El Salvador is a testing ground for LN today. Not for Bitcoin (LN) but for CBDCs as well, since the LN use in El Salvador is mostly through centralized and custodial LN wallets like Chivo and Strike.
A private company (Strike) lobbied the government of El Salvador to mandate and enforce the use of the Lightning Network in all economic activity of this country.
It was an ace in the sleeve by the BTC marketing to make headlines, increase popularity and send a supposedly powerful message that BTC can be used as a currency and reach mass adoption.
Although, LN in El Salvador was exactly what every Lightning Network critic was expecting.
LN is a complex alternative to cash pushing users into custodial wallets by hampering personal ownership and control of the private keys. The El Salvador government took a step more to force the use of the Chivo app (also developed by Strike), which is a custodial LN wallet.
Nobody wants to use such a complex means of payment. An entire country turned into a short-term publicity stunt to revive the bull run and temporarily pump the BTC price.
Lightning Network: Flawed by Inception
Blockchain is a revolutionary, immutable database disrupting the finance industry with a potential to provide payments in a secure environment, unhindered by intermediaries.
A payment channel is required for two entities to conduct payment transfers, the creation of which incurs high fee.
However, Lightning Network also facilitates payment transfers through an intermediary in the network, who has payment channels with the two entities. This feature is extended by incorporating multiple intermediaries in the network to conduct a payment transfer from one entity to another leading to a web of payment channels. The intermediary charges a very low fee for providing the payment channel (Table 1).
The structure of the Lightning Network favors the creation of intermediary hubs since this approach counters the fees required during the process of opening/closing LN channels. Most wallets in LN are custodial and centralized with mandatory KYC/AML features.
(even BCH wallets, but I wouldn't use that even if someone paid me to).
It seems that Adam Back enjoys paying $50 fees for a coffee instead of $0.01. I’m sure that 7.75 Billion other people don’t share this absurd financial position and would prefer to buy a coffee for the lowest fee possible.
Especially during times of BTC blockchain congestion, LN becomes unusable for micro-payments without the use of centralized hubs.
LN is inherently censorable and can only reach mass adoption under government approval and regulation of the financial entities operating as hubs.
Yet, this system doesn’t eliminate trust. It is still a centralized and custodial payments method, but even more complex for the end-user (consumer) than the banking system.
Under any economic approach, the LN is flawed by its inception, one that doesn’t offer a trustless environment, as blockchain networks do.
LN has already failed.
If we (the public) are expected to select between the banking payments networks, or a more complex but equally centralized payments network (LN), why on earth would we select to make our lives more difficult?
It is the public that finds no value in using the Lightning Network. Even LN wallet devs often advise the use of our credit cards to purchase BTC (LN coins), from custodial exchanges, just to use BTC-LN for our consumer needs.
Bitcoin was not created to become the intermediary in a fiat transaction, but to remove the need for intermediaries instead.
The public discovered a P2P user-friendly environment in Bitcoin until 2015 and embraced the idea of uncensorable digital cash.
The outcome of the blocksize debate was inconsistent with what the overwhelming majority wanted, though.
It was just some whales forcing the dangerous agenda and siding with Blockstream that stalled innovation and did not permit Bitcoin to scale.
The BTC crowd was cheering about LN adoption in El Salvador, but probably was only interesting in yet another “number go up” narrative. El Salvadorians simply rushed to the BTC ATMs to sell their $30 airdrop for USD instead.
The Lightning Network was rejected in El Salvador and has no presence anywhere else. Not because of forcing BTC as money on a population, though. Vitalik got it all wrong. It was rejected for these reasons:
Complex payments systems rarely work
Custodial wallets controlled by the government
BTC blockchain congestion doesn't allow non-custodial use of it
Lack of understanding of the fundamentals behind different cryptocurrencies
When we explain Bitcoin, we focus mostly on one factor: the power to control our funds, derived from the private key.
Yet the fact that BTC will never scale on-chain is barely explained to beginners, and it requires many months of research to realize it.
Everybody understands money, and the citizens of countries with a bleeding economy from mismanagement and speculators manipulation, understand money better than anyone else.
The BTC whales involved in El Salvador's authoritarian decision to adopt the Lightning Network probably thought that nobody will ever notice.
Underestimating people is a huge mistake, though, one with dire implications in the long run.
The Lightning Network has already failed.
Chivo, a custodial wallet, does not contain the feature of controling our funds, since the centralized government agency running the app.
Chivo and Strike are censorable wallets, unlike true P2P transactions in a decentralized network. The overwhelming number of LN transactions is under the financial control of LN hubs.
Moreover, during this year we examined various cases of the Lightning Network being unoperational during times of blockchain congestion.
It seems the Lightning Network, is not ready for mass adoption even in its custodial form.
It was expected the population would not transit to a form of money that is difficult to understand. Money should contain all the features of cash, either it is physical or digital.
LN encroaches upon the decentralized features of the blockchain and inherently favorites custodial financial formations that limit our control over the funds.
I wouldn't expect any massive transition to LN, simply because it offers no alternative to the legacy financial system but encourages centralization.
Lead Image Source: Unsplash, by Tasos Mansour
Lightning logo: Wikipedia (Licence: CC BY-SA 4.0)
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(Dec, 14) I submited this article to "2021 Myth Hunter Contest" after finding it was suitable for a certain option.
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This is just the length and breath of evwrything, I wish El salvadorian president read this and do the right thing. We all love bitcoin, we all love cryptocurrency but we shouldn't be carried away from the reality. Even if Crypto will e adopted as a legal tender, it's going to take time and go through some processes. Let's not deceive ourselves or get emotional with this things. Nice article, you're such a good writer, I'm sure going to keep an eye on your channel for more.