Why the Lightning Network Will Work Better on Bitcoin Cash

2019-05-09T11:33:51.000Z Honest Cash

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https://youtu.be/x9B9z-kAjOw

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Cash-like use-cases are no longer viable on the BTC blockchain because of its unpredictably high transaction fees. But many BTC supporters insist that the “Lightning Network” will make those use-cases viable again by allowing users to transact “off-chain” using a network of routed payment channels.

Payment channels allow users to exchange signatures for transactions that aren’t added to the blockchain until the channel is closed, and the basic concept of creating a network of those channels is sound, even if its use cases are limited given its significant drawbacks, like needing to be online to receive payments, needing to hire watchtower services to monitor the network for anyone trying to steal back payments by broadcasting older states of your channels, and needing to determine the route of a payment through the network yourself which, at large network scales, is a computationally intensive problem that requires a sufficiently up to date map of a constantly changing network of liquidity to route your payment successfully.

Ironically, that already limited system becomes completely non-viable when used as the primary scaling solution for a blockchain with high on chain transaction fees. That’s because, while payment channels do allow for “off chain transactions”, opening or closing a channel requires an on chain transaction.

Given that cost of opening a channel, users would need to open as few channels as possible and use them long term. But that would require users to already have access to the amounts of money they plan to spend in the future, since you have to fund the channel up front. That’s simply not possible for the vast majority of the world’s population.

Additionally, because payment channels work like beads on a string being pushed back and forth, there is a maximum amount you can be paid via the channel before you need to send transactions of your own to get beads back on the other side. This means that you need to coordinate spending and receiving to not be limited by your channel’s liquidity. That also makes saving impossible without paying a transaction fee to close the channel.

Maybe most ironic of all is that, when channel balances are less than the current transaction fees, the system is no longer trustless. If one side of a channel tries to steal back payments by closing the channel using an old state, the recourse is usually for the honest participant to broadcast the newer state of the channel, which takes precedence over the old one.

But with fees greater than the value of the channel, the funds you prevent from being stolen would would have to be committed to the on chain transaction fee required to close the channel yourself with the most recent state. That means that, by no fault of your own, you could be forced to effectively donate your entire channel’s balance to a miner.

How such a system is supposed to allow for cash-like use-cases is… unclear, to say the least.

But none of those extra problems would exist on a chain with negligible fees, like Bitcoin Cash. You could open as many channels as you want, with whomever you want, using whatever funds you have available at the time, and you could close any channels that have run out of liquidity in either direction, and then open up new ones.

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