There is a lot of excitement around the Lightning Network that is in Beta since a few weeks, but there is a lot of skepticism too. Lightning can enable instant, anonymous and extremely cheap transactions without putting heavy load on the blockchain, but there are some issues to overcome. Bcash proponents use these issues to spread FUD, but in the mean time very competent devs are working on solutions. Eltoo is a new proposal that can be implemented through a soft fork and can solve some of the biggest issues of this moment.
https://www.blockstream.com/2018/04/30/eltoo-next-lightning.html
The current state of Lightning:
Lightning is ready to use and already accepted by some merchants, but it is only in Beta yet, so things might go wrong. The most common issue is that a payment might fail or that the network is not able to figure out a route for the payment. This is annoying, but will not cause losses. Also improvements in this area go fast, it is mostly caused by miscommunication between different implementations of Lightning.
It is also still possible to lose money, so it is advisable to start with small amounts in a payment channel and know that things could still go wrong. Also the Android Lightning wallet of Eclair can only send at the moment, because receiving while being offline is still risky till watch towers are fully implemented.
The biggest issues:
Lightning transactions are based on Bitcoin transactions that are not broadcasted to the blockchain yet. When two entities in a payment channel transact with each other they just update the input of this transaction. The biggest risk is that someone send an old update to the blockchain instead of the most recent one, his counter party will lose money.
To fix this a penalty system is implemented. This system will punish the one that tries to cheat by enabling the counterparty to take all the funds in the channel. Game theory will prevent people from cheating, they know they will lose money if they do so. However, the problem is that failure of the software can make people cheat accidentally and make them lose money.
When you receive funds you have to stay online till the payment channel expires, otherwise the counter party could send an old update to the blockchain and you will not be able to remark it and enforce the penalty system. This will be solved through watch towers, other LN nodes will receive tiny fees by guarding the offline nodes and undertake action when needed. There is still some work to do to fully implement these watch towers.
Also the fees can still lead to problems. When opening a channel you have to pay the network fee (opening a channel is done by a BTC transaction), but the transaction will hit the blockchain much later. Say that the channel will be closed after one month, you have to estimate how high the fee to be included in the next block will be in a month. Many will overpay to ensure that they will be able to close the channel immediately.
Receive funds securely while offline through watchtowers
What can Eltoo solve?
Eltoo will connect the latest update of the transaction to the base transaction, this will make it impossible to send an old update to the blockchain. When this is implemented the penalty system is not needed anymore and will only function as backup. Eltoo can be implemented on top of the current Lightning Network, everything else will remain in the current state.
Because watchtowers will always be informed about the latest update, they will be more efficient and easier to implement. This will help the devs to solve the problem that you must be online to receive funds. Eltoo can only be enabled through a soft fork whereby a SIGHASH_NOINPUT flag get implemented. This flag will also enable users to set the fee when they close the channel. This will also fix the issue of fee estimation and overpayment. Furthermore, Eltoo can also improve 2nd layer solutions other than Lightning.
Conclusion:
Lightning still need a lot of improvement, but major steps in the right direction are underway. After just a few weeks in Beta a part of the FUD can be debunked already, and I think it is realistic to expect that all the issues will be resolved sooner than later. Development of great tech needs time, and pointing to current issues and suggesting that they will never be solved is simple minded (or done on purpose to spread FUD by opponents). When these issues are overcome, we will have a great decentralized and scalable payment system that can handle mass adoption of cryptocurrency for the first time in history!
Disclaimer
This is no financial advice, just my view on the market.
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