As work is underway with both Litecoin and Bitcoin to implement Lightning Network, more people have begun to ask “Why isn’t DigiByte doing the Lightning Network?”.
First let’s clear up a few things:
Yes, DigiByte COULD implement the Lightning Network, as DigiByte was the second (Behind Groestlcoin) blockchain to implement SegWit.
No, DigiByte doesn’t need Lightning Network
Now why doesn’t it need Lightning Network?
Well, let’s look at what Lightning Network has been touted as by Bitcoin: A way to conduct transactions off-chain, to save on mining fees.
Why are mining fees an issue? Well because the block size is too small, so if you don’t artificially inflate your transaction fee that you give to miners, your transaction will never be prioritized by miners when they could just prioritize other transactions that have a higher fee.
For example, you want to pay for your morning coffee with Bitcoin, USD$4 worth of coffee maybe, but you don’t want to pay a USD$28 transaction fee (Which is roughly what they are as of November 2017). You could set your transaction fee at 800 Satoshis (Which is still USD$0.12 — 3% of your transaction), but, by doing-so you’ll basically never ever get your transaction sent.
Which brings us to the problem: If you pay through your credit card, or Paypal, you’ll be charged a fee, usually around 1.5 to 3%, by your bank or whoever processes the transaction.
Which matches our assumption of approx 3%, give or take…
It’s not too bad if you’re sending / receiving over USD$1,000 at a time, the miner fee then becomes approx 3% or less, but if you’re doing less, then it’s suddenly more expensive to use Bitcoin than it would be to use traditional payment methods.
So along comes Lightning Network, where the transactions are instead kept off-chain for a period of time. Problem solved right? Not quite…
You see if you’re paying for your coffee, eventually your transactions are going to have to end up on the blockchain. Now that might be fine if you’re a regular and you buy a coffee a day at your favorite cafe, and you set aside USD$1,000 worth of Bitcoin for your coffee for the next 10 working weeks (50 days) at $4 per coffee, and you both open a channel on the Lightning Network. Your coffee shop isn’t going to want to wait 10 weeks to get paid for the original cups of coffee you wanted to order, they have staff to pay, rent due, suppliers to order coffee from etc, so they’ll need to close the transaction off much more regularly than that, say once a week, which means you’re still left with a $28 transaction fee, for maybe 5 cups of coffee ($20 worth). That’s way over 50% still, and again not worth using Bitcoin for.
So in that scenario, we still have an issue with Bitcoin and the Lightning Network, because that’s still not feasible to pay so much.
The next scenario involves a Lightning Network “Hub” as they’ve been called. So you open a channel with the Hub, for again, say, USD$1000 worth of Bitcoin, and that $1000 worth of your Bitcoin is then reserved and set aside, so you can’t spend it elsewhere, BUT, you can then transact with anybody else who has a channel open with that “Lightning Hub” who also has a channel open. Now it’s no longer just your coffee who also have a channel open, but you’ve got maybe your local gas station, your power company, your local grocery store, all have channels with the same Lightning Hub as you do. After a week you want to go out and buy yourself a new iPhone from somwhere that’s not on that Lightning Hub, but all your Bitcoin is tied up right now in that open channel with the Lightning Hub, so you’ve gotta close off the channel to get back your unspent Bitcoin, so you can then spend the remainder buying an iPhone for, say, USD$500.
To get that unspent Bitcoin back, all your transactions are tallied up, and they come to USD$400 worth, so you get the USD$600 worth of Bitcoin returned to you (Minus the transaction fees and also the fee of the Lightning Hub), your USD$400-ish gets sent to the Lightning Hub, who will then take a fee and subsequently redistribute to the other parties as and when they close off their channels. By the time you include the $28 mining fee for your one transaction to the Lightning Hub, along with a “fee” charged by that hub too (Who knows how little or high that would be? Could be 10c, could be $10?), you still lose out on a fair amount, but you get most of that Bitcoin back to then go buy that iPhone.
So what’s the problem?
Well firstly, why bother doing that at all? Isn’t that just what the banks do right now? Isn’t that the whole reason why Bitcoin is a “Peer-to-peer decentralized / trust-less payment solution”? Haven’t you just kept all of those transactions of yours off the blockchain entirely? Haven’t you just involved a 3rd party that you have to trust to later on-send the money to the destination you wanted to pay? Aren’t you again now waiting for days for your money to “clear”, just like you do with a credit card?
So, thanks to Lightning Network, we’ve now gone from:
– Decentralized and peer-to-peer
– Public ledger
– Requires trust of a 3rd party
– No public ledger
And we still have the high fee of USD$28 that was paid to miners? So a 7% fee for the $400 that you actually spent, was still paid. Sure, you managed to fit in maybe 8-9 transactions (Paying Power, 5x coffees, a top-up of gas, and a grocery bill) rather than having to pay that per-transaction, BUT, the transaction costs are still exorbitantly high! All that’s happened is you’ve delayed the growth-limitations of Bitcoin by a few months or maybe even a year?
We’ve not even looked at what a Lightning Hub would be though: A bank!
Image credit: Decentralized Thought
That’s right, we’ve effectively let banks onto the Blockchain and totally undermined the whole idea of Bitcoin. Why would you want a Decentalized / peer-to-peer, trustless network with a public ledger, if you’re then going to remove all of that? Wouldn’t you be better off to just pay by Credit Card?
There will be a number of Lightning Hubs, who will all have large payment channels open with each other, and sure that’ll help ease the burden a little too, but now you’ve got to trust your Lightning Hub, who in turn has to trust another Lightning Hub, who in turn might also trust another Lightning Hub… And now Bitcoin is no longer Trustless, it’s no longer writing the transactions to the Blockchain. What happens when Bitcoin grows 24-48 months down the track, as more and more people start to use it? Is the 4-7 transactions per-second going to survive?
So you can see the issue with Lightning Networks, we’ve effectively brought banking into something that was never designed to have a trusted 3rd-party. Bitcoins math is designed to not require that you trust anybody (Hence why you take a consensus of the blockchain), but here people are welcoming it with open arms! If that’s what you want, you’re honestly just better off staying with traditional banking.
But unless Bitcoin does something to address the congestion on the network caused by the blocksize limit, the issue is merely delayed by Lightning Network, and it completely sells out everything Bitcoin stands for!
What do you think will happen to the price of Bitcoin when it’s no longer trustless. When it’s no longer a public ledger. When you *must* transact with a 3rd party in order to avoid these exorbitant fees? How long do you think the value of Bitcoin will be valuable when everything it stands for is laying in ashes on the ground? There would be zero point to Bitcoin. If there’s no point to it, there’s no worth behind it. People are genuinely just better off sticking with Visa / Mastercard.
But let’s do some more math!
The current blockchain is a little shy of 160GB as of December 2017.
Current block size is 1MB, which is being reached every 10 minutes.
Let’s say we shoot for 8MB block sizes, which would increase the Bitcoin networks capacity from approx 4 transactions per second, to 32 transactions per second.
That’s 8MB every 10 minutes, which works out to be 8MB * 144 per-day, to give us 1152MB. That comes to a grand whopping total of 410GB per-year, presuming every single block is full.
Why not live dangerously and presume we increase the block-size to 32MB then, that would take it to 1.6TB per-year if the whole block was full. Now that might sound a lot if you’re in a 3rd-world country, but they’re not running full nodes right now, they shouldn’t run full nodes, and they wouldn’t be helping the Bitcoin network by running a full node where they’re unable to pass on the data in a timely manner regardless.
Given the price of an 8TB HDD currently being around USD$150-300, that means if you’d opened / closed a grand whopping total of 4-8 channels on the Lightning Network at current rates, you’d have been able to pay for an 8TB HDD to store the blockchain on for the next 5 years, if you wanted to run a full node, not an SPV wallet.
Clearly, blocksize increases are not an impossible burden to overcome.
Which leads me to the final part: Does DigiByte need Lightning Network?
Well, thanks to DigiSpeed, the block size doubles every 2 years, so we currently have 2MB blocks, giving us a limit of around 560 transactions per second (Because we do that 2MB block in 15 seconds, vs Bitcoins 10 minutes, hence the huge difference in TPS capacity).
If you were to take the current 4.2 of Bitcoin, the 13.4 transactions per second of Ethereum, the 2 TPS average of Litecoin, all of Bitcoin Cash’s current 0.5 transactions per second, all of IOTAs 0.8, all of Ripples 13, ZCash’s 0.2 TPS, and there would STILL be room left in the DigiByte Blockchain for a solid 500+ transactions per second.
With that in mind we can safely say block size isn’t an issue for DigiByte, but what about speed of transactions? Thanks to 15 second block times, again, if you’re waiting for 6 confirmations then that’s 90 seconds before you can turn around and re-spend your DigiByte elsewhere. Why would you want to use something like Lightning Network that keeps a channel open for hours / days / weeks before you can then re-spend it?
So knowing what you know now, why would DigiByte ever want Lightning Networks? What would it offer DigiByte aside from slowing down things, bringing in 3rd parties that you have no choice but to trust, and tying up your DigiByte?
Yes, DigiByte could implement Lightning Network, but why bother? When DigiByte is already the fastest, most distributed, most secure Blockchain out there, Lightning Network just seems like a waste of time. Why not leave it to old and dying technology like Bitcoin?