The Lightning Network may not develop as you expect.

Original Title: "LIGHTNING IS DOOMED"

Author: Shinobi

Translation: Luccy, BlockBeats

Editor's Note:

In an email on October 16, 2023, the risks faced by Lightning Network channels due to issues with the transaction pool were mentioned. Self-taught Bitcoin educator Shinobi analyzed some of the challenges and issues in the Lightning Network, especially those related to high fees, transaction confirmations, and double spending.

Shinobi, through a review of the original white paper and a detailed analysis of the network architecture and potential issues, presented some views on the future development of the Lightning Network. He believes that people's expectations of the Lightning Network are like hoping to buy coffee on-chain at an affordable rate, which is like trying to fit a square peg into a round hole. Despite the scalability limitations, the Lightning Network may reach a dead end, but that does not mean the failure of the Lightning Network. Instead, it could become a settlement layer upon which other things are built, similar to the blockchain itself.

The Lightning Network is doomed to fail. The high fees from Ordinals have killed all hopes of scaling Bitcoin in a non-custodial manner, leaving almost no opportunity to open channels affordably or execute pending payments on-chain when necessary. It's all over, and everyone can pack up and leave. It's time to explore and decide which platform, Coinbase or Cashapp, is more suitable for our Bitcoin needs, as we can no longer operate directly on-chain in a high-fee environment.

The past was pleasant. We will always have pixelated private parts images appearing on the Lightning Art Station, and the meme of the Lightning torch, when everyone was afraid to send it to countries with only bad actors, and we continued to make Lightning payments from one custodial account to another. We are about to enter the era of walled gardens!

If you think I'm serious about what I said above and agree with these contents on any level, then go look at yourself in the mirror and give yourself a good slap.

Excluding the Smoke of Gas Lamps

The original Lightning Network white paper explicitly states in the conclusion that in order for 7 billion people worldwide to be able to open two channels each year, Bitcoin would need 133 MB blocks.

The ninth section of the white paper, titled "Risks," details all the major issues that people believe will cause the Lightning Network to "fail" due to high fees. The first section of the paper discusses the time lock window, where "improper time locks" are actually the dynamic between fees and confirmation times that has recently garnered significant attention. When making a payment through the network, you can define a successful path based on the preimage hash lock and define a refund path based on the refund time lock window. If fees increase, the refund time lock window needs to be longer to ensure that the preimage spending (successful transaction) does not fail to confirm before the refund transaction becomes spendable.

In other words, if you need to confirm a payment on-chain, the time lock on the refund path must be long enough for you to confirm the successful payment path before the counterparty can claim funds via the refund path. As fees increase, this time lock window needs to be longer, as higher fees may result in lower transaction fees decided in advance for pre-signed channel closing transactions, causing confirmation speeds to be slower than expected when you sign them in advance.

Many people are very nervous about this dynamic, as if it is some new realization that signals the doom of the Lightning Network. In fact, this was explicitly described as a risk in the original white paper, in the first version of the Lightning protocol. It even explicitly describes the trade-offs of opportunity costs from an economic perspective: "There is a trade-off between longer time locks and the time value of money."

The next section is called "Forced Expiry Spam," which describes the general concept of flooding and plunder attacks. If fees are too high, refund transactions may successfully double-spend path transactions when on-chain execution is required, and hostile parties may open a large number of channels and close them all at once on-chain. If you have a large number of channels in the process of payment and you close them all at once and push the fees to a sufficiently high level, each counterparty must confirm successful payments on-chain. If the fees are raised high enough to make the time lock transaction valid before the successful preimage transaction is confirmed, they may find themselves in a double-spend race.

If you open enough channels and push the fees to a sufficiently high level, you can profit from this. This was actually described as a concern in the white paper. Such attacks were described in various versions of the white paper between 2015 and 2016, but it was not formally modeled and introduced into the news cycle of this field until 2020.

The white paper describes the scenario of data loss, where pre-signed closing transactions and old state penalty keys are lost, allowing malicious channel counterparts to steal your funds if they realize this. It mentions the inability to broadcast penalty transactions and the potential for watchtowers as third parties paid to observe the blockchain and submit these transactions on your behalf. The white paper explicitly describes the risk of miner-reviewed channel penalty transactions and suggests miner anonymity (as well as implicit decentralization) as a mitigation for this risk.

But these are new perspectives. The Lightning Network is doomed to fail because no one foresaw the emergence of these issues.

This is your idiotic blockchain

Well, I guess we have to admit that we have lost our historical background, our rationality, and our logic. We live in a reality where we pretend that warnings from history do not exist, where no one points out the obvious problems that the future is destined to face, and everything is completely unknown, never considering how things will develop.

What is the title of section 9.6? Inability to perform necessary soft forks.

The original white paper explicitly points out the risk of the Lightning Network's success due to the inability to coordinate soft forks. Are you surprised? Have you never read it before? Personally, I have a sense of déjà vu.

I remember years ago, a large group of Bitcoin supporters screamed that the blockchain itself was reaching its scaling limit and would fail unless we fundamentally changed the nature of the decentralized trade-offs of the system. If people could not directly submit all transactions and get them confirmed at an affordable rate, the entire foundation of the Bitcoin ecosystem was thoroughly shaken, which was actually the entire reason for the block size war. What was at the core of this chaos? People's expectations of the role the blockchain would play in the evolving ecosystem of Bitcoin. Everyone would buy coffee on-chain at an affordable rate, or else Bitcoin would be a complete failure.

Those who held this mindset completely misjudged the entire situation. They were trying to fit a square peg into a round hole. This is exactly the same as the situation with the Lightning Network.

Square peg, round hole.

People's judgment of the blockchain is actually a serious misjudgment; it is just a place for opening and closing channels, not for buying coffee. However, people almost certainly misjudged the Lightning Network, which is definitely a place for making coffee payments. You see, when you say it in the right context, it sounds absurd, doesn't it? The Lightning Network has problems with enforcing on-chain payments, which is a problem if the value of the payment is less than the cost of submitting the transaction to the chain. Trying to enforce it on-chain makes no economic sense, and this is a very well-known problem. Essentially, it is almost the same as the problem of low-value payments occurring directly on-chain, except that in optimistic scenarios, things proceed as normal because people cooperate off-chain. But when they don't cooperate, problems arise.

This issue is so well known that there were many debates about solving it years ago, involving different trade-offs, sub-satoshi payments. If the HTLC is too small to be enforced on-chain without trust, you can flow payments trustlessly one sat (or larger sats blocks) at a time, and if someone at some hop decides to steal a sat from you, the flow stops and another route is chosen. This idea means that while it is a trustful payment mechanism, you can only lose a few sats in the channel on-chain, and if someone steals from you during a payment, you just don't route through those nodes anymore. This quote is from 2019, but this idea was discussed long before that.

The Lightning Network has a problem! And for this problem, most readers may have never heard of a solution. It seems that all these problems that people think are going to bring the sky down were fully understood from the beginning of the Lightning Network. This raises the question: are we wrong again?

It's not that we are wrong in the sense that the Lightning Network is doomed to fail, but in the sense that it won't be used long-term as we initially thought, just like the blockchain itself. We have seen the Lightning Network being dominated by custodial applications, with efforts to deploy things specifically designed to sit on top of the Lightning Network. At first glance, things like Chaumian ecash mint, Uncle Jim setups like LNBits, people having custodial accounts on someone's Lightning node. We even have proposals like Ark building in the concept validation phase on Liquid, which can interact atomically with Lightning payments.

What if the Lightning Network doesn't become the killer protocol for consumers to interact with directly for online payments? What if, like the blockchain itself, it ends up just being a settlement layer upon which other things are built?

Would that be doomsday? Would that be the failure of the Lightning Network? I think absolutely not. The scalability limitations of the Lightning Network have been apparent from the very beginning of its development. The white paper actually mentions the lack of support for necessary soft forks in the future as a potential scalability limitation for the Lightning Network. That is not doomsday, nor is it the failure of the Lightning Network.

The Lightning Network is proving that it can operate as an interactive layer between different custodial parties, and it operates very smoothly and efficiently in this regard. There is absolutely no reason to think that the Lightning Network cannot operate as a similar connecting layer for other second layers with trust models superior to explicit custodians. If channels are not something individuals can cost-effectively use for their day-to-day spending activities, it does not mean that they are not cost-effective for LSPs running new protocols outside of Lightning and connecting with each other, allowing their users to interact. Arks, Statechains, and any new ideas developed in the coming years.

It can become a translation layer for other systems, expanding the ability for end users to onboard and transact on these layers, just as we eventually realized that the blockchain would have to be. There is no problem with that.

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