I used to think, like many, that Lightning Network would solve the scalability problems of Bitcoin. Then I looked into it a bit more and came to the conclusion that LN will fail. In my article "Why I don't use BTC" I promised to write why.
The answer is quite simple, Lightning Network is too complicated for the average user. That's why it is unsuitable for mass adoption.
Some average users sometimes have problems using the normal very user-friendly smartphone wallets like Bitcoin.com or Trust Wallet. Such users would be completely overwhelmed with LN Wallet. To make this easier to understand I will first explain how a normal Bitcoin transaction works.
How do you make a Bitcoin (and Bitcoin Cash) Transaction?
First you have to install a wallet.In your wallet, you enter the recipient address, the Bitcoin (or Bitcoin Cash) amount and press send. Done.
An example Bitcoin address:
An example Bitcoin Cash address:
How does it work? The Bitcoin (and Bitcoin Cash) blockchain can be found on many computers on the Internet. These computers are interconnected and contain all transactions (and thus also all unspent coins belonging to a bitcoin address that can still be issued). The normal Bitcoin (and also Bitcoin Cash) transaction works as follows:
If you enter the recipient's address in your Wallet, your Wallet encrypts the transaction with the private key of your address, which is only in your Wallet, and the public key of the recipient and sends it to a Bitcoin node on the Internet. Done. When the recipient's wallet connects to a node, it can be encrypted with the recipient's private key and your public key. Read the transaction and send the received coins back to the block chain in a new transaction and thus issue the coins. So the blockchain is nothing more than a record of transactions. It's easy.
How do you make a Lightning Network Transaction?
To make a LN-transaction you first have to install a bitcoin full node and install additional software from Blockstream on this full node. This is how you created an LN-node. Then you have to specify an amount you want to use in the Lightning Network, an address from another LN node, you want to connect and make a normal Bitcoin transaction (for this you have to pay the bitcoin fee, which can cost $2 or more). Than you have to wait for a confirmation. This opens a channel from your LN-node to the selected full node in LN. Now you are prepared and can make an LN-transaction by giving an amount and an LN-address of the recipient. Doesn't sound so easy, does it?
How does it work? LN supporters for PR reason say that in the Lightning Network Bitcoins are moved, but it is not so. When an LN channel is opened, the Bitcoins are converted into a kind of a token (I call them LN-tokens, something like Wrapped Bitcoin WBTC). If you make a 1 BTC transaction and open a channel, you get 1 LN-Token in value of 1 BTC in return. These LN-tokens have no Bitcoin address, but another address.
An example LN-address:
These LN tokens have two advantages - you can send them almost for free very fast in Lightning Network, but many disadvantages:
Since they are not Bitcoins, you cannot send them to Bitcoin addresses. You can only send them to LN-addresses which almost nobody use (there are fewer LN-adresses than Bitcoin Cash addresses of read.cash users, although LN is much older than read.cash)
To send a LN-Token, both your node and the node to which you have opened the channel must be online.
If you want to receive an LN-Token your node and the node to which you have opened the channel must be online.
If you received an LN-Token you can't convert it into fiat or other cryptocurrencies, because only one exchange supports it. You have to convert it back to Bitcoin (and to pay the Bitcoin fees again)
If you want to send LN-Token in value of 200$ or more, it might not work (because the most of LN-nodes have less capacity).
These LN tokens are moved between the LN-nodes and are not stored in the blockchain. If you send an LN token from one LN-address to another LN-address, you can either open a direct channel to the node (but this costs Bitcoin fees, because it always requires a Bitcoin transaction), or you send the token over the already open channel in the hope that a route is found (which often fails with higher amounts). Each intermediate node that moves the LN tokens takes a small fee. Nobody guarantees that the fee will not increase at some point if, contrary to expectations, a large number of users are to use LN.
The only way to use LN comfortably is with custodial wallets. However, the money stored in such wallets does not belong to you, but to the provider. It is as if you had entrusted your cryptos to a bank. Enlightened crypto users will never use this. Bitcoin was developed to become independent of banks and not to move from one dependency to another in order to do so.
There will certainly be very strong supporters of LN who will use LN tokens anyway, but with these disadvantages I am sure that most users will prefer other coins (such as Bitcoin Cash). They work in the blockchain, are very easy to use and are supported by many merchants and exchanges.
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