Lightning Network could solve Bitcoin's block size problem

     Bitcoin’s block size is one of the hottest topics in Bitcoin technology. Gavin Andresen has been leading research into how to scale Bitcoin to accommodate higher transaction volumes. Lightning Network is a potential solution and is highly anticipated.

     The authors of the Lightning Network white paper, Joseph Poon and Tadge Dryja, have been very successful in getting their ideas across. Many companies have already foreseen how much benefit Lightning Networks like these could bring to them.

     Joseph Poon said that solving the size limit of Bitcoin's block technology is a piece of cake.

     Joseph Poon, one of the authors of the Lightning Network white paper, told CCN: "Most companies can quickly integrate into the Lightning Network because there are only a few changes required by backend service providers." He said, "They only need to add an API daemon running on a Bitcoin device." Even if the service target is an electronic wallet, the Lightning Network can still be used.

     “It makes services like ChangeTip micropayments viable even when the service providers are fragmented,” Poon said.

     “Maybe in the future, when someone sends you $0.10 in Bitcoin, you can instantly spend it on a newspaper article or video paid for on Coinbase,” he said. This doesn’t seem to be the use of the Lightning Network that Poon is advocating.

     He added: “Of course, it would be more interesting and preferred for customers to hold their own bitcoin and use the Lightning Network directly.” An excerpt from the Lightning Network white paper reads:

     The Bitcoin protocol includes global financial transactions generated by all current electronic payment systems. There is no need for a third party to hold funds. Users only need a computer device that can connect to the Internet.

     We have developed a decentralized trading system that completes transactions through micropayment channels (also known as payment channels or transaction channels), and the transfer of funds requires the support of blockchain technology.

     If Bitcoin transactions can be marked as sighash types to achieve address malleability, these fund transfers could occur between untrusted traders via transfer channels, with these fund transfers being passed through the protocol, using the Bitcoin blockchain technology, through a series of decreasing time locks to weed out uncooperative or hostile users.

     “I think it will be easier for people to understand what smart contracts are if I explain them to them with concrete examples,” Poon told CCN. “When it comes to smart contracts, the whole point of the Lightning Network is execution.

     You can digitize all the contracts you want, but if it’s not enforceable, it’s meaningless.” In Poon’s view, the most interesting thing about smart contracts is that they enable multiple service providers and technology providers to work together.

He said, “The Lightning Network is rebuilding the micropayment infrastructure to integrate it into a globally interconnected decentralized smart contract system.”

     Poon said, "I think the really interesting things will be multi-party merchant systems, but we need to focus on making things happen in a responsible and secure way because we are still very young in understanding and thinking about this issue." The biggest use of the Lightning Network is instant small payments.

     As for companies that have negotiated to use the Lightning Network, Poon said: "OpenBazaar and communication platforms may have some benefits for instant small payments."

     “I think it’s going to be really important to have flow control and anti-spam protection on a platform that’s used for micropayments communications,” he said. That could be critical for bitcoin.

     This will help with the problem of decentralized systems being susceptible to spam, since Bitcoin is essentially proof-of-work for storage/exchange. However, if you want to buy a house on OpenBazaar, you might just use an on-chain Bitcoin transaction.

     Poon explained: "Use soft-forks. In the short term, Rusty recommends using OP_CHECKLOCKTIMEVERIFY and OP_CHECKSEQUENCEVERIFY, which will help us install the enabler."

     “In the long run, some soft-fork flexibility and solutions to large-scale systemic DoS attacks are necessary,” he told CCN. “I think there has been a lot of progress in writing code recently, which is constructive for being ready to enable programs when the opcodes are built into bitcoin.” There are some security risks with the Lightning Network.

     “Yes, the main risk is that the system cannot recognize the attack, and transactions that need to be completed at a specific time will not be completed automatically.

     This could be mitigated using a time-locked soft-fork — Greg Maxwel suggested — or by putting the Lightning Network on a fed-pegged sidechain. "Right now, this is a bit of a problem, and I would recommend that you hold as little Bitcoin funds as possible," Poon said. "The risk is coming to an end, but it's not completely gone." Poon recommends a pragmatic approach to open source issues.

     “In every technology, there are risk models, such as Bitcoin’s employees requiring 51% integrity, but in the future, they will do everything they can to mitigate and further eliminate the risk,” he said.