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I watched the presentation on the lightning network and if it allows regular payments along with the option for this side enhancement then it could help a lot with the block size problem.

The lightning network basically allows people to set up payment nodes to run transactions which can be as many transactions as you want in a certain amount of time without touching the blockchain. At the end of the time period the final balance of the transaction is posted to the blockchain. The people running the nodes have no way to interfere with the transactions and it allows for more anonymity.

I am cautiously optimistic about it.

https://www.youtube.com/watch?v=-aI4inWxBwk

It also has it's critics, and the most troubling criticism I have heard is that it creates centralisation pressures amongst the Lightning miners. I haven't investigated any of it yet, haven't had time, but I will  do soon.

Link to the video you saw?

Link is in the OP.

It does centralize because the nodes require a lot of bitcoins to run peoples' transactions. But if you have the option of lightning or the blockchain then you'd probably have specialized reasons for using lightning nodes. Such as microtransactions or some place that you do a lot of transactions with in a short amount of time.

If bitcoin is going to scale to the moon we need all these options, we need bigger blocks and the lightning network and Xapo and Coinbase.

It can be argued that lightning network developers have an agenda to keep blocksize small in order to increase lightning network usage, don't know if true, but seems plausible.

no excuses, I am a shameless skim reader sometimes.

Another criticism has been that it doesn't solve all scaling issues, but I've seen the early lightning concept explained by Joseph Poon a while ago, can't see why any of these criticisms make sense yet.

Edit: I think I see why.... this solution will work the hell out of every lightning transaction before it actually does get committed to the main chain, and those transactions are going to be complex mutlti-sig beasts. Does that really compress that much space? Could there be circumstances where it could possibly be more wasteful? Not sure yet

Agree, just like we have commercial banks, land banks, saving banks, retail banks, credit unions, building societies etc.... All perform essentially the same service but on different levels yet all tie back into the financial system.

So agree, we can do with these networks as long as they all tie back into the blockchain.

Hmmm, that implies it could be useful for permanent contractual arrangements, which could be set up on the main blockchain (with that "setup" transaction cleared on a decentralised network, with privacy intact if you wish), and then use the lightning network to keep the pissy details off the main blockchain. Ok.

Lightning Network is a great idea. But the payment still has to go through the blockchain. To me it seems like a toll gate. The cars will still end up on the main road, so congestion is guaranteed.

I see these sidechain solutions (like Lightning) AND offchain solutions (like Online Wallets) co-exist with blocksize increase in the bitcoin environment. That is how payment system work in the real world. Different systems are not mutually exclusive, VISA/Master/PayPal (and many others) co-exist in the banking environment. So, any solution is a nice idea, Lightning Network do not need to completely "solve" the block size problem.

I am cautiously optimistic as well, the whitepaper is extremely promising for the lightning network but as of right now it has not been developed and because of this it cannot be a solution at the current moment. I am glad that the price hasn't exploded upwards because I believe that would exponentially increase usage which would cripple Bitcoin at the moment. This lull in volatility is allowing time for sidechain solutions to be developed.

Imagine BitPay and BitStamp having their own lightning connection open for 1 week. Imagine every purchase through BitPay gets sent to BitStamp via the Bitcoin lightning connection for that week. Each purchase gets converted to dollars and is added to BitPay's dollar account. Over the course of that week tens of thousands of transactions go through for a total of 100,000 bitcoins.

When the time expires on that connection the connection is closed and a single blockchain entry is added to the Bitcoin blockchain that BitPay has sent 100,000 bitcoins to BitStamp. One transaction as opposed to tens of thousands.

Same with microtransactions. You open up a wifi connection and pay per minute. You use the lightning connection and transfer .0001 bitcoins per minute that you are connected. You close your connection and the finally tally of .01 bitcoins is recorded on the blockchain for 100 minutes instead of 100 transactions recorded on the blockchain.

To be honest, I have watched this video several times and never really understand how it works

The complexity in Lightning network will cause huge difficulty when they are trying to convince anyone without enough knowledge in that specific area

Even a simple block size change could create lots of confusion and conflict, lasting for years, such complex change would need at least 10 years to be accepted by the majority, maybe never

Of course if it does not touch the protocol then no one cares, but as I understand it must use a hard fork to implement those changes

Today centralized bitcoin financial institutions like exchanges and online wallet providers are already working well to a degree, and bitcoin network has become their settlement channel. This model works very well that it may not need another solution to increase the complexity. Besides, at small and local scale you don't necessary need trust less model, you even need some trust to humanize the user experience, many people have a habit to rely on authority, they can't live without authority

They said it was a soft fork...adding a time feature to the current code.

Bitcoin is already complex. When Bitcoin first came out we did not have phone apps to scan someone's QR code to send bitcoins. Similar easy to use services will do the same thing for the lightning network.

I wonder why should we need another altcoin to fix bitcoin? Bitcoin can live on its own pretty fine when it would not have been artificially crippled with limits.

I think it's open how well the lightning network will work. I will not use it if i don't need it since i would prefer bitcoin being able to handle all the transactions i want to do.

Technically, no service/merchant out there really needs this Lightning network. They can do this themselves already.

As johnyj said, im not really sure what they are doing aside from providing an aggregate solution with the "potential" to further centralize Bitcoin. I need to research this and ponder it for a bit. I do remember a while back seeing some initial slides stating that they needed blocks to be a max of 130ish or 150ish MB size? Anyone know or remember what im talking about? I cant seem to find the slides now.

Lightning network may process more transactions per second so that we can go with current MB block itself. But lightning network needs thirty party incorporate into blockchain.

Just read that white paper another time, now I get a rough idea about how it might work in reality:

First two entities establish a common deposit by each sending certain amount of bitcoin into an address, similar to two banks each opening an account in counterpart bank and credit the counterpart same amount of money

Then all the transactions between these two entities will just change the ratio of each party's ownership of this common deposit. At the end of the clearing period, they settle the difference by a blockchain payment to make the ratio 50/50 again

This can help two large institutions, it is not very practical for single average user because the required deposit and one way payment nature. It seems single average user would still need to rely on large institutions, and existing large institutions might use lightning network or establish the clearing channel through other arrangements

Lightning network will boost up the transaction processing time. It means the transactions get into a block is more quicker with aid of lightning network. So it would solve current block size debate.

I guess the most promising application of LN is where payments between entities are frequent and roughly predictable over the life of a channel. These might be BitPay<->Coinbase, but also it might be a man that routinely buys a cup of coffee somewhere in the morning, so setting up a channel between him and the cafe might make sense, especially because of near-instant 'confirmation'.

What you might be missing here is that all these channels can be chained together, forming a mesh-like network. In this case, you can have only one channel open, and send a payment to anyone in this network. This payment will be routed through intermediate hops right to the receiver.

The well-connected hops can be called hubs, and will receive a fee for their service. In theory, anyone can become a hub, it's only limited by how much BTC you have, i.e. how many channels can you fund with them.

This is a wrong statement. The Lightning network != sidechains. Sidechains are something entirely different that Blockstream is working on. (https://blockstream.com/) I do agree with the rest of the thread. We need to implement everything in to grow the system.

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Most of the posts about it are rubbish (not here in particular; in general). If there are centralization issues, we're better off having them with the Lightning network than with blocks (centralization and increased orphan rate). Now what the Lightning Network offers are near instant confirmations (trust-less), taking away a lot of the transaction volume off the main blockchain. It is supposedly even cheaper than using the blockchain. It has not been implemented yet but requires some changes soft fork changes. The Lightning Network should be fairly simpler than using sidechains (for new users).

Tl;Dr: The whole block size debate distracted us from actual solutions towards random people thinking that only increasing the block size is the best solution.

This would make it easy for merchants like BitPay and others to have instant transactions for every one of their merchants.

Lightning network also lets you make money from just hosting a hub. This could be a way to invest your bitcoins and get bitcoins in return. Like mining without the electricity costs.

I was also thinking that this could be a solution for renting a car. You submit your deposit, it's locked until just after your rental return. When you return your car without a scratch the rental owner cancels the transaction, your deposit never gets sent. If you bring it back with damage the owner completes the transaction and gets your deposit (then you work out any further payments or he refunds money if the damage is less than the deposit).

The main thing this addresses is per minute type of services like Internet and media.

i think the lightning network can help. more nodes is always better for bitcoin.

True, LN seems to be very similar to how banks and institutions work in a closed loop. However, in legacy financial system, one weak link on the chain might trigger a systematic failure like Lehman brother's case, because the whole system have very little real money in circulation. If LN chains are widely applied, it will also have such kind of risk, and without central bank bailout

Most of the retail transactions are very sporadic and unpredictable. If you routinely buys a cup of coffee somewhere in the morning, then it is very likely the shop will sell you some batch discount coupon that give you 10 coffee for the price of 9, and you pay the whole package at once, reducing the transaction fee. This is also observed in mobile fee charge: Previously telephone company charge you based on how much and how frequent you use the service, now they are using a bulk model to charge you regardless of usage, to dramatically reduce the amount of transactions

I guess there will be VISA-like mechanism if the clearing based settlement is widely used. Consumers will periodically (when they receive the salary) charge their web wallet in mobile that they can pay at any location that accepts bitcoin payment. And the real payment happens between the web wallet company and Bitpay. But unless we have many payment processors and credit issuer, this seems like a single point of failure

Use blockchain to do large deposit/withdraw, use web wallet to do casual spending, this could be the trend for the coming years

Not sure, what kind of systemic risk are you talking about? If a link fails, one simply has to wait until contract expiration. I might've missed something.

Not really sure, but I guess the LN nodes might be practicing FRB by then, and the failure of one nodes will trigger a large scale of withdraw to blockchain from every nodes customer, thus collapsing them all. How to make sure an exchange does not do FRB? I suppose most of them do today

You can't collapse the whole system because of a the failure of a single node when it comes to LN. Essentially LN will be like a distributed network. This is taken directly from reddit. The Lightning Network does not have a single point of failure (as far as the technology itself is concerned). Although I'm not sure what exactly you're talking about? Could you elaborate and back it up with a source?

LN nodes are not custodian therefore cannot do FRB.

Sounds like a good solution. There is really no much sense on filling the blockchain with very small transactions.

I do like the lighting network, but it should not be considered as an alternative to increasing the block size from where it is now. Since we should bring the benifits of using the Bitcoin blockchain directly to as many people as possible, as far as the technology allows at least.

Just to demonstrate my laziness when it comes to looking at this system, I'm not sure how true the above is. I kept listening to the Lightning presentation in parts while distracted, and I've wondered ever since I heard about it years ago "where's the side chain part?".

I think the answer is that there are no side chains; lightning is a way of aggregating transactions on the main chain. They can take a while to actually hit the main chain (while the channels resolve, which are basically a bunch of chained multi-sig addresses).

So it's on the main chain, but somewhat indirect. And it should enable a load of stuff straight on the main chain too (recurring/micro payments is a significant one for bitcoin, hopefully the protocol will be sufficiently economic for any merchant to open their own)

At some point I'll actually look at lightning properly, just don't ever seem to make time for it

Could the lightning network solve the block size problem?

I say it can't by definition. The lightning network is not bitcoin. It is an altcoin. You can't fix bitcoin by using an altcoin. That is no fix, that is simply only not using bitcoin.

And it doesn't matter that the transactions land in the bitcoin network somehow at the end. You did not fix bitcoin by using LN.

I don't like all these claims about bitcoin not being able to fulfill it's role as a currency so that we need crutches to let bitcoin still work somehow. No, bitcoin itself has to be made capable of dealing with this itself.

Conducting off the blockchain transaction will sure put more pressure on centralization But I'm just wondering if that will involve another ledger to be created since i wonder how are they going to record and capture all these transactions before broadcast it to the blockchain.

The risk comes from the centralized organization, not LN in particular. If each LN payment channel is totally independent from others, then the fail of one channel would only affect two institutions. However if many channels are chained together and many channel carries third party payments, then if one of the main channel failed (for example hacking of one of the private key in Bitpay), then all the transactions are stopped due to the chain is broken

HMM

1. Increase the blocksize by a "decent" amount to accommodate transaction volume by changing ONE LINE OF CODE.

OR

2. Create "the lightning network" to accommodate transaction volume by creating an entirely new system to piggy back on top of bitcoin by adding THOUSANDS OF LINES OF CODE.




Answer = 1  ;D

How does a "weak" link on the chain have anything to do with systemic failure of Lehman brothers?

The fiat system is already fundamentally flawed given there is more digital fiat than actual paper redeemable fiat you can touch. that has nothing to do with a "weak" link of a network of banks (or transfer channels between banks).

If they are in fact using Fractional reserve then perhaps you do have a point.

Fractional reserve banking is the equivalent of not being solvent.

SO funny how banks are legally able to operate while being insolvent. :D

I also have this question

Suppose that there are 2000 transactions happened in a payment channel during a day, how could these transactions hit the payment channel and be cleared every 24 hours before the final settlement are written into blockchain?

In legacy financial system, Bitpay and Coinbase would need to keep and update a common list of all their customers' address, and credit/debit each other when a payment between their customer happens. At the end of day, all the to/from payment cancel each other and the net result is written into blockchain

It seems this list of all the customers would need to be maintained outside of blockchain, and the blockchain is just used as a final settlement mechanism

Then the question arises: If institutions still need to use the traditional way of clearing, then why do they use LN at all? They can just open an account at each other like how it is done between banks today

FRB is a fact, it happens on every centralized financial institution, simply because most of the funds are not moving: Suppose that a web wallet provider have 1000 customer, and each customer constantly maintain 1 bitcoin buffer in his web wallet, the total amount of coins in web wallet provider would be 1000 bitcoins. Those coins never get less as long as the customer base does not change, then it gives web wallet provider an incentive to lend out those coins to earn some interest

Of course bitcoin lending are extremely risky, so today those institutions just throw those coins into a cold storage. But when the market matures, they can essentially lend out most of those coins without causing too much trouble

Some of the exchanges like btcchina provide others transparent audit of its customer fund database and its cold storage, to prove that they do not do FRB, but the liquidity condition is usually a guarded secret for most of the institutions. And from risk point of view, a 50% reserve ratio can be regarded as extremely safe

In a way it works the same like what the exchangers are doing daily. Deposting bitcoin into an account created and given by the exchanger, you deposit the amount and whatever happens next took place within their own accounting ledger.

You were talking about a systematic failure, which this could not cause. Unless everyone on the planet was transacting through Bitpay, this can not cause big problems. Transactions can't be "stopped". Transactions on LN are near instant and get confirmed in a similar matter. If there were XXX numbers of people transacting through Bitpay, and Bitpay gets shut down or something, then they would just need to find an alternative over which they will transact (unless they decided to make direct payment channels to each other).

This is not correct. Even if they do increase it, it will not be via changing a single line of code. Besides, the amount of TPS that LN provides is not even measurable to what a increase in block size would give us.

Note: the first case has 250 bytes per transaction, and the second 500.

You got it in 1 (well, two really).


BIP101 is the most crude way of "solving" the issue, other than just deleting that one line of code completely, of course.



Sadly, you will also "solve" the decentralisation "problem" at the same time. Please spare us these armchair software engineering decisions, you are either incapable of understanding the issue, or willfully ignorant of the consequences.

The (technical) debate has long since moved on; no one except a bunch of shills and ignorants are trying to offer Hearn and Andresen either as the new team or their hijack-as-a-technical-proposal as the new software.


Give it up, the Bitcoin userbase doesn't want to be constantly harassed by mindless acolytes and sociopathic pushers. XT and BIP101 threads are nearly gone, mostly people are having more productive discussions about totally different topics, scaling or not.

And if you've got a better idea than the lightning network to scale transaction rates, let's hear it (no, not BIP101....)

I'd say both :)

The lightning network is a great invention.  It supports low-overhead nano-payments with near instant confirmation times that are fully backed by bitcoins.  It has also a few disadvantages:

• If your hub is down, you can't send or receive payments.  You either need to wait until your hub is up again or receive the bitcoins by the pre-signed transactions, which takes several days.
• Hubs may censor your transactions.  Sure, you can always choose another hub or use bitcoin directly.
• You need to establish a payment channel on the blockchain beforehand.  This is a locked coin on the blockchain that contains enough funds to cover your funds that you have at the hub.  The hub must fund it with his own coins to guarantee for the maximum balance that you may receive.  So it is quite capital intensive to run a big hub.  Not only does the hub not get the funds that the customer put there (which is a good thing) but the hub also has to cover for the maximum that its customers may put in their accounts without requiring a new on-chain transaction.
• The security of the lightning network relies on the fact that nobody can spam the blockchain to prevent the confirmation of a fixed fee transaction for a few days.  Do you think this is possible with the current block size?
• If you don't constantly watch the blockchain, your hub may cheat you and steal your coins after a few days.
• There is no implementation, yet.

We need a larger block size anyway.  The lightning network may help to reduce the current growth, but the size of the blocks have to grow.  Also we should at least kick the can to ensure that the current growth can continue short term until we know the lightning network works and is accepted by the community.   And if we keep the block size small to get fees of 20 $ per on-chain transaction (like some small block proponents want), we would basically prevent that people can avoid LN because of censoring or other reasons.

Because LN provides the way of doing so trustlessly -- one cannot steal funds, and in case of uncooperative behavior the channel is resolved on the blockchain.

Fair points, I like it. To be honest, I doubt Bitcoin can bear $20 fees even with LN, as LN still depends on the blockchain. I'm also not sure why $20? E.g. if we remove subsidy now, it will require only ( :D) $2.5 fee per tx in order to keep the dollar reward per block steady. Of course, assuming other things being equal ::)

IMO the most realistic scenario is that we raise the limit in 2016, and it buys is time to explore all options (be it LN or some kind of fliexible blocksize limit et cetera).

I still don't really understand how a channel works under dispute, e.g. both party claim different truth. I think that is not possible without a judge-like third party involved

And the traditional approach is also trustless: Bitpay have a 1000 btc account at Coinbase, Coinbase have a 1000 btc account at Bitpay, if Bitpay run away, his account at Coinbase will belong to Coinbase, vice versa

LN are no more of a learning curve than what Bitcoin was 4 years ago.

In the case of a dispute, then the most resent tx is sent (with a big fee) to the Bitcoin network. LN work by constantly trading would-be-valid Bitcoin transactions, these transactions never need to go on the Bitcoin network unless one of the parties doesn't respond.

In the case that one of the parties doesn't respond, then after a timeout, the latest Bitcoin tx is released on the network, spending both the anchors, and thus closing the channel. -  Everything was agreed upon up-to that point, so very little to Bitcoin was lost (maybe a few cents in fees).

Think about it: it works in the opposite way to how things work atm:

1. You go to the cafe, and buy a coffee with Bitcoin.
2. The cafe gets a Bitcoin TX, and has to wait for a block for it to be confimed.
3. Everything is settled after the tx is in the block chain. (about 10 min or more).

(with lightning):
1. You go to the cafe, and buy a coffee with LN.
2. You update the anchor TX to the cafe, and send the updated TX to the cafe. (instant).
3. No need for settlement since you come in every day.

- See in the general case, nothing ever touches the blockchain. - there is no 'confirmation times'

- Only in the case where there is disagreement dose the 'confirmation time' matter - only to resolve things back to the 'last known good state'.

- It isn't possible to double-spend a LN transaction, since the lock time is longer than the time for the Cafe to release the last know tx.

- if the Cafe goes out of business, then you can get your Bitcoin back, maybe after 6 weeks.  But you only put 20$ at a time, so this doesn't bother you so much.

As far as I'm aware, OP_CHECKLOCKTIMEVERIFY is used to ensure that only the most recent tx is valid.

In case of traditional approach, it's not trustless. Imagine that Alice on BitPay transacts 100 BTC to Bob on Coinbase. BitPay deducts Alice's balance by 100 BTC and deducts 100 BTC from Coinbase's account with it. Now Coinbase credits Bob by 100 BTC. Effectively, it means that Coinbase is being owed 100 BTC by BitPay, which is supposed to clear at the end of the day. But if BitPay runs away with money, Coinbase is short 100 BTC!

Yes, that is a risk, banks must constantly watch the net exposure. I guess 1000 BTC is 1% of their funds, and 100 BTC is 0.1% of their funds, so the loss is still controllable

And can you explain how such a situation will be solved in LN?

To be honest, I'm still not good enough with LN understanding, so I don't want to make errors with explanations. So don't take this for granted.

When a channel is created, a corresponding refund transaction is created as well, that gives back the coins. Let's say it's locked for 30 days.
Now, when a intra-channel transaction is made, it's locked for 29 days. And with every subsequent transaction the locktime is decreasing. It means that the most recent transaction has the lowest locktime, and thus will be the only one confirmed when channel is closed.

I can imagine that both Coinbase and Bitpay creating a 24 hour time locked transaction, where each party pay 1000 coins to the counterpart (The transaction have two input and two output)

Then, when Alice is paying Bob 100 bitcoin, a corresponding transaction of 100 bitcoin will be reflected into this balance, thus a new transaction of Coinbase paying Bitpay 1000 bitcoin and Bitpay paying Coinbase 900 bitcoin are generated and pushed into payment channel, replacing the previous one

Then if Coinbase went down following this transaction, this last transaction will make sure at the end of the day, Bitpay would still receive 100 bitcoin

In order to do this, both funding address of the time locked payment must be locked and prohibit further spending from that address until the channel is closed (What if a malicious user created an extremely short time locked transaction, refuse to pay anything and close the channel immediately?)

Still, someone has to push the new transaction into payment channel, and how to make sure this new transaction correctly reflect the reality is the key. Since the payment channel does not know anything about Alice or Bob's trading activity, it is the responsibility of Coinbase to push in the correct transaction, and at the same time it must inform the Bitpay to credit Bob's account with 100 bitcoin. It seems the transactions in payment channel must have some other spaces to specify the address of initial sender and final beneficiary

One benefit of locking bitcoins is lower trade velocity of those coins which would result in higher bitcoin prices.

If bitcoins become a commodity which you can create a hub and make more bitcoins then holding your bitcoins will become a feature that makes you money to facilitate more spending.

It's like instead of buying an expensive miner, you buy expensive bitcoins.

Perhaps I'm missing something, but surely the money in lightning payment channels will move around within the channel/s no differently to how/when it moves in any other system? (i.e. if/when the owner chooses to move money, it goes). If someone wanted to use money from 1 channel to pay on another, the experience would have to be pretty seamless from the users perspective ( and no doubt channel operators would pre-empt this by using/creating inter-channel settlement channels...)

If the money is no more immobilized than usual, how will that boost the price? Just because it's off-chain, or something I'm not appreciating? Come to think of it, low money velocity depresses the exchange rate of that money, so I'm totally not sure what you mean by this, Elwar?

 kinda as an aside we can't get the current devs to agree to a block size increase....it seems doubtful the lightning network or any other major
code will be coming any time soon w/o a major shake up...but being open source....this could just go along in 'slug movement' mode for a long long time yet imho

 too much posturing and egos involved...hope I'm wrong but with all the power/egos and money at stake a major win will be just these guys getting 'some' kind
of block size increase protocol going.....it is my view...they are 'never' gone move fast on anything and the more complicated the less likely it will be to be added

again hope I'm wrong but past actions and tantrums are not encouraging

From what I understand, an intra-channel transaction is valid only when both parties agree on it (sign it?). This includes checking balances, locktime and such.

LN is relatively low-level protocol, so the parties will still have to communicate somehow. BitPay and Coinbase will need a separate communication protocol to update user balances. But it's only because they are centralized services serving many users. That's not the only use case for LN. In every use case, there must be a communication protocol between parties, be it Skype, email or some automated stuff.

From what I gather and was mentioned in the video, each "hub" needs a significant amount of bitcoins in order to operate.

Imagine there is a new wireless Internet service (BitCast) in town that uses the Lightning Network via the BitPay payment hub. As a user you put .5 bitcoins toward the BitPay payment service for a month time lock. You lock .5 bitcoins and BitPay locks .5 bitcoins to match. Then BitCast locks in .5 with BitPay and BitPay locks in .5 bitcoins with BitCast (I may be way off on how many people need to lock bitcoins, but for sure the hub locks bitcoins). That is 2 bitcoins that will not be on the exchanges for a month.

In the meantime you're paying .0001 bitcoins per minute for your web service, paying by the minute. By the end of the month you spent 1000 minutes on BitCast's wireless connection, 1000 transactions through BitPay to BitCast. The Bitcoin blockchain receives one transaction of .1 bitcoins on the blockchain and everyone gets their locked coins back (.4 for you and .6 for BitCast). Additionally, BitPay might charge a fee for their service as a hub. So their 2 bitcoin investment might garner them .02 bitcoins for that transaction (a 12% yearly return on their bitcoin holdings).

If BitCast has 10,000 customers, that's 5000 bitcoins that are not available to be traded that month.

When I speak of money velocity I refer to the amount of time bitcoins are kept off of the exchange. If a remittance company can transfer $10 billion worth of bitcoins in 1 hour (fiat to bitcoin -> bitcoin back to fiat) then the bitcoin price will not be affected. If that same remittance company transferred that same amount and it took a week for the bitcoin to bitcoin transfer to go through, then that's $10 billion worth of wealth in the Bitcoin economy for that week. That would certainly push the price up.

If 10 million bitcoins are being used as LN hubs, that leaves only 4 million bitcoins available for the rest of the economy.

Exchanges can participate as well. If you have a channel with BitPay, and BitPay has a channel with Bitstamp, then you can transact your locked coins to Bitstamp and sell them (if they allow it, though).

Now I do see what you mean. So there are other attractions from that perspective also; the money locked in channels is by definition locked into commercial activity, which I think can be quantified as a metric that feeds into that array of information that determines the exchange rate (payment channel transactions would I think be distinct on the blockchain, so it's not a case of relying on self-published figures).

This only affects the supply side at the exchanges, demand for currencies is difficult to affect so directly. But it's still a powerful effect, particularly because of that extra information it creates (that distinguishes between types of activity on the network)

I don't think high frequency regular payments will be handled that way. Mobile operators used to operate on minute based charging, and then they found out that added transaction/billing management did not worth the effort, so they switched to another model, offering limitless call time with a fixed monthly rate, achieving even higher profit and user satisfaction

Similarly, it will be a huge pain if you need to have both party to sign the transaction in payment channel for each of millions of transactions during a day. They might come up with a better model to reduce the management overhead

I guess that the bitcoin lightning network is one of the best proposal's that can really solve the block size issue. apart from the Bitcoin Lightning network you have the Sidechains project and the colored coins.

It only resolves that issue indirectly, and not comprehensively either (as payment channels are not necessarily designed to be suitable for every type of transaction). Lightning specifically addresses transaction scaling, not the blocksize limit (remember that the transaction rate is the actual point of this whole debate, NOT the blocksize)

How is the anonymity of the users compared to bitcoin with the lightning network? Or is it that the lightning network would work with a website, service or exchange only anyway so that those know their customers?

If this really would happen and leading to higher fees fees because of too small blocks then what about personal transactions? Can payment channels be established for private person to private person and without high fees?

I do not understand why people think that the lightning network is going to have high fees? Luke-jr even said somewhere that it would have lower fees than using the blockchain. Yes, you can create payment channels with anyone that you want. You can find many simple explanations by clicking on this link. (https://www.reddit.com/r/Bitcoin/comments/37n0l6/eli5_the_lightning_network/)

Lowers fees?  That's great to hear. But new worries are : need of third party intervention makes us slightly go away from bitcoins prime motto. But scaling the block size would be great solution we can enjoy from this lightning network. So, we need to compromise a little thing.

Underrated post. This is one of the most succinct descriptions of the LN I've read. Thank you, da2ce7.

After skimming over LN whitepaper I noticed that it doesn't analyze conditions in which necessity to update channels will become a bottleneck. Have I just missed them because skipped some too technical parts?

Then you say it is not true that most of the developers are heavily invested into the network and others too? Can you explain where they expect the return of investment from if not by fees? Or do you say that they did not invest at all?

Lightning transactions are going to be cheaper & more private than regular blockchain transactions.