When we are arguing with a promoter of the BTC currency and we compare it to Bitcoin Cash and its cheap transactions, one usually is replied with the same argument: “You can make everyday payments using the Lightning Network, you don’t need to use Bitcoin Cash.” Not only does this response ignore the various problems with the Lightning Network, which will be covered in another article, but there is a fundamental contradiction that demonstrates the ignorance of the people who use this catchphrase: the “coins” used in the Lightning Network are not bitcoins.
Many people, especially those entering the world of cryptocurrencies through BTC, are unaware of this and maximalists will likely never mention it. This is an attempt to make newcomers believe that BTC “has no problems” and “can be used perfectly well with second layer solutions.”
In this article I will explain the technical reasons why the Lightning Network constitutes a value transfer mechanism so different from Bitcoin as described by Satoshi Nakamoto that it is intellectually dishonest for it to be presented as Bitcoin.
The technical description of Bitcoin can be found in the whitepaper presented by Satoshi Nakamoto in 2008. It explains the characteristics of a decentralized digital currency that can be used to make transactions between several individuals without the need for a governing authority in the network. To achieve this, a system of digital signatures is used, based on public and private key cryptography, which ensures that only the holder of the private key corresponding to a Bitcoin address will be able to spend the coins it contains.
These “coins” are actually unspent outputs of Bitcoin transactions. The second section of the whitepaper defines an electronic coin as “a chain of digital signatures.” As Satoshi stated, “Each owner transfers the coin to the next by digitally signing a hash of the previous transaction and the public key of the next ownerand adding these to the end of the coin.” Possession of that private key is what really determines whether or not a user owns a Bitcoin coin.
How does this contrast with the Lightning Network? In the Lightning Network there is no such thing as “coins.” The balance available on this network is based on money frozen in payment channels (a multi-signature address on the Bitcoin blockchain). For this reason, in this secondary layer there are no bitcoins, but only Lightning tokens representing a certain amount of bitcoins. When we consider the Lightning Network as what it really is, a token network, we have a much clearer view and it becomes a less attractive option.
The paper that explains how this network works is The Bitcoin Lightning Network: Scalable Off-Chain Instant Paymens, by Joseph Poon and Thaddeus Dryja, published in 2016. The way in which it achieves consensus, including account status, corresponding balances, routing of funds, and other issues already resolved in Bitcoin, emerge as problems in the Lightning network. For this reason, it is important to understand that the Lightning Network is not Bitcoin and that the former is a network where transactions are made with tokens, not with real, on-chain bitcoins.
The argument that the Lightning Network is secure because Bitcoin is secure is a non sequitur. It is true that one can create and close payment channels on the main blockchain, but the only thing that is protected by Bitcoin security are those opening and closing transactions. Intermediate transactions, i.e. those occurring on this second network separate from Bitcoin, are protected by a different protocol which is not equally secure. Not only is it sometimes possible to lose funds and be defrauded by a dishonest collaborator (something impossible in Bitcoin), but someone must be online at all times and, for which it has a reactive security model (i.e., security depends on how fast the entity under attack reacts, not the network).
The reality is that, being different networks, the security model of one is not comparable to the other. No one should promote Lightning using the security of Bitcoin as an argument. If Bitcoin security is only applicable to Bitcoin transactions, they should first demonstrate that Lightning’s security is good enough to be used globally, which so far remains unproven and untested.
I already made clear that Lightning and Bitcoin are different networks. Therefore, this means that the Lightning Network should be ordered in the same way that renBTC (#101) and wBTC (#16) are ranked by market cap. At the DeFi Pulse site, we can see the number of LN-BTC tokens issued in Lightning. As of today, the market cap is about 1200 LN-BTC tokens ($67.7 million). This means that the Lightning Network is ranked #482 by market cap.
Of course, this is onli one of the metrics that an investor would take into account, but it is ironic that for BTC promoters, the future of Bitcoin is the Lightning Network, a sidechain that ranks #482 (!) Let us remind us they are the ones who use the term “shitcoin.”
This argument is a corollary to the previous one. The reason it has such a small market capitalization is that Lightning is used by a small subset of the BTC users. For that reason, the Lightning Network was not tested in the same way that BTC and Bitcoin Cash were tested, but it is still being promoted as a scalable and functional technology.
It is irresponsible and misleading to say that the future of the global financial system will rely on a network not even their promoters use.
If this proposed network is secure, scalable, easy to use and simple, then it would have taken off long ago. Owning bitcoins on-chain has no advantage if you can use the Lightning Network and never pay high fees again. If they really believed in the Lightning Network, huge payment channels would have already been created to issue tokens on Lightning for fast, cheap and private transactions. None of this has happened yet.
The reason the Lightning Network (or any second-layer solution) is “needed” is that the Bitcoin project diverted from its original vision and not originally planned restrictions were imposed. One example is keeping the 1 MB block size limit. Others are SegWit, replace-by-fee and removing functionality by eliminating useful OP_CODES. However, we know that Bitcoin can be scalable and this is demonstrated by the different chains that have since forked, especially Bitcoin Cash.
As a curious fact, we can cite the Lightning Network whitepaper, which in its section 10 indicates that the proposed system necessitates an increase in blocksize for it to work in a global market.
The Lightning Network is still an interesting technology with a lot of development behind it. However, the problems it has — which have not been covered in this article — and because of the fact that it is marketed as Bitcoin when in reality we are dealing with a different network with a minoritary use, I thought it deserved a detailed clarification to avoid confusion and explain one more aspect of the scalability problem.
I hope this article was able to clarify doubts and clear the debate so that the next time we are presented with the original argument, we can say “no, the Lightning Network is not Bitcoin.”