Lately I’ve been reading up a lot about the upcoming Lightning Network (LN) for Bitcoin. The Lightning Network is a second layer scaling solution for the Bitcoin blockchain which allows for use cases like micro-payments and buying a coffee without paying high fees and with nearly instant payment processing.
Bitcoin and blockchain specialist and educator Andreas Antonopoulos has made an awesome video about the biggest misconceptions/myths about the Lightning Network. If you have 22 minutes left, I would definitely recommend you to watch the video.
Only have 2 minutes? Then read the brief summary I made below :-)
Misconceptions about the Lightning Network
A brief summary.
1. ‘The Lightning Network will centralize Bitcoin’
To some extent Bitcoin is already centralized. To reduce or avoid centralisation while being able to handle the growing need for capacity and demand there are two solutions. The first is increasing the block size. The second is processing transactions off-chain. Both have their pros and cons. It is not about between total decentralization vs centralisation. It is between off-chain private vs. off-chain secondary layers with trustless systems.
2. ‘The Lightning Network requires you to have a direct open channel with the person you want to transact with’
Not true. Transactions on the LN network only need a path through which transactions will be routed automatically.
3. ‘The Lightning Network uses the hot-potato-model of routing’
False. The Lightning Network uses source routing. The original node receives information about all available nodes. Then it creates an optimal path based on this information, for instance based on costs. This route is then encrypted at each step and onion-skinned. Each intermediate knows only the node which the transaction has arrived from. It then removes a layer of onion and discovers the next node that it must be sent to.
4. ‘Each channel needs funding to stay open which will lock up a lot of value in the system’
You only need enough funds for the transaction you’re planning and can ‘top up’ your funds any time. Also, since one node with a lot of channels will be more interesting for hackers, there is an disincentive for creating ‘big’ nodes and it therefore prevents centralization to a certain extent.
5. ‘Node operators face huge risks from upcoming AML regulations’
This is very unlikely. AML usually concerns only transaction above a certain amount and that is not what the LN is intended for. Next to that it would be very difficult to locate and prosecute individuals running software on their personal computer.
6. ‘Lightning-enabled wallets will be too complicated to use and will create confusion with manually opening and closing channels’
In the beginning it might not be all straightforward, but quite soon LN-enabled wallet will be very similar to multi-currency wallets. Users will not see or have to deal with everything that is going on under the hood.
This summary is very brief and short and misses some of the nuances that Andreas talks about. Want to dive into one or more misconceptions specifically? In that case I recommend you to watch the video after all ;-)
Personally, the Lightning Network really excites me about Bitcoin. I won't become a Bitcoin maximalist, but I remain confident with a nice position in The Big One.
Cheers!
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Disclaimer: I am not a financial advisor, trader or developer. I am just a blockchain & cryptocurrencies enthusiast. Make sure you do your own research, draw your own conclusions and do not invest any money that you cannot afford to lose.