If Segregated Witness cannot be activated, is there still hope for the Lightning Network?

Segregated Witness (SegWit, hereinafter referred to as SW) and Lightning Network (hereinafter referred to as LN) are often linked together because SW can enable a modified version of LN to land on Bitcoin; however, many Bitcoin users are unclear about how SW improves the performance of LN. Recently, during a Q&A session at a Bitcoin meetup in Milan, someone asked Lightning Lab co-founder Olaoluwa Osuntokun about the relationship between SW and LN.

While SW is expected to be activated on the Bitcoin network on August 1, Osuntokun explained what would happen if the improvement fails to activate, and how SW could improve LN.

Unlimited payment channels

LN has gone through several iterations, and its initial version was the original concept of payment channels. Payment channels are a way to protect Bitcoin payments through cryptography without broadcasting all transactions on the blockchain. LN has effectively improved this concept by building a universal network for such payments in the Bitcoin system.

Osuntokun said:

There have been payment channels before, but they have a limited 'lifespan' - that is, you open a channel and after 5 days or so you have to close it. This approach is limited because you, as a user or the software itself, need to make a judgment on how long the (channel) open state can last, and making such judgments usually requires a lot of parameters.

Osuntokun said that if users need to reopen channels regularly, this will have a negative impact on the scalability advantages that these second-layer solutions are supposed to provide.

One of the advantages that SW brings to us is that our channels can remain open forever. Your channel can exist for months or years.

He added that his LN channel in the testnet has been open for nearly 4 months.

Transaction Scalability

Osuntokun mentioned that another advantage that SW brings to LN is that it can completely solve the problem of transaction malleability.

Transactions work like a tree, so each transaction is attached to the others. If one transaction is invalid, so are the others. So even if you could theoretically get your money back, you'd be in a weird situation where you basically can't get a valid signature to unlock your funds if the transactions are messed up.

In the LN white paper, this scenario is referred to as a “hostage situation,” where users’ funds would fall into the hands of malicious actors.

Outsourcing

Another advantage that SW brings to LN is related to preventing fraudulent intent by others in the blockchain. Although the system is theoretically secure, users still have to check whether transactions in the blockchain are broadcast and withdrawn to prevent fraudulent behavior by the transaction party. Osuntokun said that once SW is activated, this activity can be outsourced.

With SW, we can outsource it and complete the process for you by sending a small amount of information to the server - without even exposing your channel location.

What if SW is not activated?

Finally, Osuntokun also commented on the hypothesis that SW could not be activated. He first mentioned Litecoin (LTC), a system that has already activated SW, as an option for further testing.

We can use Litecoin as a test bed. We can test our software on a small scale to prove that it is hardened and works well.

That being said, Osuntokun added that even if SW fails to activate, LN will still be available on Bitcoin.

We can still complete the integration, but the LN will be limited in its capabilities and may be attacked. So we need to fix the scalability problem, and SW is currently available. SW has been tested a lot; I have tried to deploy it and I think it is a good solution.