Video Description

In this video, I discuss the various trade-offs involved with using BTC on Coinbase, the Liquid Network, the Lightning Network, and in fedimints.
Putting BTC on a Layer 2 does not make it a shipcoin, provided that there is real BTC locked up on-chain that backs it. I would draw the line at wBTC which uses altcoin payment rails like Ethereum.
As on-chain transaction fees continue to rise, much or all of our Bitcoin transaction activity will take place on higher layers.
While it's important to minimize trust, there is still a place for trust and custodial solutions in the Bitcoin ecosystem, which includes adults holding BTC for young children or older people in their family.
We should expect some form of BTC to end up in every nook and cranny of the global financial system as well as on different Bitcoin layer 2s, because this is what hyperbitcoinization looks like.
It's not a shitcoin but it has tradeoffs. If Bitcoin is going to go where we all think it is going to go then people will rarely if ever touch layer 1.
Although it would be great if layer 2s could have the level of security, decentralization and censorship resistance that layer 1 has, it is not going to happen so we have to accept that a portion of our stacks will have some counterparty, centralization, censorship etc risk.
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42 sats \ 1 reply \ @tolot 22 May
Coinbase, Liquid, Fedimints are not Layer 2, since you can exit unilaterally from none of those.
LN is a Layer2, even though in some some specific situations the unilateral exit is not economically reasonable. Since LN it's a L2 solution, transaction in LN are simply bitcoin transactions, therefore no shitcoins here.
It's simple as that.
PS. I'm not saying that Fedimints or Liquid are bad (although Coinbase is)...I'm simply advocating for the following reasoning: if we admit custodial solutions in the category of "scaling solutions", then we're trying to reinvent the wheel because PostreSQL does a perfect job in that regards. We shall be more cautious in what we consider L2, although custodial-ish techniques like ecash seem useful and very very interesting.
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131 sats \ 0 replies \ @anon 22 May
LN is a Layer2, even though in some some specific situations the unilateral exit is not economically reasonable.
The important thing with LN is that in the situations where unilateral exit is not economical your counterparty can't exploit the situation to make money. They'll lose more money on fees than what they steal.
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My question here is, if all the activity is concentrated in other higher Bitcoin layers, what incentives will miners have?
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Good question. This is the idea that ultimately on-chain will become more of a settlement layer than a transaction layer, right?
Wouldn't this balance out on it's own, though? As demand for on-chain transfers falls it will become more affordable and people will do more of it.
Also, for the next 100+ years, miners will still earn bitcoin. That should be enough incentive, because mining costs are dynamic and market mechanisms will adjust them accordingly.
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I guess so, I think the whole system will balance out as you say, it's just a question that goes around my head knowing that more and more transactions are made in L2, and since I'm not an expert in technical matters...
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I'm not any sort of expert in this stuff either, so it's good for me to try to articulate my understanding of how everything works.
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Thank you! I appreciate it a lot :)
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My view is If fees are low it encourages more self custody and more on-chain if fees are high it just moves certain economic transactions from going on-chain for the time being, which will likely be consolidated on-chain when capital needs to be stored long term, because there's no substitute for a trusted on-chain UTXO
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On my mind is this idea of a "unilateral exit box". So in lightning we have the balance of my side of the channel and the balance of your side of the channel, and I think we should have a balance for miners that increases with each channel update (so its paid incrementally as part of ln routing fees).
This construct would SUCK without Eltoo/LNSymmetry, because it would mean your channel partner just sent an old state update using your aggregated mining fees and you have to pay your own mining fee by yourself to get a justice transaction. With Eltoo/LNSymmetry, you just replace their transaction with your updated state and use the same mining fees.
This construct scales out to when a bunch of people are all updating the same channel (multi-party channel) and when multi-party channels are issuing timeout tree vtxos to casual users.
And that's how I think we'll scale lightning with unilateral exit while paying extremely high mining fees in a pain minimized way.
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