Bitcoin Lightning Network Still Needs Improvement - Eltoo Will Be A Big Step Ahead!
There is a lot of excitement around the Lightning Network that is in Beta since a few weeks, but there is a lot of skepticism too. Lightning can enable instant, anonymous and extremely cheap transactions without putting heavy load on the blockchain, but there are some issues to overcome. Bcash proponents use these issues to spread FUD, but in the mean time very competent devs are working on solutions. Eltoo is a new proposal that can be implemented through a soft fork and can solve some of the biggest issues of this moment.
https://www.blockstream.com/2018/04/30/eltoo-next-lightning.html
The current state of Lightning:
Lightning is ready to use and already accepted by some merchants, but it is only in Beta yet, so things might go wrong. The most common issue is that a payment might fail or that the network is not able to figure out a route for the payment. This is annoying, but will not cause losses. Also improvements in this area go fast, it is mostly caused by miscommunication between different implementations of Lightning.
It is also still possible to lose money, so it is advisable to start with small amounts in a payment channel and know that things could still go wrong. Also the Android Lightning wallet of Eclair can only send at the moment, because receiving while being offline is still risky till watch towers are fully implemented.
The biggest issues:
Lightning transactions are based on Bitcoin transactions that are not broadcasted to the blockchain yet. When two entities in a payment channel transact with each other they just update the input of this transaction. The biggest risk is that someone send an old update to the blockchain instead of the most recent one, his counter party will lose money.
To fix this a penalty system is implemented. This system will punish the one that tries to cheat by enabling the counterparty to take all the funds in the channel. Game theory will prevent people from cheating, they know they will lose money if they do so. However, the problem is that failure of the software can make people cheat accidentally and make them lose money.
When you receive funds you have to stay online till the payment channel expires, otherwise the counter party could send an old update to the blockchain and you will not be able to remark it and enforce the penalty system. This will be solved through watch towers, other LN nodes will receive tiny fees by guarding the offline nodes and undertake action when needed. There is still some work to do to fully implement these watch towers.
Also the fees can still lead to problems. When opening a channel you have to pay the network fee (opening a channel is done by a BTC transaction), but the transaction will hit the blockchain much later. Say that the channel will be closed after one month, you have to estimate how high the fee to be included in the next block will be in a month. Many will overpay to ensure that they will be able to close the channel immediately.
Receive funds securely while offline through watchtowers
What can Eltoo solve?
Eltoo will connect the latest update of the transaction to the base transaction, this will make it impossible to send an old update to the blockchain. When this is implemented the penalty system is not needed anymore and will only function as backup. Eltoo can be implemented on top of the current Lightning Network, everything else will remain in the current state.
Because watchtowers will always be informed about the latest update, they will be more efficient and easier to implement. This will help the devs to solve the problem that you must be online to receive funds. Eltoo can only be enabled through a soft fork whereby a SIGHASH_NOINPUT flag get implemented. This flag will also enable users to set the fee when they close the channel. This will also fix the issue of fee estimation and overpayment. Furthermore, Eltoo can also improve 2nd layer solutions other than Lightning.
Conclusion:
Lightning still need a lot of improvement, but major steps in the right direction are underway. After just a few weeks in Beta a part of the FUD can be debunked already, and I think it is realistic to expect that all the issues will be resolved sooner than later. Development of great tech needs time, and pointing to current issues and suggesting that they will never be solved is simple minded (or done on purpose to spread FUD by opponents). When these issues are overcome, we will have a great decentralized and scalable payment system that can handle mass adoption of cryptocurrency for the first time in history!
Disclaimer
This is no financial advice, just my view on the market.
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Interesting. Can these "watchtowers" be attacked in some way or brought down with DDoS?
The original Bitcoin blockchain is broken. Transaction fees are too high and confirmation times are too long. These issues arise due to the Bitcoin networks’ inability to handle large number of transactions.
One of the solutions provided is Bitcoin Cash. Bitcoin Cash is the product of a fork in the Bitcoin blockchain where some portion of the community decided to increase the block size to fit more transactions per block. This is essentially like constructing additional lanes on a highway to accommodate more traffic and to reduce congestion. This solution, while effective in the short term, does not provide a scalable solution.
Other cryptocurrencies such as Ripple and Ethereum provide much faster transaction times at much smaller transaction fees. They way they do so is through the use of “off-ledger” payment channels. The Bitcoin community is following suit by creating its own offline payment network called the lightning network.
The lightning network operates in parallel with the Bitcoin network. At its core, two users are connected to one another and can perform offline transactions without the need to place them into blocks, hence solving Bitcoins’ biggest problems — transaction fees and time.
https://steemit.com/bitcoin/@bitcoinpl/who-is-behind-bitcoin-and-who-is-behind-bitcoin-cash
Bitquin has become a very difficult currency to invest in. You want huge money
Its economy is bigger than that of some countries
It is very difficult
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I believe the lightning network will work. There are issues to consider as you rightly observed, but I think all the bugs can be reasonably fixed
incredible post you write, bitcoin and lightning network always be hope for future investment.
whoever we would want the ease is not his distress. Eltoo has responded by offering an easy solution to transact. this is a very long-awaited thing. amazing. thanks @michiel.
Bitcoin has become a very difficult currency to invest in.
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