I am stupid boy so go easy on me. But I am having trouble understanding why the fees and UTXOS associated with transferring bitcoin are much higher than sending sats on platforms like this. Does L2 make sending sats seemingly free? Are platforms like this and lightning wallets using sats like an IOU essentially? Thanks in advance for any information!
Great question! Lightning Network (L2) indeed makes sending sats much cheaper by conducting transactions off-chain, which reduces the fees. Platforms like this use sats as IOUs, settling the net balances on the main Bitcoin blockchain less frequently, thus keeping costs low. This efficiency is one of the key benefits of Layer 2 solutions.
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I would not use the term IOU in the context of the Lightning Network. This would imply trust while LN is trustless by design.
Of course this is different for a centralised service where numbers get updated in a database...
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Yes. The whole point of LN is to do this without any IOUs in the first place.
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Good place to get lost, go for it!
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Interesting perspective.
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Sending bitcoin on chain has fees because it the chain is a limited resource and people bid to be included in the next block.
Sending sats on stacker.news from the balance on the site updates a number in a database which is basically free but also centralized and not censorship resistant.
The lightning network which is the opening of channels with an on chain transaction that then allows for off chain transactions that are much much cheaper but not free. Lightning network is still bitcoin, not a number in a database. Still censorship resistant and you can always move your money back on chain if needed without asking permission.
Also it’s important to note that bitcoin and sats are different denominations for the same thing. One is not cheaper to send than the other because they are the same. 100,000,000 sats is 1 btc. Like 100 cents is a dollar.
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You probably know that the miners collect all the fees in a block. So it is in miner's best interest to cram as many high fee transactions in a block as he can. The transaction size depends on the number of UTXOs used in the transaction (and in the size of the script, if you are doing something more complicated than simply sending money). So the fees on the blockchain depend on the size of the transaction, and since the size of each block is limited, people compete to have their transactions put their (verified as per bitcoin terminology) and so the transaction fees rise with that. (Keep in mind that this wasn't always the case. When the demand was low in the past you can see very cheep on-chain transactions, but this will probably never happen again.)
When you talk about L2 I suppose you are talking only about lightning (as this is what I will explain). Lightning network is made of so-called lightning channels between peers. Due to combination of locking funds and some cryptography, these are not IOUs. Everybody in the lightning network can unlock and his part of the money without any cooperation from his channel partner. The fees there are usually related to the actual amount being passed (like a percentage, in my limited experience something like 0.3% fee). The limiting factor there is something called liquidity and in short, the node operators don't want money flowing only in a single direction. They can also control this by setting appropriate fees to encourage some routes over others.
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You don't have to call yourself stupid, just read some more and you will be fine. L2 is like "credit" line, hence low fees to use that "credit" , not free. Few pains with establishing that "credit" but smooth sailing afterwards. The best part, you are in charge ....!
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People who buy Bitcoin under $100k maybe will interact with L1. Everyone else who'll jump to lifted off rocket will use Lightning Network and will be happy
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Just a recommendation from my send, I wouldn't send sats on chain unless you conduct low priority and you send a few million. Just the way I handle it, and it has been going pretty well.
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Why don't babies and kids have to earn their bread and butter?
Sats are younger ones of Bitcoin and they are spared because they are so young that they can't handle the pressure of earning to pay their fees.
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The fees are measured in satoshis/byte. A satoshi is the smallest divisible unit of Bitcoin, which is 0.00000001 BTC (one hundred millionth of a Bitcoin). Each transaction is made up of data measured in bytes. More complicated transactions involve more data and are therefore more expensive
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Yes, using L2 has some initial cost but then very cheap transactions but at the end you can convert it to L1 with certainty at any moment, so it is not exactly an IOU. So L2 is good for small frequent usage. And leave onchain L1 for important larger moves.
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