426 sats \ 6 replies \ @orthwyrm 12 Dec 2023 \ parent \ on: Inscriptions: the cure is worse than the disease bitcoin
Opening and closing channels require on-chain transaction fees.
So suppose I want to on-board someone onto Lightning, with a non-custodial wallet such as Phoenix. I could send you $10 worth of sats to get you started, but a good chunk of that will be spent on the channel opening fee.
There are custodial wallets out there where you don't have to worry about channel management at all. These are far cheaper to use as a result, but of course you have to trust the provider. They are perfectly fine for smaller amounts. However, we might be seeing less of these as they are a regulatory target (see: Wallet of Satoshi, BlueWallet).
I see how that could be a problem but isn't Stacker.news custodial also? not like we have to keep opening and closing channels here. Also since bitcoin is permissionless shutting down one lightning custodian probably means 2 more take their place. The real threat imo would be the custodian running off with your money but if its a small amount its not as big a deal as your life savings. ALSO can't I send bitcoin to a custodial wallet like cashapp and send it from there to Phoenix Wallet?
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The principal issue under discussion isn't custodianship and its security vulnerabilities. The issue is that to get funds onto an L2, channels need to be opened and eventually closed. If it's five bucks to make a channel tx, that renders migration to an L2 infeasible for a vast number of UTXOs.
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yeah but again let's say I have bitcoin on cash app which has lightning functionality. can't I send it from there to Phoenix for barely any money? So I pay wayy less fees?
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If you have btc on Cash App, and CA has existing channels with Phoenix w/ sufficient capacity, and they don't mind using that capacity to service your tx, then yes, you might be able to send cheaply and not worry about it. But someone is paying for the channel opens / closes, and that entity will eventually pass those costs onto you. No free lunch.
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thanks thats a perfect answer.
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SN is custodial. So we're all using SN's channels here and the cost of managing those channels is abstracted away from us.
A non-custodial wallet basically means you have your own channels, that nobody else can control. So if you spin up a Phoenix wallet and deposit funds into it for the first time, a channel needs to be created for you.
So kinda like this:
Receiver = Custodial -> No on-chain fees incurred
Receiver = Non-Custodial with no channels / inbound liquidity -> On-chain fees incurred
Once the channel has been created, you can spend from it at little cost. If you want to create a new channel, change a channel's capacity, or close a channel, that all involves touching the base chain.
Savvy Lightning users will do their channel management in low-fee environments to minimize costs. Open a channel when fees are low, and spend from it when fees are high. But there will come a time where fees are always high, and most people will be priced out of opening their own channels (unless we see some crazy new developments in the space that I'm unaware of).
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