Eight years ago, bitcoin was showcased in commerce when an American paid a Brit in bitcoin, and received two pizzas in return.
Eight years later, the much anticipated Lightning Network (LN) has now launched in bitcoin. It promised to solve all of its scalability problems, and double. This is how the first public attempt to make an LN payment went:
Are you online right now? The only new information here for us is that he couldn’t receive $5 before spending his own $5. That’s somewhat peculiar and itself of course has scalability problems.
Emin Gün Sirer, Cornell Professor, has called the Lightning Network “economically broken” in part because you need to lock up all these funds before being able to make or receive payments.
In addition, you have to be online to receive a payment, with custody services now considered which can better be called hubs, like banks are for fiat.
In LN, however, the funds are secured through bitcoin’s public blockchain, so the bank can’t keep them if they wished as they can with digital fiat, but they can hold them for some time and delay your receipt of the funds.
An inherent technical weakness in LN is the ability to double spend previous payments if the other party is not careful. For that, they came up with watchtowers which as the name suggest watch out for such double spend attempts.
From the end user’s perspective, LN can better be called an invoice system. To make an invoice, you need an LN ‘node” or channel, and then you have to be online when the invoice is paid.
Sometimes, however, the other party simply can’t find a path to your node. Payments on LN are made in a six degrees of connections method. A knows B, B knows C, A can pay C through B. If neither of them knows D, however, then D will have to use dogecoin.
Dogecoin is a meme currency which initially had stupendously high inflation, so the suggestion to use dogecoin is our poor attempt at making a joke.
The payment in dogecoin, or any other public blockchain including in bitcoin now while it has some capacity due to lower use, would however be a lot more convenient than in LN.
All you would need to do in that case would be to just share your public address, then people can freely tip you whenever they like, as much as they like, with the payment always finding a path, and with you not needing to be online, and without any double spending possibility after six confirmations except for extremely unusual and effectively previously unseen in bitcoin circumstances.
Bitcoin, however, has decided to not allow for such convenience save for around 300,000 transactions a day. The reason is because the Bitcoin Core developers seemingly are unable to shard the bitcoin blockchain. So the only option they’re offering for now is this invoice system.
While in ethereum they’ll have the invoice like system called Plasma, plus a number of other second layers such as Truebit, but in addition they’ll have sharding as well which will increase capacity to around 100 million transactions a day.