Over the last few months it feels the bitcoin community has gotten more and more jaded on lightning. To be honest, this is for good reason, back in 2017 we were promised a decentralized payment network that would always have cheap payments and everyone would be able to run their own node. Nowadays, the average lightning user actually isn't using lightning, they are just using a custodial wallet and the few of that do run lightning nodes often find it a burdensome task. For us at Mutiny Wallet, we are trying to make this better by creating a lightweight self-custodial wallet and in my opinion we have been executing on that dream fairly well. In this post, I'll analyze these issues and present a new way to view lightning and what that means for bitcoin going forward.
First and foremost one of the hardest UX challenges of lightning is channel liquidity. No other payment system has these problems today besides lightning so this often confuses lots of users. To make matters worse, there aren't any practical hacks that we can do to get around this. Muun Wallet used an on-chain wallet + submarine swaps to get around the channel liquidity problem, this worked very well until fees went up and everyone realized it wasn't actually a lightning wallet. The better solution is JIT liquidity like we do in Mutiny or splicing like that is done in Phoenix. These solutions abstract some of it away but not enough, we often get support questions confused on why some payments have fees and others do not. The fact is channel liquidity is not a usable UX for most end users.
The other major pain point of lightning is the offline receive problem. Inherently, you must be online with your private keys to sign and claim a payment. There is technically an ongoing spec proposal to be able to work around this (essentially creating a notification system of when people are online to receive payments), but it doesn't solve the fundamental problem and still has limitations. There has been a few attempts to get around this, most notably was Zeus Pay lightning addresses. These essentially worked by just creating stuck payments and waited for the user to come online to claim, this caused a ton of problems for people and even forced us at Mutiny to block users from paying them because it caused so many force closures. This is a hard problem because the entire rest of the bitcoin/crypto ecosystem works by just copy-paste an address and you can send to it whenever, there isn't caveats around asking your friend to open their wallet. This is further exacerbated by things like lightning address that requires a webserver to even get an invoice in the first place.
Channel liquidity and offline receives in my opinion are the two most obvious reasons why self-custodial lightning is not popular. When most users hear about any of these, they just think screw that and move to a custodial wallet because it is so much easier. If these were our only two problems, I think self-custodial lightning would be fine, it may never be the predominant way people use lightning, but we could get the UX good enough that we have a significant portion of people using lightning in a sovereign way. However, there are more problems under the surface.
Channel liquidity is a problem, but it is also deceptive. When you have 100k sats of inbound liquidity you would think you could receive up to 100k sats, but this isn't the case, often you can't actually receive any. This is because of on-chain fees, when a payment is being made in lightning you are creating pre-signed transactions that have outputs for every in-flight payment, these outputs cost potential on-chain fees and the high on-chain fees go the more it eats into your liquidity. After we've solved most of our force close issues Mutiny this has been number one support request. Even if you do everything right, understand liquidity and have enough for your payment, sometimes it still won't work because on-chain fees are too high. This is always really discouraging because isn't the whole point of lightning to not have to pay on-chain fees? Fundamentally, all current lightning channels could become entirely useless if on-chain fees went high enough because a single payment would require too many reserves. Obviously this is hyperbolic, but I hope I am getting the point across that on-chain fees don't just effect the opening and closing costs of channels, even if you are a diligent node runner that only opens channels when fees are low, that is not enough, your channels need to be large enough to pay for the on-chain fees of each HTLC at any future on-chain fee rate. As on-chain fees go up and up this problem will only get worse.
The proposed solution to these reserve issues are things like anchor channels, package relay, ephemeral anchors, etc. These are all well and good but kind of just mask the problem. They do solve it so the fee reserve can be much lower and possibly zero, however with the tradeoff that you need on-chain funds available to fee-bump your force closes so they can actually get into a block. This again breaks the UX for self-custodial users because they have hold on-chain funds alongside their lightning funds so they can do those on-chain fee bumps. The size requirements for their on-chain funds is still dynamically based on how high on-chain fees can spike. Solutions for this can include having someone else bump your transaction fees but this brings basically a trusted 3rd party into the mix and isn't ideal.
When you lay out all the different tradeoffs a lightning node needs to make, especially in a high fee environment, it makes me think, what are we doing here, are we going down the wrong path? Lightning is still fundamentally a fantastic payment protocol but its limitation is that it requires scale. Basically every problem I've outlined goes away when you have a large lightning node with lots of liquidity and high uptime so many we should optimize for that. The market has been telling us this for years already, +90% of lightning users are using custodial wallets because it works so much better at scale. So how can we use large scale lightning nodes without custodial wallets?
Combining existing large scale lightning infrastructure with self-custodial solutions sadly, isn't totally possible. The only real way to do that as of now is Muun Wallet which as we talked about earlier, doesn't really solve the problem because everything is just an on-chain transaction. However, Muun was onto something. The architecture of having a simpler protocol interface with lightning is genius and gives us the best of both worlds. We can make fast cheap payments and let the big boys collect fees for running the lightning node. Aqua Wallet just launched which is essentially a Muun Wallet but on top of Liquid, this is a good bandaid fix but doesn't get to the root of the problem.
Before we go further we should take a step back and break down what problems we are trying to solve. Bitcoin has a fundamental scaling limitation through the block size, if we could make infinite, then we wouldn't necessarily need any layer 2s because we could just make on-chain payments. However, we live in the real world and have a 1mb block size limit, and this limits the number of transactions we can make on-chain. Lightning is a huge improvement to bitcoin because we don't need to put every transaction on-chain, we just need to open a channel and can make seemingly countless payments. So why isn't lightning the silver bullet? Lightning lets us move payments off-chain but what it doesn't do is let us move ownership off-chain. Fundamentally lightning still relies on that, at the end of the day, a utxo goes to single user. So even if every on-chain transaction was a lightning channel, we still run into the limit of how many people can actually own those channels. What we need is another layer 2 that can scale utxo ownership and caninterop with lightning, that way we have a way to scale ownership combined with scaling payments.
So how do we scale ownership? Simply put, the answer today is custody, whether that is pure custodial like a Wallet of Satoshi or in the grey area like fedimints and liquid, the only way to do it today is through custody or federated bridges. In bitcoin, the only way to delegate ownership of a utxo to multiple parties is through multisig, however, that requires every user to be online when anyone wants to transact, and when you take go down this path far enough you end up just reinventing lightning.
Are we doomed then? Is there no way to scale bitcoin in a self-sovereign way? Luckily, the answer is no, but we need some soft-forks. Covenants are the way to scale bitcoin ownership. There are a bunch of covenant proposals but at their core what they propose to do is to add a way, so you can have a bitcoin address that limits where and how the coins in it can be spent. This can seem scary, but we already have these in bitcoin today, OP_CTLV (Check LockTime Verify), which was soft forked in 2016, only allows you to spend from a bitcoin address if the transaction has a given locktime, this lets you gate when a utxo can be spent. What the current covenant proposals do is let you gate where a utxo can be spent. With that simple primitive many different protocols can be built that allow for scaling ownership.
There are a lot of current covenant proposals, the main ones being: OP_CTV, OP_VAULT, OP_CSFS, OP_TXHASH, OP_CAT, and APO. They all have different functionality and tradeoffs but in my opinion we should be looking towards activating a form of covenants because otherwise we will likely be moving towards a future of less sovereign bitcoin users.
The future is not bleak however, even without covenants we can still scale bitcoin for the world, just not in the ideal way. At Mutiny, we are full steam ahead on implementing fedimint into the wallet, in my opinion (and the rest of the team's) it looks like the best current scaling solution for bitcoin. Fedimints give us the ability to dynamically share ownership over a group of utxos and is able to interop with lightning through gateways. It is the pinnacle of the scaling dream for bitcoin with current technology and I can't wait to help make it reality while we can.
Fundamentally, all current lightning channels could become entirely useless if on-chain fees went high enough because a single payment would require too many reserves.
All layer two designs suffer the same problem.
Fundamentally, transacting off-chain is going to be beneath “economic feasibility (if questioned)” for the median user.
Attempts to build larger coin pools suffer from exit-ability and consensus problems (how do people agree on the state of the L2 accounts to consider it valid?). I don’t expect this to ever change, no matter what new primitives get forked in or protocols for “sharing utxos” get invented.
Choosing fedimints is deciding on one set of tradeoffs (no supply auditability, risk of jurisdictional kyc ban hammer for federation withdrawals) — every choice has different drawbacks. There is literally no “best” solution. Saying you’ve found one without enumerating the tradeoffs isnt very useful imo for helping people understand the problem space.
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110 sats \ 4 replies \ @anon 7 Jan
Drivechain doesn't suffer from that.
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Drivechains just kill bitcoin incentive models
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150 sats \ 1 reply \ @anon 7 Jan
You mean the incentive to only use Bitcoin through a handful of centralized KYC regulated custodians?
Yeah, Drivechain kills that.
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Fuck Drivechain.
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1282 sats \ 0 replies \ @anon 7 Jan
Drivechain is just big blocks in a different way. It doesn’t solve the scaling issue, it just moves it to a new location and replaces user keys with miner votes. But the scaling problem remains the same, and largely dumps it on miners who now have the explicit option of voting on something they don’t even have to verify. Then it tries to hide the fact that it doesn’t really solve anything, behind a 6 month time lock… which is the entirety of its real attempt at securing ownership, hoping that 6 months is long enough to enforce whatever the truth was if there are no validators when things go wrong.
But that only exposes the problem rather than fixing it, you could just slap a 6 month timelock on literally any L2 and then say “see, what are the chances the rightful owner doesn’t get their funds now?”
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Fundamentally, all current lightning channels could become entirely useless if on-chain fees went high enough because a single payment would require too many reserves.
All layer two designs suffer the same problem.
I'm a little shocked that such blatant fud-propaganda slips by here without anybody refuting it.
All L2 solutions - including Lightning - don't suffer from this problem. They solve this problem.
  1. First of all the Fees of L1 onchain Bitcoin a result of demand and supply. Lightning payments can be done instantly, in arbitrary sizes and between many (basically endless) clients. This tips the scale. It tips the scale with huge resources on the supply side. The reason why this effect hasn't fully kicked in yet is because not every exchange, miner, bitcoin business isn't on Lightning yet.
  2. Second Lightning enables users to ignore on-chain fees. Make your fiat-Bitcoin exchange on an exchange and withdraw via lightning. Use your money on a Bitcoin business that accepts Lightning. Normal people need zero interaction with onchain. In the future they wouldn't even need to know what onchain even is just like many people in the fiat world don't know what swift is. The reason why this effect hasn't fully kicked in yet is, again, because not every exchange, miner, bitcoin business isn't on Lightning yet.
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Honestly, i love your optimism
if the bitcoin chain wasn’t being filled with what im politely terming “extra-chain assets” but instead transfers of bitcoin you might have a stronger point wrt supply + demand of blockspace and on- vs off- chain fees
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Second Lightning enables users to ignore on-chain fees.
Yea you should really re-read the original post. This isn't at all true, and it's explained pretty well why
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52 sats \ 2 replies \ @ek 7 Jan
Second Lightning enables users to ignore on-chain fees.
Did you read the post? Maybe you mean users using custodial services with "normal people" here:
Normal people need zero interaction with onchain.
LN is an abstraction that has leaks as explained in the post (and like many abstractions).
Maybe we're arguing about different things but do you not see the leaks?
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I'm answering specifically on the framing as Lightning being at the whims of the economics instead on Lightning being what determines the economics.
Let's take the example of global container shipping. Sure you can say the shipping industry is at the mercy of freight rates of the market economy. But that's undercomplex perspective at best and dishonest at worst. Global shipping isn't at the mercy of the economy, it's part of what fundamentally drives the economy.
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3 sats \ 0 replies \ @ek 7 Jan
Global shipping isn't at the mercy of the economy, it's part of what fundamentally drives the economy.
I would say global shipping depends and drives the economy.
It's a complex system where some outputs can be inputs again (feedback loops).
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the post is saying that channels are affected by fees as channels need reserves, then you're saying they don't, why not?
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They are right now but in the long term it's the other way round. Channels will affect the fees more than fees will affect the channels.
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and how do we get to the long term if the near term is unclear if lightning is even the right way to scale
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Do you know a good post or article writing about these tradeoffs for each solution? (Lightning, ecash, etc)
3092 sats \ 9 replies \ @anon 6 Jan
Very happy Mutiny+ user here. Thanks for your amazing work. Start by patting yourself on the back a little. Seriously.
My pleb opinion is at least half of the LN issue is education/expectations. I love Mutiny and use it constantly and have personally "felt" zero downsides. This is because I took time to research, at least high pleb level, the pros and cons of lightning and thus I expected the channel liquidity and on chain fee limitations. You just writing this up and posing these questions to the public is helpful education for the masses, and needs to be elevated and repeated by others.
Fedimint, imho, is for sure the best immediate term step forward.
Beyond that an OP_CTV only soft fork is the best next step, again imho. The Mutiny team is EXTREMELY well respected and influential, I think more than yall realize. If you publicly, especially if jointly with other influential devs and/or influencers, come out in favor of a OP_CTV only soft fork it could be here in a few years (lightning fast for a soft fork). My wild guess if that if Mutiny, another big wallet, Odell, and a few well known devs came out for a OP_CTV only soft fork we could get it in a year. We need to build momentum on what is in reality a fairly small and deeply analyzed change but would have enormous impact.
Just one plebs opinion. Maybe I'm too optimistic and dreaming. I just feel and fear a general jaded malaise coming over the dev community that scares me. We have to get out of: 1) treating all change as a 10 out of 10 huge deal we should naturally resist 2) influential devs saying if it isn't a big soft fork with exactly what they want in it they're adamantly opposed - this is childish and needlessly holding us back. Not going to dox or shame but people saying "if I dont get at least X, Y, and Z soft forks I'm opposed to all soft forks" need to somehow be cajoled or convinced to chill tf out and get on board with a little incremental progress and momentum. CTV has been around a long time and has been super thoroughly analyzed by a lot of people and its a relatively small change, just an op code. Let's get it done, find common ground, and keep building.
Love yall, love Mutiny, long live lightning.
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Appreciate the kind words <3
This is because I took time to research, at least high pleb level, the pros and cons of lightning and thus I expected the channel liquidity and on chain fee limitations. You just writing this up and posing these questions to the public is helpful education for the masses, and needs to be elevated and repeated by others.
Yeah I think this is a lot of bitcoiners current situation, lighting works for them because they know all the nuances, but education doesn't scale, things need to be intuitive
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education doesn't scale
While I'm sympathetic to the idea that things should be as intuitive as possible, it is pretty impressive what humans will learn how to do when they have an incentive.
Think of all the crazy weird things we do to be able to drive a car (multiple foot pedals, controls of many sorts, an entire genre of laws, insurance costs and fine print, gassing it up, tire pressure, oil changes, roads, signage...). If you presented a new tech and told an investor these were the things that needed building out, no one would go for it. But people wanted to go faster.
Lightning and bitcoin in general just have to keep being useful enough that users have a reason to figure it out. We need to keep plugging bitcoin use-cases into the wider world and people will figure out channel management if they need it to do what they want.
For me, the focus is on what bitcoin and lightning let people do that they couldnt before and really want.
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I'm gonna take this analogy further than it probably goes:
I have to manage my gas tank. 100 years of car technology hasnt solved the problem away from me. I have to make sure it doesn't run out. If it does I get stranded somewhere miles from where I need to be and it is a huge headache.
Sure, we have warning symbols and gauges, but we don't have a great solution that makes it so I don't have to manage my gas tank. We just built a really big infrastructure to help me do it.
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Great analogy. Unfortunately payment apps and online wallets never had gas tanks before bitcoin came along. They just had account balances so that's what laymen understand.
Getting them to understand that they'll need to keep up with a 'gas tank' will always be a hard sell because it just inherently feels unnecessary.
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I think the analogy still works, with your bank account, which you have to manage. If you keep spending, but don't keep an eye that your income > spending, you're going to be standard, miles away from anyone else but your friendly bank clerk
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Tell that to people needing ETH to send USDT. I think they're close to getting it although it's indeed an epic clusterfuck of customer support.
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This is a good analogy, I might use it.
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Agree, they need an incentive. Unfortunately my guess is for most this will probably be fiat rugging them in some way.
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Agreed with the current best path being Fedimints (soon) -> CTV (within next couple years). Reassess where we are after another halving or two.
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12.3k sats \ 1 reply \ @jeff 6 Jan
My day to day banking is custodial, denominated in government fiat.
If I could snap my fingers, and have my day to day banking be custodial, but denominated in BTC, I would be fucking ecstatic.
Sovreign btc > Custodial btc.
Custodial btc > Custodial fiat.
Both of these can be true.
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This is the pragmatic approach. I'm perfectly happy with people getting onboarded custodially as long as they're still on the network and able to take ownership if they want to. Same way I can take cash out of the bank and it's mine, I could withdraw sats from cashapp and it's mine.
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covenant(s) .. add a way, so you can have a bitcoin address that limits where and how the coins in it can be spent
I've never fully understood how this concept scales bitcoin utxo ownership. How does limiting where someone can spend their UTXO allow multiple people to share the same UTXO? Eventually you're just saying "this UTXO has to be spent to 10 other addresses eventually" and letting the individual parties decide when they access their coins? I've seen it as a way to pitch delayed custody from a fee savings perspective, but that's assuming fees come down to benefit the user.
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I've never fully understood how this concept scales bitcoin utxo ownership. How does limiting where someone can spend their UTXO allow multiple people to share the same UTXO? Eventually you're just saying "this UTXO has to be spent to 10 other addresses eventually" and letting the individual parties decide when they access their coins? I've seen it as a way to pitch delayed custody from a fee savings perspective, but that's assuming fees come down to benefit the user.
Because that next address doesn't always have to be to an individual, it can be to another covenant adding or subtracting someone from the group.
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I see it this way too. Scale would come from each transfer of sats from one utxo to another being a batch of multiple peoples' intents all at once.
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If I can't afford a UTXO, why would I pay the on chain fees to keep transferring it from covenant to covenant? Or rather is that just what happens when one out of 10 get out of the covenant and the other 9 go to a different covenant?
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You wouldn't do for every state transition, you would only do it when entering or exiting the utxo pool. Similiar to lightning, you don't open channels for every payment.
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617 sats \ 3 replies \ @anon 7 Jan
UTXO pool's aren't magic. You still need to keep liquidity available to exit the UTXO pool if necessary. And because huge numbers of people will be locked up in one UTXO when pools fail fees will spike causing people to lose money. All these covenant proposals are expensive, requiring large transactions to get stuff done. A bunch bigger than Lightning.
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obviously its not perfect, but we need someway to scale utxo ownership, 1-to-1 payment channels won't scale bitcoin non-custodially
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263 sats \ 1 reply \ @anon 7 Jan
UTXO pools will probably make the problems we've seen in Lightning a lot worse because they'll allow fees to go up even further. If you can't get out of your UTXO does it matter whether or not you own it?
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they'll allow fees to go up even further
fees are going up with or without soft forks.
If you can't get out of your UTXO does it matter whether or not you own it?
we need to at least try, otherwise you definitely won't own it
Where is the state then?
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Have you really thought about this? What you're suggesting is impossible.
Maybe refer to actual ideas like Ark so we can point out how they do and don't work.
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I'm here for posts that point out harsh realities and tradeoffs. Glad you wrote it.
I harp pretty regularly on the idea that the ultimate "solution" to this issue will be a host of institutions that span various positions of sovereignty -- in other words, that incorporate varying amounts of trust distributed across various parties in various ways, that interact with each other, and that provide a range of affordances that require varying levels of sophistication. Perhaps this will be a place where some of this gets elaborated.
I am still not aware of such a writeup, one that puts the pieces in context, and imagines how it is working (for the elements that are built) and could work (incorporating sketches of elements that are not yet built, or that are only imagined.) Can anyone suggest anything that sort of fills this gap?
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I wrote this to help fill that gap
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I have an annoying complaint about this post, if you don't like petty rants, move along.
OP, there are 13 paragraphs in this post. The first 10 repeatedly describe the problems we already know about. They are redundant and tedious to read but I got thru on the hope that, as the title implies, you would outline a new idea later on which attempts to solve these issues and how. The next 2 paragraphs give a frustratingly small amount of information on covenants, but don't actually explain how they solve the problems outlined in painful length in the 1st 10. The last paragraph is a commercial for your business and talks about fedimint which is not "rethinking lightning"
You should have condensed the 10 into 1, and written another 10 about covenants explaining in excruciating detail how exactly they address any of the issues, because it is very far from clear as it is. You gave 6 examples of soft fork proposals and gave exactly 0 information on what they entail, what they do, how they do it, nothing, just some letters and underscores.
I appreciate that you're working on scaling Bitcoin, that's brilliant and I hope you become filthy rich from the fruits of that labor. Truly the Lord's work, and I commend you for it.
But this post is garbage. It made me much more pessimistic about lightning, it was frustrating as hell to read, repetitive, redundant, meandering, and ultimately uninformative, I learned nothing at all.
Was this post about lightning? About fedimint? About covenants? The vast majority is about trashing lightning in ways we already know lightning is trashable. And then you just said "covenants are the answers" but didn't explain covenants or how or why they are the answer. And then you said Fedimint. Yea we already know about fedimint. I'm very frustrated having read thru this.
It's possible that you need a more savvy writer to communicate your ideas to a broader audience. Or maybe I'm too much of a noob to understand what just happened here. Idk. I may be an idiot, but I don't feel I've gained anything at all by reading this
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You can always ask ChatGPT to condense any post to size of your liking. With a bit of training you can even teach AI the level of your current knowledge/expertise so it produces personalized outputs.
For example here is response asking ChatGPT4 to condense the post into three paragraphs:
The post discusses the challenges and potential of the Bitcoin Lightning Network, focusing on its evolution and current issues. Initially hailed as a decentralized payment network with cheap transactions and the ability to run personal nodes, the reality has shifted. Many users now rely on custodial wallets instead of self-custodial solutions like Mutiny Wallet, which aims to address these challenges.
The author identifies two major issues with the Lightning Network: channel liquidity and the offline receive problem. Channel liquidity, unique to Lightning, confuses users due to its complexity and inconsistent fee structures, while the offline receive issue arises because users must be online to sign and claim payments. Attempts to solve these problems, like Zeus Pay lightning addresses, have led to more issues, like stuck payments. These challenges make self-custodial Lightning less popular, driving users towards easier, custodial solutions.
Beyond these issues, the post delves into deeper problems like the impact of on-chain fees on channel liquidity and potential solutions like anchor channels and package relay. However, these solutions are not perfect and often require a compromise, like holding on-chain funds for fee bumps. The author suggests that large-scale lightning nodes might be a better focus, given that most users prefer custodial wallets for their simplicity and efficiency. The post concludes by exploring future directions, including the need for soft forks to implement covenants for scaling Bitcoin ownership and the potential of fedimints to dynamically share ownership over a group of UTXOs, offering a promising direction for Bitcoin scaling.
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fwiw...i read this summary (and all previous comments, salty or not) and for me, all signs point to banks running custodial LN nodes for KYC'd business customers who expect to receive funds.
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That's a great summary
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I'm a dev, not a writer. This is the best you're gonna get lol
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223 sats \ 1 reply \ @SqNr65 15 Jan
Hey man, a while after reading this I realized that you prompted me to look into CTV, how it works, what it is, and how it can be applied to mitigate some of the issues in lightning. And I am much more knowledgeable about Bitcoin in general, and scaling solutions in particular because of it. In just a few days the value of your article has manifested in my life. I have a deep need to understand what is happening in Bitcoin, and what the limitations of the current tools are, and also what the mitigating innovations are and how they work, and your piece helped me to gain that understanding, so thank you. I apologize for calling the post "garbage". I wasn't able to see its value at first, but I see it now, and I appreciate it.
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much love, no hard feelings
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Well thanks for deving dude. I'll try to be less salty about shit like this in the future. Hope I didn't dissuade you from writing more. Cheers.
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I disagree. As more of a noob I very much appreciated the explanation of the problems of Lightning documented here.
It was very valuable to me--
We need more of this--education of the non-technical--to help foster understanding of the issues, and ultimately solutions.
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I'm really glad it helped you understand the issues with lightning, I think it's incredibly important for us non-technical noobs to understand the limitations in the tech as much as we can.
But did it help you understand how to address these shortcomings in any practical way? Or did it outline how these issues might be mitigated in the future?
It did a good job (arguably) of outlining problems. Do you think it did a good job of outlining solutions?
Did it help you understand what covenants are, how they work, or how they can help solve any of these issues?
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The first step in a solution is to understand the problem. :)
And...I have faith that there will be technical solutions. When the internet was in its infancy, no one envisioned Netflix, or Amazon for that matter, but solutions were envisioned to solve those hurdles.
Creativity found a way...and so it will be with L2 and L3..
"How many times has a man thrown up his hands at a time, when a little more effort, a little more patience would have achieved success."
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Sure man, glad you understand the problems better now.
Faith means trust, don't verify. Not a fan. I prefer don't trust, verify.
I also think there will be solutions, but this article brought me no closer to understanding what those solutions might be.
Nice quote and all, but you didn't really answer any of my questions at all, didn't even try to.
Care to venture a response? Not tryna be a dick here. I'm really just curious, I wanna know if I missed something. There are a bunch of questions there, would love to get an answer for at least 1 of them
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Sure man, glad you understand the problems better now.
Faith means trust, don't verify. Not a fan. I prefer don't trust, verify.
I also think there will be solutions, but this article brought me no closer to understanding what those solutions might be.
Nice quote and all, but you didn't really answer any of my questions at all, didn't even try to.
Care to venture a response? Not tryna be a dick here. I'm really just curious, I wanna know if I missed something. There are a bunch of questions there, would love to get an answer for at least 1 of them
AFAIU, the way covenants solves this issue is by making the ownership of each UTXO shared by more than 1 party without hitting the chain. Which, for the layman, means that in the future all channels will be opened to multiple parties (instead of just one), which will save in fees. And given that covenants will allow, this way, for LN to scale to the whole planet (because, you know, LN as it is today can't scale to the whole planet as it requires at least 1 UTXO per person), then we will have lower on-chain fees. And with lower on-chain fees, we don't have all the issues that OP explained in the 1st 10 paragraphs of his rant.
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Running multiple LN nodes for the past year has been very educating on the viability of LN. LN works, it works well, when it is working properly. When things go wrong its a drain of your sats. I have no doubt that it has cost me many times more in bandwidth, hosting costs, channel closures and HTLC timeouts and onchain fees than I have made routing sats. You will not make money routing sats unless you have some serious liquidity. Why do I do it? It provides utility for me for small payments. Both my nodes are <100M sat liquidity. I like the tech.
The biggest concern for me the mainnet tx fee, which is an essential component of the security model LN. LN cannot function in the scale users expect with fees >100s/vb. As fees drift up with more spammers over time, channels will only be able economically be created by Exchanges, Banks and large LN vendors.
From this I am convinced that for the next few years at least we will have to accept majority custodial users from LN. WoS works so well, I have tried getting other folks to use self-custody channel management software, but it would fail in hard to explain to the noob ways. WoS works OOB, and works well. Next best is hosted nodes for non Bitcoin (or non Technical) business, with LaaS providers with JIT liquidity.
But technology does not stand still -- as you state, Covenants will accelerate multiparty Lightning usage, and I think we will see some major fintech players realize the profits from economies of scale in routing LN traffic and decentralize custodial hosting. The ability for a phone running 24/7 always connected lightning node is currently a limitation of the OS support today, which is limited due to battery tech. This will change in time with higher efficiency silicon.
I have no doubt that you will be running a highly efficient mobile LN node, or maybe some new L3 tech for moving sats in 2034.
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834 sats \ 1 reply \ @SahilC0 6 Jan
good humbling piece
bullish on mutiny, fedimint, and cornman
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❤️❤️
Bullish on sahil
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ive said it before and ill say it again. you cannot scale without trust. so the simple equation becomes how do we maximize scalability and minimize trust.
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covenants
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296 sats \ 1 reply \ @denzel 6 Jan
Thank you for the detailed explanation of the fundamental challenges.
Compared to our quick chat over Mutiny's Community chat, it makes more sense to me now.
Apart from additional op codes to improve Bitcoin, is there a possibility that lightning script can be updated to be able to handle some of these challenges?
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Apart from additional op codes to improve Bitcoin, is there a possibility that lightning script can be updated to be able to handle some of these challenges?
Not really
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296 sats \ 2 replies \ @OT 6 Jan
So if we never get covenants running a LN node is gonna be for the big boyz?
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It already is. Imo it's really irresponsible to recommend any non-tech-savvy person to run an LN node. Way too many things can go wrong. Having a bare minimum of Linux experience is practically required
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It'll be an interesting array of payment and custody options. I'm sure fedi/e-cash will improve some aspects of the lightning experience. I'm trying to imagine a world with a mature lightning, fedi, ark, and liquid ecosystem.....and mecury statechains and whatnot. Bitcoin in 5 years is going to look completely different.
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"What we need is another layer 2 that can scale utxo ownership and caninterop with lightning, that way we have a way to scale ownership combined with scaling payments."
What do you think about Mercury Layer?
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This is a wonderful write-up Ben.
Lightning is an innovative protocol that scales payments, but it doesn't scale ownership. A succinct way to put it.
I have always had this fear that bitcoin adoption may choke lightning to death by fees.
If lightning is going to gravitate towards an LSP future (or timeout trees or w/e) then maybe there is a better off-chain protocol out there for users and providers. Having a central coordinator is not inherently bad and can simplify a lot of negotiation, plus there are many tools available to hold the coordinator accountable.
BitEscrow is sort of a secret experiment with an off-chain coordinator protocol, where we use 2-of-2 deposit utxos to build a a pool of liquidity, then pre-signed covenants to bind some of that liquidity to a contract. If the contract does not consume these funds within a limited time, the covenants are revoked and the deposits become liquid again.
There are probably other great off-chain protocol ideas out there waiting to be discovered. It only takes one small cryptography innovation to entirely change the game.
I still think lightning is great though and has its place. Also covenants will fix a lot of problems and open many doors.
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137 sats \ 0 replies \ @tomh 7 Jan
Appreciate the post, I think it accurately encapsulates some of the problems I've noticed with lightning.
Next, where can I find a post explaining HOW covenants solve this? It seems like the mechanism of a shared UTXO would be that any time there is a dispute (or even just an adjustment of the ownership structure?), it requires an on-chain transaction, similar to lightning. With more than two parties involved for the same UTXO, it seems like the chances of this happening are increased!
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LN will be transport/interop layer mostly between different protocols, Ark, Strike, CashApp, Liquid, Mercury Layer, Fedi, WoS, etc they will all use LN, end users using their own LN node will be rare. LN is tx output scaling, now everyone is pushing for CTV for scaling, some covenants are usefull, but the big problem will remain, if fees get too high, every solution suffers and most importantly, less people will be able to self custody in base chain, regardless of L2s ppl will need to save in base chain and move in/out of L2s. We must remove stupid dogmas out of the way and deal with the elefant in the room, and remove the rock in the road, we must increase the blocksize to accommodate demand in a curbed way and allow ownership, the sooner we realise this the better.
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You were so close until you said increase the block size
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Then tell us what will be the solution if fees price out most people? How will ppl take ownership without permission?
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1557 sats \ 0 replies \ @anon 7 Jan
There are a lot of current covenant proposals, the main ones being: OP_CTV, OP_VAULT, OP_CSFS, OP_TXHASH, OP_CAT, and APO. They all have different functionality and tradeoffs but in my opinion we should be looking towards activating a form of covenants because otherwise we will likely be moving towards a future of less sovereign bitcoin users.
All those soft forks have similar issues to Lightning. They require fees to deal with edge cases, and failing to deal with those edge cases turns your counterparties into something a lot closer to custodians. Because they can take your money.
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340 sats \ 0 replies \ @anon 23 Jan
Thank you for describing so well the current LN problems.
I've been a bitcoin user for a long time and try to avoid lightning when I can. I'm onboarding people around me all the time and LN is too much of a headache (unless fully custodial, which I don't like).
My current go-to for onboarding is Liquid, but I explain the trade-offs and specify that it must never be your pension fund. The pension fund must be mainnet bitcoin.
Liquid works like bitcoin, offline address, no channel liquidity problems, but faster transaction confirmations, more private, cheaper fees, etc. With current lightning<->liquid exchanges, I can hold liquid bitcoin on a hardware wallet and easily pay any lightning invoice. For any amount that goes over my comfort level (for funds in a federation), it's back to mainnet bitcoin.
Cashu / ecash / fedimints feel like another great option. I'm very excited by the added privacy. If only used for spending and receiving smaller amounts, it feels perfect. For me, cashing out of a mint would be through a lightning->liquid exchange to my liquid wallet (or liquid hardware wallet).
However, I'm a HARD pass on covenants. If bitcoin has covenants that enable us to specify where money can be sent, it feels too much like enabling the State to come in and mandate some kind of KYC in there or whitelisted addresses, etc.
I prefer to keep the mainnet pure and do what I have to do on other layers. I'm glad to see your current focus is Fedimints. Looks promising and I'm very excited about that present/future.
My two sats.
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How could you stack +7k sats in just 5 mins after publishing the post? I wouldn’t be able to read it in five minutes.
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boosted?
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10 sats \ 1 reply \ @ek 6 Jan
We show you when it's boosted by the author. Or you might have meant "boosted" as in anon zaps or alt accounts
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Yes, not self-boosted
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I thought exactly the same thing!
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821 sats \ 11 replies \ @k00b 6 Jan
His frens probably zapped it anticipating it would be a top post.
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I invest into ben with the expectation that I will make a return based on other people's work
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This post is one of the better securities on offer today.
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Well unfortunately you decided to not pay out for early upvotes today. I'm lucky I made some top comments to make up for my sats lost on Ben.
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Lfg
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You've earned it, it's a great post. Can I have my sats back tho? 😭
Maybe the writer is really amazing and with our eyes closed we have to step on lightning! Nevertheless, I will read the whole thing. Not in less than 5 minutes :)
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10 sats \ 2 replies \ @ek 6 Jan
I zapped ben some sats for every word I read
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Did you read this post until the end then? :)
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20 sats \ 0 replies \ @ek 6 Jan
yes, just finished
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Can confirm that I do this all the time.
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Can I be their friend too? LOL
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Thank you for the clarity in your explanations. I admire your courage above all for publicly addressing the problems of the LN. Some people simply ignore the problems. I believe that improvements only come with transparency of reality, if everyone is on the same page, solutions are better reached. Only in this way can we improve. Thank you again for your honesty.
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It's absolutely absurd how many Sats flow here.
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I don't understand. What is the solution? Custodians? With all the regulation and risks and considering the fact that many custodians had to close their doors recently and none showed up to fill their void and only the KYC ones remained, do you still think that is a workable solution for the long-term?
I used to think Lightning would have a million custodians, but we'll end up with 10 KYC custodians if that many.
Also how do you use covenants to scale Lightning? All the problems you've cited remain even with all the covenants in the world.
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Thanks for writing this Carman! Really explains a lot!
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Thanks for writing this Carman! Really explains a lot!
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I tried to open a Phoenix wallet, but honestly, having to pay sats to facilitate channel liquidity is such a turn-off that I switched to Zebedee Wallet instead. I just wanna buy gift cards with the sats I accumulate here. The LN wallet just needs to fulfill this purpose - until I get more comfortable with the LN ecosystem
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Great post, Ben. Appreciate the realism, optimism, and solutions proposed.
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Thanks for your thoughts! It’s a free and open market, unlike any we have seen! If a better solution is out the Bitcoin developers will work tirelessly and deliver it. I see multiple layers on layers in the future for Bitcoin. This will be awesome for us in the future!
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Must be a hard line to try and walk, but I commend your efforts! Keep on keeping on Ben.
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When you have 100k sats of inbound liquidity you would think you could receive up to 100k sats, but this isn't the case, often you can't actually receive any. This is because of on-chain fees, when a payment is being made in lightning you are creating pre-signed transactions that have outputs for every in-flight payment, these outputs cost potential on-chain fees and the high on-chain fees go the more it eats into your liquidity.
thanks for explaining! I kept thinking this before like it doesn't make any sense when I have enough outbound liquidity, but then it says you don't have enough to send, so strange.
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TL:DR as you say most use custodial solutions, as you make Ln easier for beginners, they will migrate to Mutiny organically
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they will migrate to Mutiny organically
No, the currently mutiny model will not scale into the future
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140 sats \ 0 replies \ @Car 6 Jan
👏👏👏 this is great Ben more explainers like this for us left side of the bell curve bitcoiners
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Dissonance detected
Covenants are the way to scale bitcoin ownership
They don't solve the dust problem which is the actual bottleneck, things will always be custodial at the edges and so the forkers are LARPing hard
Fedimint
At least this recognizes that the forkers are full of shit and things will always be custodial at the edges, but it's also an affinity scam for issuing debt shitcoins and offers no added security vs keeping your corn on Coinbase.
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More succinct take on why people are retarded about LN: #377958
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How many large lightning nodes with lots of liquidity and high uptime can we theoretically have in the network? Even if they offer custodial services, isn't it a huge improvement over the current fiat banking system?
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Thank you a lot for this post, I learned something!
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Yeah lightning can basically do infinite txs per second, but there's a big cost to opening channels
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Yeah learning that with Phoenix which is my first non-custodial one
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I would rather you keep the sats and put em toward continued work strengthening the network! I am a pleb (i think) but I am trying to understand all this craziness that is Bitcoin, Lightning, Fedimints etc... I am just slow. Thank you for this write up - Thank you for you time - Thank you for your inner drive to make the world a better place! Keep pushing - I will be pushing myself - maybe one day I will even contribute something more meaningful than a few sats and/or cuckbucks here and help in a more meaningful manner!
If I am understanding the problem - it seems that trying to ensure transactions are legit on layer 2's is difficult due to the underlying need to verify the transactions on the base layer... and getting the layer 2's to do this while keeping their nodes running is difficult? It seems like we need a layer 2 that is almost a copy of Bitcoin but with larger blocksizes? I need to give this some more thought as that is probably not the right idea? I may be in touch again....
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My take-away: You have to be able to afford self-custody. You need a certain amount of sats as well as the necessary know-how, otherwise only third-party custody makes sense. Solutions are being worked on, but it remains uncertain whether they will ever come.
Question for the future: Will Bitcoin remain decentralized if only the richest 1% can afford self-custody?
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As I see it, the primary feature of Lightning Networks is the ability to take a single BTC utxo and distribute across it numerous payments and subsequently networking payments globally in a trustless manner.
All the rest are bonus goals that we are trying to add.
For the particular case of bringing payments to the masses, offline payments is important and liquidity is a serious problem. But that presumes that's the goal of lightning. What if that is not a feasible goal? Maybe other solutions will be created for that.
For now, lightning is great for merchants via Lightning Service Providers and it's maybe good for other forms of streaming payments.
Maybe the above things are worthy goals and will be solved, but I'm open to it not being solved too.
We need to keep realistic expectations and not promise things we aren't sure about yet.
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Yes yes but why is this happening... 🤔👍
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I think too many people are looking at the fee market and right now and coming to the conclusion "wow this is how it's going to be." If you think that ordinals are bitcoin's killer use case, I could see coming to these conclusions.
The issue with arguments like "See, fees are high right now and lightning isn't working!" is that current blockspace uses are a temporary blip, like all NFTs before, this too shall pass.
Future high fee blockspace demand dreams are based on bitcoin gaining traction. I think most people who are imagining bitcoin being used in a widespread way are imagining blockspace being used to move value. This scenario is exactly what lightning was designed for-- shunting transaction volume off-chain, optimizing bitcoin's use as a value transfer system.
In these future worlds, each blockspace demand spike increases lightning usage. The network becomes more efficient over time. Lightning was made for this.
Let's not be too hasty to draw straight lines from two points very close in time.
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This is so insightful thanks! Can someone point me to resources that show how covenants make Lightning more manageable? Is it a way to implement channel factories? Something else I'm missing?
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>Bitcoin has a fundamental scaling limitation through the block size
This was the argument that became the basis of Bitcoin Cash's creation, which Bitcoiners subsequently shat on once some in the Cash camp made the "Blockstream took over Bitcoin" (not unnecessarily defamatory when the majority of Core and BIP contributors/developers are also Blockstream employees) and "BCH is Bitcoin" narratives the popular ones to adopt; bigger (but not ludicrously large ones, like post-2018 Cash's 32 MB block size and Shitoshi's Venture "whatever the fuck you want" sizes) blocks are the solution for on-chain scalability, but have to be balanced out with considered deliberation since there are many more attack vectors for Bitcoin. Those include the NFT grifters misusing Ordinals for their get rich quick bullshit, Drivechains being pushed by those with vested interests in its adoption, and the forever risk of a 51% attack occurring if the majority of Bitcoin nodes and mining pools are centralized.
Just an increase to 4 MB (which BCH was at for a while before its subsequent block size increases and mempool changes) would be enough to clear the backlogged transactions in a few weeks at most. The more ideal solution without any block size changes is further optimizing the proof of work mechanism making Bitcoin function as it does, and adopting some of what makes privacy coins appealing to those who snub Bitcoin. I've even thrown around the belief on Memo that Lightning and other second layer solutions on Bitcoin could be adopted on Cash on its base layer if any developers in that camp had an incentive to make it so.
Bitcoiners could easily do the same, likely without changing anything in regards to block size, although it'd take far more time to achieve that. I'm optimistic that it will happen.
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Lightning could do so much more with covenants: https://utxos.org/uses/batch-channels/
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I concur.
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I told myself 'I'm gonna learn how to use my Lightning node over the holidays" and found it to be a rather complicated and stressful task. You have to get your hands dirty, take risks and 'shots in the dark,' the tech has glitches and hiccups even when you manage to get things right. Most of the plebs at the local Bitcoin meetup feel daunted by LN as well - including some who are engineers or sysadmin / IT guys by trade. Seems like everyone there is still using custodial-ish LN apps or on-chain only.
Mutiny looks lees complicated than most other wallets, has a great name and being able to run it in a browser and avoid app store censorship and other hardware issues is a major plus. I will deposit some sats and give it a spin. Thank you OP for all your thoughtful, hard work for the monetary revolution!
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Total LN pleb here, but I learned a lot from this post. Thanks for clearly outlining some of the challenges. I will continue lurking here in the LN sphere to level up my knowledge.
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Agreed with the current best path being Fedimints (soon) -> CTV (within next couple years). Reassess where we are after another halving or two
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@benthecarman e-mail servers and activitypub servers can deliver messages when they are offline. they are recontacted when they become online. I guess the problem with lightning is the H in HTLC which has to be provided to prove the transaction completed.