Recently, news surrounding the Bitcoin network has remained relatively quiet. After Bitcoin's epic rise and subsequent fall at the turn of the year, holders around the world watched it quietly stagnate. There were some serious dives into bear territory; there were several false starts to what many hoped would be a price recovery.
In addition to the relative stability of the BTC price, the Bitcoin network has found relative consistency in block generation times over the past six months. “Block time” refers to the time it takes for a group of transactions to be confirmed on a blockchain. It is notorious that blocks in the Bitcoin network are generated quite slowly. During times of high traffic on the Bitcoin network, transaction confirmation times can increase astronomically. By the end of 2017, many Bitcoin transactions took hours or even days to confirm. High traffic also usually means high commissions. In the most extreme cases, the cost of a Bitcoin transaction exceeded $100.
What is the Lightning Network?
Several solutions are currently being developed to mitigate Bitcoin's scalability issues. Many believe that the most promising of these is Lightning Network, a second-layer payment protocol that works in tandem with the Bitcoin network to complete transactions instantly and at minimal cost. In other words, it is a set of software that makes the Bitcoin network more efficient and therefore much more practical for everyday use.
The Lightning Network concept was originally proposed in a 2015 paper by developers Thaddeus Dryja and Joseph Poon. Since then, several companies have developed their own version of the Lightning Network. While none of these companies have released a version of the Lightning Network that has been implemented on a truly large scale, in March of this year, California startup Lightning Labs launched a beta version of its Lightning protocol. This is currently the most tested and widely deployed Lightning solution; Many voices in the crypto community see this version of the Lightning network as the answer to Bitcoin's scalability problems.
Earlier this week, there were reports that the Lightning Network has experienced significant growth. The network requires its nodes (the computers that support it) to own a certain amount of BTC in order to facilitate and speed up transactions. At the start of the network, an amount of 4 BTC was blocked. Now, according to Bitcoin Lightning, 100 BTC locked in Lightning Network nodes, up 85% from last month. Lighting Network currently contains approximately 3,000 nodes.
At first glance, it appears that the increase in the number of nodes and participant funds means that the Lightning Network is closer than ever to full functionality. But is this so?
Nodes are incentivized for using their own funds with small rewards charged for conducting transactions. It is reported that the number of transactions carried out on the network is still quite small, possibly due to the newness of the Lightning Network. Thus, running and maintaining a node on the Lightning Network currently costs more electricity than can be earned in transaction fees.
Andreas Brekken, owner of the crypto industry review site Shitcoin.com, wrote about this in a series of articles about how his own Lightning Network node launch went about in mid-July. Bracken used 35 BTC (worth $221,000 at the time), which allowed him to control 49 percent of the network. While Bracken found it relatively easy to run a Lightning Network node himself, he also found that using the network to make payments was difficult.
In the third part of his review series, entitled “Lightning Network #3: Payment for Goods and Services,” Brekken tries to pay 2020 Satoshi on SatoshiTweet. He received an error message; “I press the button a few more times. The error remains the same - I look in the network inspector of Google Chrome, and SatoshiTweet returns the error: 500 Internal Server Error response,” he wrote.
He also tried playing "Lightning Spin", which is based on the Lightning Network. However, Brekken experienced website glitches and rapidly changing invoices. He had to clear the cache and reload the browser to stabilize the game. Brekken tried a number of other online stores, games and services compatible with the Lightning Network, and ultimately found that the payment processes in most of them failed at some point.
“Sending payments using the Lightning Network is cheaper than the regular Bitcoin network,” he concluded, “but suffers from routing errors and wallet errors, making it impractical even for technically savvy users.”..
A few weeks before Bracken's review, Diar reported that the Lightning Network had an abysmal 99 percent failure rate for large Bitcoin transactions. Additionally, “the success rate for payments within a few dollars between random Lightning Network nodes is 70%,” the report states. “Only transactions for amounts equivalent to $0.03 or less showed a 100 percent chance of success.”
Emin Gün Sirer, professor of computer science Cornell University noted in June that this is true even though the number of payment recipients on the Lightning Network has increased 10-fold over the past five months.
Diar also emphasized that centralization of the Lightning network was an issue even before Brekken started his 35 BTC. At the end of June, 0.4% of nodes on the network (approximately 10 out of 2,500) controlled 53% of the network's power. The publication notes a “lack of inter-node liquidity” as the main factor driving centralization. Another issue was described as the "online factor": the requirement that for a Lightning network transfer transaction to be successfully processed, the sender, recipient, and all intermediaries must be online.
Crypto Community Opinion
One Reddit user noted that if the Lightning network becomes overly centralized, “the company or companies that processed [transactions] will essentially be like gateways for those who want to use the Bitcoin network.” If this happens, "governments will likely try to impose standard AML rules and the like," they write.
Bitcoin advocate Andreas Antonopoulos noted in January that in addition to government interference in the Bitcoin network, the Lightning Network could present some other problems from a regulatory perspective. He argues that regulated exchanges like Coinbase likely won't run Lightning nodes because "they have a fully KYC/AML verified client on one end, and if they send a payment that goes to that client over the Lightning network, they don't know if that client is the final destination.".. "If they receive a transaction from that customer, they don't know if that customer is the source of the funds, which means their KYC just falls apart - completely falls apart," he explained.
In an exclusive interview with Finance Magnates earlier this year, Litecoin creator Charlie Lee expressed some enthusiasm for the future of the Lightning Network for Bitcoin as well as for LTC: "I think [layer two] solutions like the Lightning Network really help the security of Bitcoin and Litecoin," he said, "I think they're really needed, and I'm really excited about the progress that these people have made." However, he also acknowledged that the Lightning Network is far from perfect. Lee described the Web's user interface as "difficult" and added that there are stability issues with payment channels, as well as some security issues with funds on network nodes. “They definitely have a lot of work ahead of them,” he noted.
According to Finance Magnates
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