Unveiling The Decentralization Illusion Of Bitcoin And Lightning Network.

The Lightning Network (LN) has often been heralded as a solution to Bitcoin's scalability issues, but a closer look reveals inherent centralization. The Bitcoin (BTC) network's inability to scale is attributed to a select group of individuals who, through censorship and narrative control, have deliberately kept the block size below the capacity of current retail hardware. This manipulation, justified under the guise of preserving decentralization, raises questions about the true motives behind the development of LN.

Being sarcastic:

Initially, Bitcoin operated with a 1Mb block size, later upgraded to SegWit allowing for 4Mb blocks. However, the move to larger blocks is cautioned against, as it could potentially centralize the network, with fewer computers from 1998 capable of handling the expanded blockchain. The argument extends to practical issues, such as 56K dial-up modems struggling to manage 4Mb blocks, highlighting the technological constraints.

If 1Mb blocks make the network more decentralized, wouldn't that mean that now Bitcoin BTC with 4Mb blocks is more centralized?

Back to being serious.

Bitcoin supporters propose second-layer solutions like Lightning Network and federated sidechains as remedies. However, these alternatives introduce challenges, such as the need for unlimited internet connectivity and the vulnerability of respective bridges. The LN white paper even suggests the necessity of 133Mb blocks for scaling, a far cry from the initial vision.

Critically, the push for second-layer solutions may inadvertently force smaller investors into using more centralized bank accounts without the insurance protections offered by traditional banks. Services like Strike, Wallet of Satoshi, and ZBD, often considered wallets, are likened to bank accounts and may engage in practices like fractional reserves, posing risks to users' funds.

Public liquidity data reveals that many top channels on the Lightning Network are custodian services, consolidating liquidity and raising concerns about centralization. Users may experience lower routing fees with these custodians but at the expense of potentially increased regulatory scrutiny, including KYC requirements.

I put into question the rhetoric that larger blocks will centralize the network, pointing out the irony that proponents of small blocks may not be running their own LN nodes at home. Instead, many LN nodes are hosted on third-party servers like AWS and Google Cloud, challenging the narrative that smaller blocks are essential for home-based node operation.

The discrepancy between advocating for decentralized nodes while relying on centralized services raises skepticism about the true intentions behind Bitcoin's development. I must conclude by suggesting that Bitcoin may have been compromised, either by government agents or individuals aligned with government interests, and in the broader impact on corporations, banks, and conglomerates.

What will be the point of being able to run your own Bitcoin BTC node if you can't use the network because fees are over $50 a pop?

What is the point of running an LN node that is hosted on third-party services while promoting the idea that you can run your node at home and that paying higher fees is just what retail investors must do to conserve decentralization?