

    Q2. wont the bigger risk to node operators come from hackers rather than the regulatory authorities, thus node operators will be discouraged from launching nodes from fear of funds being stolen? What security measures can be implemented?

    Q3. what are the financial incentives to operate a lightning node? How do node operators earn commissions?

  18. If you don't need to move out your funds from the lightning network into the actual blockchain in oder to spend your money, why you ever do that at the first place? Just lets get rid of the blockchain and move on into a system with no public accountability allowance!

  19. like an OSPF – Open Shortest Path First. except the hops needs to have at least enough funds on it. okay, I got it

  20. is it correct to say that routing on LN can only occur via existing channels that have an equal or greater BTC value than the proposed transaction ? eg: Alice can only route through David to pay Bob 1 BTC, if David's existing channel has >= 1BTC 'active/live' within it? Thanks for any clarification/feedback.

  21. Question regarding the described source routing: How does the sender node know the whole route, especially when there are many users/transactions and the causing the state of the network to change rapidly?

  22. so LN is just a Ripple layer on top of the main chain? I see an obvious Lightning node exit scam exploit vulnerability. if there is no settlement or full validation until the channel closes, then you don't know until then if you are trading counterfeit bitcoins. Basically a LN is like a bank that doesn't do settlement between banks for every transaction, but only the difference between outgoing and incoming transactions. What's to stop the node operator from modifying the code so the node operates like a fractional reserve bank, skimming off funds until enough channels close (much like a bank run) that settlement is no longer possible?

  23. He definitely knows more than I but I’ve been looking everywhere for a way to “top up” an existing channel and there is no such thing available. If I’m right, a lot of his points fail and it’s definitely making lightning quite unusable for many cases.

  24. Apreciate your knowledge. what do you think about Electroneum's new patent. A pay system similar to a visa or mastercard. Instant pay system . would apprecieate your insight.

  25. This is not Missunderstanding. It is Propaganda from People that want to overtake Bitcoin as a Businessmodel for their own Gain. They spam the entire Internet with Missinformation.

  26. 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.

  27. 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? ..

  28. 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

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

  30. 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…

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

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

  33. 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. 😀

  34. 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?

  35. 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.

  36. 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

  37. 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..

  38. 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.

  39. 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.

  40. 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.

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

  42. As far as I can tell, to support worldwide adoption the block size limit will still need to be increased significantly, because every user needs to have their public key or public key hash stored on-chain at least once to use LN trustlessly.

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