My conclusions about the Lightning Network and a request for critique by smarter

[noamlevenson]

I am writing an in-depth article about the Lightning Network. I want it to be comprehensive and balanced, educating people on the state of LN, how it works, as well as on current internal debates over its directions and concerns.

I generally publish on Medium (@noamlevenson).

Currently, I’ve read everything I could on the LN, including criticisms and responses to those criticisms and so on. Before I publish my article, I want to post my conclusions here for anyone to present any counter-arguments. Please do so.

1. The first challenge that I see forming in regards to the LN is the difficulty in maintaining a network “map.” Nodes need a topology in order to route transactions. Problems with this are both the eventual enormous size of the topology and the number of messages that would need to be sent in order to determine the topology. I see two solutions: one, we only use the network for microtransactions and those transactions with few “hops.” Or two, we rely on centralized hubs that maintain the network for us.
* 1.a. However, I also recognize that we might not need to find the most optimal route - “good enough” might work. But can we achieve good enough without relying on centralized hubs? 

* 1.b. How do LN wallets today manage to route messages? Do they maintain a network map? What is the anticipated consequence of a network with millions of users? 

* 1.c. Additionally, what happens if, when using onion routing, an offline node is encountered? Doesn’t the end destination need to be revealed if a new path is to be determined? In other words, won't the onion encryption need to unwrapped?


2. Obviously the hub and spoke model of the network comes under a lot of attack. I do think that to some degree this is an eventual reality of the network. I don’t think this would be the end-all of the LN if it does occur. However, it introduces the following risks:
* 2.a. Rising costs of BTC onchain transactions give hubs more power over individuals. This is especially relevant to any transactions that fall under the “dust” level of BTC (i.e. the cost of onchain transactions). If a transaction falls under this metric, time lock hashes cannot be used and the transaction ceases to be “trustless.” At this point, hubs could refuse to route funds (after the funds were locked), unless certain criteria were met (holding the funds hostage). If the user didn’t consent, they could withdraw their funds, but the user would lose all the money in the onchain transaction (because the whole sum would be "dust" and would go to paying the miner). Additionally, it could be very costly to execute an onchain transaction to open up a channel with a different hub, preventing people from switching to another hub if the hub proved untrustworthy.
    * Splicing is nice for other things, but I don’t think splicing would solve this issue at all. 


3. Fractional-teller-banking presents a serious problem, again highlighting why an unscalable layer 1 will impact layer 2 solutions. If everyone on the LN wants to withdraw their funds (a “run”), the BTC onchain validators would be overwhelmed. Now, this isn’t a huge issue as eventually, the network will process through the waiting transactions. However, if users try to push old “states” from channels onto the main chain to steal from users, then a problem results. Because of the network lag, the counterparty might fail to push a “breach remedy transaction” (i.e. a transaction invalidating the “old” state and preventing the fraud.). But because these remedy transactions must be submitted in a timely manner, a backlogged BTC core layer could prevent the transaction from being processed in time and lead to the success of the fraudulent party.

My conclusion: Ultimately, the LN as a layer 2 solution relies on layer 1: i.e. the BTC core protocol. I think that there is a place for the LN, but it doesn’t remove the necessity of scaling BTC’s layer 1 and ensuring that fees stay reasonable. The LN has solid use cases, but not nearly as many as people think. And ultimately, it is certainly not a solution to a crippled BTC network — but only, in the best case scenario, a complimentary service for niche use cases.
I don't see the LN ever being the global payment network that some people envision.

Looking forward to your responses!

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[Carlton Banks]

1. check out lightning mailing list, they're discussing a solution to that basic problem

2. if you don't want bigger nodes to force you into doing something you don't want, don't use them. There are thousands of nodes already, and the total liquidity is still very low. There will be ample opportunity for people with good intentions to run LN nodes, and those people will have their good reputation rewarded

3. why would everyone close their channel at the same time? That would take extraordianry co-ordination of every single person on the LN


Lightning reduces the need for onchain transactions by thousands of times, that increases overall capacity beyond anything that could feasibly be achieved on-chain. Settling off-chain will happen increasingly less as Lightning protocol matures, i.e. most of the money entering channels will stay in channels.

So saying "Lightning depends upon on-chain capacity" is very true now, beacuse 1000BTC is a low amount of BTC to serve everyone's needs. Later on, that amount will be much higher, settling will be less necessary, and so on-chain capacity will barely impact Lightning usability (and on-chain capacity will be massiely freed up anyhow, because small and frequent transactions are cheaper & faster off chain)  



you need to become much better informed about lightning before you can attempt the role of providing others with information

[aliashraf]

op,

Thank you for very clean and to the point analysis and conclusion. In bitcoin core campus people like to remain hopeful and positive about LN simply because there is no scaling roadmap and it would be very disappointing without LN anyway. Proceed confidentially with your results and don't listen to Carlton Banks it is what he does, defending mainstream bitcoin like a knight  

Besides some other LN specific details (like liquidity crisis which is a stronger centralization factor than routing) , it would be also useful to have a bigger picture of the problem:

As the first decentralized, secure and public p2p cash system ever, bitcoin is not just some disruptive technology, it is a revolutionary game changing and historical event with unpredictable socioeconomic and technical impact. It is very unlikely to have another technology (no matter on top of bitcoin as a layer or not) in the same field (electronic p2p cash transfer) just in few years.

My point is, neither LN nor any other comparable payment technology would be ever feasible to exist, no matter what in like a century or so. Meanwhile You can improve bitcoin, (actually you should, lots of flaws out there waiting to be fixed) but you can't put another layer on it without any price, ther is always a price and for bitcoin it seems to be something about decentralization, just like the case with LN.

[BitUsher]

Appears to be some common false narratives here, that need to be corrected.

1) Bitcoin relies only on lightning to scale which is not something any developer has suggested. Your insinuation that layer one needs to be scaled is something in active development and has always been part of the roadmap thus suggesting "crippling" is simply dishonest

2) There are some deep misunderstandings of lightning in your post that doesn't consider the effects of eltoo, splicing, channel factories.

3) The assumption that lightning will either be decentralized or have centralized hubs. This is a false dichotomy

4) The assumption that highly liquid channels or so called "hubs" even have the ability to censor transactions when in fact they have no idea where the tx is going , where did it start, and who necessarily sent it as designed.  

Sorry for being skeptical , but your post is so misinformed that it leads me to believe you have barely done any research or just deliberately spreading more misinformation to attack Bitcoin. There is no need for a point by point rebuttal as your concerns have already been addressed many times in detail and its clear you have not even begun to research the answers.

[noamlevenson]

1. check out lightning mailing list, they're discussing a solution to that basic problem

2. if you don't want bigger nodes to force you into doing something you don't want, don't use them. There are thousands of nodes already, and the total liquidity is still very low. There will be ample opportunity for people with good intentions to run LN nodes, and those people will have their good reputation rewarded

3. why would everyone close their channel at the same time? That would take extraordianry co-ordination of every single person on the LN


Lightning reduces the need for onchain transactions by thousands of times, that increases overall capacity beyond anything that could feasibly be achieved on-chain. Settling off-chain will happen increasingly less as Lightning protocol matures, i.e. most of the money entering channels will stay in channels.

So saying "Lightning depends upon on-chain capacity" is very true now, beacuse 1000BTC is a low amount of BTC to serve everyone's needs. Later on, that amount will be much higher, settling will be less necessary, and so on-chain capacity will barely impact Lightning usability (and on-chain capacity will be massiely freed up anyhow, because small and frequent transactions are cheaper & faster off chain) 



you need to become much better informed about lightning before you can attempt the role of providing others with information

I appreciate your response but I find your points unconvincing.

1. I will.

2. This entirely overlooks the argument I made. I'm saying that the way LN is set up today might eliminate that choice to some extent (when transaction quantities are lower than the on-chain fees). Your response wasn't relevant to this point.

3. This also is a flawed response. Just because you can't see a reason for it to happen, doesn't mean it can't/won't. No one thought a bank run would happen before the Great Depression, yet it did. I can imagine several scenarios where this could be a reality. For example, say we saw a dramatic overall economic crash (or a crash of Bitcoin and crypto) and people needed to withdraw their assets to pay for their bills. This could result in a series of panic sellling.

Why do you think that most money entering channels will stay in channels? Regardless, I don't disagree with you. But that's not the point of my comments.

I appreciate your response, but I don't appreciate you not addressing my questions and then stating how I need to be "much better informed."

[noamlevenson]

Appears to be some common false narratives here, that need to be corrected.

1) Bitcoin relies only on lightning to scale which is not something any developer has suggested. Your insinuation that layer one needs to be scaled is something in active development and has always been part of the roadmap thus suggesting "crippling" is simply dishonest

2) There are some deep misunderstandings of lightning in your post that doesn't consider the effects of eltoo, splicing, channel factories.

3) The assumption that lightning will either be decentralized or have centralized hubs. This is a false dichotomy

4) The assumption that highly liquid channels or so called "hubs" even have the ability to censor transactions when in fact they have no idea where the tx is going , where did it start, and who necessarily sent it as designed.  

Sorry for being skeptical , but your post is so misinformed that it leads me to believe you have barely done any research or just deliberately spreading more misinformation to attack Bitcoin. There is no need for a point by point rebuttal as your concerns have already been addressed many times in detail and its clear you have not even begun to research the answers.

1. I never asserted that Bitcoin would remain crippled forever. Regardless, I won't go about defending myself here. You cherry picked one of my words to discredit my questions instead of answering honestly and openly. I never said that LN is the only solution. Obviously, there are many solutions being proposed. My assertion was that layer 2 solutions cannot be used INSTEAD of layer 1 solutions -- only in tandem.

2. I have reviewed all of these aspects. None of them solve the concerns I put forth. Splicing doesn't. Eltoo looks promising but it does require a core Bitcoin update which strengthens my assertion that layer 2 solutions require layer 1 solutions to work. Channel factories would also be beneficial to LN scalability, but I don't think they would solve the issue of "Dust" transactions, nor point 1 or 3.

3. I agree there is the potential for a middle ground. But I see it moving in the direction of hub and spoke. Why do you disagree?

4. Perhaps you're not familiar with some of the information in my argument that led me to this conclusion. I would recommend you look into this: https://medium.com/@peter_r/visualizing-htlcs-and-the-lightning-networks-dirty-little-secret-cb9b5773a0
Feel free to comment with your thoughts afterwards and we can continue our discussion!

[aliashraf]

Your a brand new account that is concern trolling. Surprise, surprise. These rehashed conversations are essentially a DDOS on us scaling Bitcoin. If you want to be helpful than participate on github with testing, reviewing, and contributing.

Please stop biting people just because they have fresh accounts and Op has explicitly disclosed his identity as a bolger in Medium.

In your previous post you claim scaling is another issue under development with its own roadmap which is absolutely false and kinda hypocrisy.

People have rights to ask whether LN is a scaling solution for bitcoin or not and to diverge in opinions and ideas. It is just too much to tell people "go deeper and deeper and check any stupid feature they have implemented or want to implement to believe LN" what kind of dialogue it is?

Any average cryptographer with average knowledge can easily verify that liquidity and routing problems raised by LN has no solution other than centralization, it is no magic! You can't solve it by channel factory or any other technique, you need nodes with more channels and they need to have more funds to establish lots of channels, it is kinda mass/energy conservation rule or second rule of thermodynamics you can't claim you've invented an ideal  machine and expect people to spend more time on your stupid machine instead of simply rejecting it as not being legit.

From the very first day, reading the first paragraph about LN I reacted with this emoji and decided not to take it serious simply because I don't believe in any disruptive solution in this field after bitcoin in like one or two next centuries. For p2p electronic cash transfer other than blockchain and consensus you need either deposit or credit and both lead to centralization and censorship vulnerability eventually. LN uses blockchain to eliminate escrow it is good and smart, but not important you still need money which is a rare resource and is not meant to be used as deposit.

[BitUsher]

4. Perhaps you're not familiar with some of the information in my argument that led me to this conclusion. I would recommend you look into this: https://medium.com/@peter_r/visualizing-htlcs-and-the-lightning-networks-dirty-little-secret-cb9b5773a0
Feel free to comment with your thoughts afterwards and we can continue our discussion!

Sigh ... This has already been discussed to death, just rehashing old conversations and spreading more concern trolling.


For others that care to research -

https://bitcoin.stackexchange.com/questions/85650/htlcs-dont-work-for-micropayments/85694#85694

https://docs.google.com/presentation/d/1G4xchDGcO37DJ2lPC_XYyZIUkJc2khnLrCaZXgvDN0U/edit?pref=2&pli=1#slide=id.g85f425098_0_195

https://stephanlivera.com/episode/68

https://medium.com/@unofficialbitcoinshow/how-lightning-network-maintains-bitcoins-value-proposition-d127da10077d

http://diyhpl.us/wiki/transcripts/boltathon/2019-04-06-alex-bosworth-major-limitations/

Video: https://www.youtube.com/watch?v=ctx-oAIhhSY&list=PLC_AgDAr0m6QhwqPDrqMfjX64oHGmwDMk&index=4

"A channel is 1 onchain UTXO but it represents the funds of 2 people. The 2 outputs are off-chain. If a block has 2k tx then each block can on-board 4k people. Multi-party channels could have more off-chain outputs: thousands. That would mean a block could on-board 4 million users" - alex bosworth

Channel Management (video) https://www.youtube.com/watch?v=HlPIB6jt6ww

Channel Management (transcript) http://diyhpl.us/wiki/transcripts/chaincode-labs/2018-10-22-alex-bosworth-channel-management/

Lightning protocol, application design perspective (video) https://www.youtube.com/watch?v=1R5DNUcCYRg

Lightning protocol, application design perspective (transcript) http://diyhpl.us/wiki/transcripts/chaincode-labs/2018-10-22-alex-bosworth-lightning-protocol/

Building Lightning applications (video) https://www.youtube.com/watch?v=JhRIWc9zPjA

BTW, we know there are tradeoffs with lightning , as with any solution, the above links go into detail what these tradeoffs are. That is why we are scaling in multiple ways including onchain right now.

[BitUsher]

In your previous post you claim scaling is another issue under development with its own roadmap which is absolutely false and kinda hypocrisy.

So Schnorr sig aggregation and MAST do not increase tx throughput onchain? Really?

Also

https://bitcoin.org/en/bitcoin-core/capacity-increases

https://lists.linuxfoundation.org/pipermail/bitcoin-dev/2015-December/011865.html

Further out, there are several proposals related to flex caps or
incentive-aligned dynamic block size controls based on allowing miners
to produce larger blocks at some cost. These proposals help preserve
the alignment of incentives between miners and general node operators,
and prevent defection between the miners from undermining the fee
market behavior that will eventually fund security.

[aliashraf]

In your previous post you claim scaling is another issue under development with its own roadmap which is absolutely false and kinda hypocrisy.

So Schnorr sig aggregation and MAST do not increase tx throughput onchain? Really?

Also

https://bitcoin.org/en/bitcoin-core/capacity-increases

https://lists.linuxfoundation.org/pipermail/bitcoin-dev/2015-December/011865.html

Further out, there are several proposals related to flex caps or
incentive-aligned dynamic block size controls based on allowing miners
to produce larger blocks at some cost. These proposals help preserve
the alignment of incentives between miners and general node operators,
and prevent defection between the miners from undermining the fee
market behavior that will eventually fund security.

No, they are far from scaling and if they are what's the point of LN? It is just paradoxical, if scaling on-chain is in the horizon why so many resources and efforts are focused on LN? Why should we wrap bitcoin in a second layer solution, making it even more mystical?

[BitUsher]

No, they are far from scaling and if they are what's the point of LN? It is just paradoxical, if scaling on-chain is in the horizon why so many resources and efforts are focused on LN? Why should we wrap bitcoin in a second layer solution, making it even more mystical?

You just claimed that there is no onchain scaling proposals or roadmap , and now that I proved this to be untrue, you are shifting the goal posts to mean that you find that this roadmap is not to your liking? Very dishonest.

if scaling on-chain is in the horizon why so many resources and efforts are focused on LN? Why should we wrap bitcoin in a second layer solution, making it even more mystical?

Bitcoin has always had 2nd layers from the near beginning. lightning is only one of many solutions to scaling.  2nd layers help bitcoin scale securely and isolate failure and risks just like how the internet is developed in many layers

[Carlton Banks]

No, they are far from scaling

1. schnorr and MAST literally do change how efficiently space is used
2. you know that already

why are you telling us that space efficiency is not scaling, when that's what the defintion of changing the scale _is_

[aliashraf]

No, they are far from scaling

1. schnorr and MAST literally do change how efficiently space is used
2. you know that already

why are you telling us that space efficiency is not scaling, when that's what the defintion of changing the scale _is_

I classify both as simple and minor improvements:

1-Schnorr signatures help with batch transactions which are not the most common use-case in a market that has truly adopted bitcoin.

2- MAST helps with storage requirements which is not a big deal because we have pruning already and more importantly it is usable for complex scripting and smart contract use-cases, again not much effective.

I can't give a 1.5x improvement score to a combined Schnorr and MAST fork of bitcoin while we need up to 10,000x better performance to have bitcoin as true p2p electronic cash.

Scaling bitcoin needs much more aggressive mind set and I'm not talking about stupid block size increase by the way.

[BitUsher]

Scaling bitcoin needs much more aggressive mind set and I'm not talking about stupid block size increase by the way.

Again you completely ignore the detailed roadmap I link to and quote beyond these onchain improvements further reinforcing you are not looking for answers but just concern trolling.

The way to scale bitcoin aggressively is by scaling in many ways all at the same time, which is exactly what is happening, but for some odd reason you seem to be opposed to all the solutions at our disposal. Scaling only onchain is not scaling aggressively.


Read this --

"A channel is 1 onchain UTXO but it represents the funds of 2 people. The 2 outputs are off-chain. If a block has 2k tx then each block can on-board 4k people. Multi-party channels could have more off-chain outputs: thousands. That would mean a block could on-board 4 million users" - alex bosworth

Are you concerned that 4 million users being onboarded every 10 minutes(up to 576,000,000 users a day) is not enough? If so , you have wildly delusional hopes that Bitcoin will instantly become mainstream and don't quite grasp how much work we need to do. We don't need to onboard 8 billion people in ~16 to 30 days , you are being absurd

[aliashraf]

Scaling bitcoin needs much more aggressive mind set and I'm not talking about stupid block size increase by the way.

Again you completely ignore the detailed roadmap I link to and quote beyond these onchain improvements further reinforcing you are not looking for answers but just concern trolling.

The way to scale bitcoin aggressively is by scaling in many ways all at the same time, which is exactly what is happening, but for some odd reason you seem to be opposed to all the solutions at our disposal. Scaling only onchain is not scaling aggressively.

No! Absolutely disagree with this assertion, the only true scaling solution to bitcoin has to be on-chain, no exception.

Read this --

"A channel is 1 onchain UTXO but it represents the funds of 2 people. The 2 outputs are off-chain. If a block has 2k tx then each block can on-board 4k people. Multi-party channels could have more off-chain outputs: thousands. That would mean a block could on-board 4 million users" - alex bosworth

Are you concerned that 4 million users being onboarded every 10 minutes(up to 576,000,000 users a day) is not enough? If so , you have wildly delusional hopes that Bitcoin will instantly become mainstream and don't quite grasp how much work we need to do. We don't need to onboard 8 billion people in ~16 to 30 days , you are being absurd

Using bitcoin as escrow for LN is not bitcoin, this idea is based on an immature pragmatic perception of cryptocurrency, pure technical with no theory and concept behind it, it will fail.

First of all multi-party channels are not true/available technology they are based on channel factories IDEA in LN which has a LOT of problems to address, secondly it has been suggested to reduce the load of channel setup operations on bitcoin and is not relevant to scaling bitcoin. Nobody brought up the channel setup bottleneck for LN, not me at least. I don't think it ever happens to be fixed by an imaginary, complicated and fragile solution like multi-party channels.

[BitUsher]

Just focus on your own project as Bitcoin has always scaled with multiple layers from the beginning and Satoshi first proposed payment channels. No reason to waste your time concern trolling and misleading others as a means to promote some altcoin roadmap. If your coin is secure and works than the market will decide in time.

Altcoiners are so threatened by bitcoin scaling in multiple ways that they need to constantly spread FUD.

Onchain only for global adoption is absurd. Even the devs of the alt you are into believe their coin must scale in layers for global adoption. You not realizing this means you simply don't understand the math.

[aliashraf]

Just focus on your own project as Bitcoin has always scaled with multiple layers from the beginning and Satoshi first proposed payment channels. No reason to waste your time concern trolling and misleading others as a means to promote some altcoin roadmap. If your coin is secure and works than the market will decide in time.

Altcoiners are so threatened by bitcoin scaling in multiple ways that they need to constantly spread FUD.

So, LN enthusiasts have patented bitcoin,

According to you anybody who is concerned about bitcoin crucial challenges like scaling and decentralization is an alien, you are welcome to think so, no offense taken, I really prefer to be an alien rather than a misguided fan of a 2nd layer service who is still confident enough to claim copyright of bitcoin.

[franky1]

if an LN channel has a $160 limit, then here is some assumptions that can be made

1, to get a viable and good chance of using LN, users open up atleast 5 channels. thats like $800 value locked

2. this upto $800 means that people are only going to lock funds for a month or less because the value/utility of such is not an amount that would cover months/years of utility

3. continuing point 2 $160 /28 days of just 1 payment a day is under $6 a day spend per channel

4. with each channel open and close costing a onchain fee of at the moment ~20cents(40cents total) to recoup that 40cents
a channel would need to charge 40*1cent payment..(max $4 spending per payment) or if charging 0.1cent fee means 400 payments of 40cent max spending. meaning the chances of finding a route to buy a $20 pizza is super low unless the LN fee is 5cents, just to break even

other things to note about LN, due to it not being community audited per payment. no consensus and purely just an agreement between 2 parties that can edit their node how they like

1. LN does NOT rely on onchain locked funds. thor turbo is proving it by opening channels with balance even without having a confirmed locked transaction on the blockchain
2. LN HTLC's are not the same as bitcoin CLTV's the denomination of a HTLC is a millisat. something bitcoin does not recognise
3. LN HTLC's are private agreements unsttled between 2 parties and used just to show who owes what.
LN HTLC's are a pegged token using IOU's that do not even need to be tethered to a blockchain tx (thor turbo proves this)

[odolvlobo]

To summarize your article:

"There are issues and uncertainties, therefore Lightning Network can never amount to anything."

I feel that your argument is not convincing.

To be convincing, you must show how these issues can never be overcome, and show how the uncertainties are not only not uncertain, but also have a resolution that prevents LN from succeeding. FUD isn't very convincing.

[aliashraf]

To be convincing, you must show how these issues can never be overcome, and show how the uncertainties are not only not uncertain, but also have a resolution that prevents LN from succeeding. FUD isn't very convincing.

One thing that is very discouraging about LN is the bad attitude of guys like you who appear as a supporter. It is technical forum, accusing people of FUD in this subforum is irrelevant by default and in the context of this special topic is absurd.

It is just too much, asking people to prove that a system won't overcome its limitations ever and accusing them of spreading FUD if they don't buy your proposal.

LN is based on a wrong strategic choice, projecting scaling off the chain, it is more than enough to be convinced that it will never go mainstream in cryptocurrency without sacrificing some basic principles and requirements, it is up to the supporter to convince people otherwise.

That being said, I'm not against using LN, actually it is good to have LN around for like a couple of years, it helps bitcoin imo, but considering it as a scaling solution is simply wrong assumption, without consensus and blockchain (and PoW, imo) no system deserves this title.