Could the lightning network solve the block size problem?

[Elwar]

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.

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.

[killerjoegreece]

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

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

[johnyj]

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

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.

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

[RoadTrain]

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

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.

[johnyj]

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

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

[Lauda]

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.

Each channel is a payment relationship between two people. Existing payment channels, like what Streamium uses, end there. What the Lightning Network would introduce is the ability for channels to be chained together to send a payment from one person to another through any number of intermediaries.
Example:
Alice comes across Dave's wallpaper site and wants to buy one for 50 bits. Alice doesn't have a payment channel with Dave and doesn't want to set one up because this is a one off payment. Alice does have an existing channel with Bobpay, though. Bobpay has a channel with Carolbase and Carolbase has a channel with Dave. Alice and Dave can create a set of transactions that chain the channels together so Alice pays Bobpay who pays Carolbase who pays Dave.

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?

[brg444]

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

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

LN nodes are not custodian therefore cannot do FRB.

[maokoto]

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

[VeritasSapere]

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.

[Carlton Banks]

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

[SebastianJu]

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.

[Q7]

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.

[johnyj]

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.

Each channel is a payment relationship between two people. Existing payment channels, like what Streamium uses, end there. What the Lightning Network would introduce is the ability for channels to be chained together to send a payment from one person to another through any number of intermediaries.
Example:
Alice comes across Dave's wallpaper site and wants to buy one for 50 bits. Alice doesn't have a payment channel with Dave and doesn't want to set one up because this is a one off payment. Alice does have an existing channel with Bobpay, though. Bobpay has a channel with Carolbase and Carolbase has a channel with Dave. Alice and Dave can create a set of transactions that chain the channels together so Alice pays Bobpay who pays Carolbase who pays Dave.

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?

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

[smoothie]

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

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  

[smoothie]

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

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.

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

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).

[smoothie]

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

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

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.

[johnyj]

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.

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

[johnyj]

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

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

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.

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

[Q7]

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.

[Lauda]

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

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).

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 

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.

If all Bitcoin transactions were on the blockchain, to enable 7 billion people to make two transactions per day, it would require 24GB blocks every ten minutes at best (presuming 250 bytes per transaction and 144 blocks per day).
If all Bitcoin transactions were conducted inside a network of micropayment channels, to enable 7 billion people to make two channels per year with unlimited transactions inside the channel, it would require 133 MB blocks (presuming 500 bytes per transaction and 52560 blocks per year).

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