CryptoBasic Podcast

Your source for all Cryptocurrency information, made for the novice investor. 

It's not going to be a fifteen minute episode unless my assignment is literally karim go research,

Karim:

what for post forests, then maybe. Okay, that would be a ten minute that episode should get thunderous.

Karim:

Theo, alright lo, welcome to crypto basic podcast one o one updates.

Mike:

This is a new format that you may have noticed from the title when you clicked on this episode, and today we're talking about bitcoin and the lightning network.

Karim:

I'm here with corinne baru kei, and we're going to take you through an update of the first coin that we ever did on the crypto basic podcast.

Brent:

You ready to go?

Mike:

We'll manage, said. I thought the first one we did was dash. Was it actually bitcoin way recorded dash first, but we released the coin first, so as far as everyone else is concerned, that isn't behind the scenes.

Karim:

Bitcoin was first coin that we ever did, okay.

Mike:

I got you got, you know, so this was actually a pretty good idea for a new segment. Brent had the thought that after some time has passed, maybe one hundred, one hundred twenty, one hundred and fifty days since we've covered a coin, we should revisit it and explore whether there's been any significant changes. We did that with bitcoin, and, of course, the major change that we should cover is the lightning network has now been implemented on big coin, so that is really going to be the focus of this episode. We're going to look at lining, why it was implemented, how it works, and try to get an assessment of what effects has actually had, right, so.

Karim:

When we originally came up with this idea, we didn't know if we're going to do one coin, two points, three coins on these random updates today, it's just big point, we have a lot of stuff to cover here with they're going in the lighting network. The lighting network was just a footnote when we recorded this last time were like, lightning is coming, but it's here, it's in it's implemented so in the future, if you see these hundred day updates, we're not really call them that that we every time we say that in the staff chat, we yell at each other like they're not hundred days. So there just one on one updates and basically the way we've decided to do it is every fourteen weeks they reappear in our cello based on an automatic task, and if we decide there's enough to talk about, we will. So bitcoin is what we're talking about today, and i'm ready to go over this what used to be footnote and get into the nitty gritty of the lightning network whoo!

Mike:

I love may be greedy, so before we even get started, one of the primary things that we talked about on the bitcoin one o one episode was how expensive the transaction fees were.

Karim:

That was my biggest problem with bitcoin at the time and many people's biggest problem, and there was a period of time where it was cheaper to ship gold to somebody than it was to send them some bytecoin which is crazy, right? It's easier to ship rygel than digital cold, so the lightning network is one of the main driving forces behind the fact that these fees are now reasonable. So bitcoin transactions average feat today is about a dollar dollar fifty. So it's, very easy to get your transaction through if you were to pay more than that, it would be probably included on the very next block, so they have a dress, this issue, and we're going to get into exactly why. So we have an outline here, and i just realized that the first thing that we're looking at is the problem. I kind of went into that a little bit, but karim, give us the in depth look at the problem that the lightning network is trying to solve.

Mike:

Ah yeah that's right you are basically on point with what you said you know this was your biggest complaint about bitcoin and it was everybody's complaining about bitcoin the transaction fees spiked at over thirty dollars per transaction at one point like you said you know it was easier to ship gold and ironically part of the selling point for bitcoin originally is that it was going to be much cheaper to move around and for example having to do a wire transfer it got even worse because the block's being full not only meant that fees were high but also that confirmations were taken hours because remember when you send somebody money on bitcoin it could go on a block but you got to make sure that there's confirmations the more blocks that go by more sure you are that that transaction actually took place so confirmations were taken hours sometimes even days and the system was really capped out at around four hundred thousand transactions per day because of the one mega by block size so limited transactions people bidding up in order to be able to get on the transaction and then even more time to get that confirmed essentially it was a pretty gridlock situation or become so the prevailing views were going in two directions how do we solve this problem and this is where you got the very famous split bitcoin cash fork because there were two essential visions as to how we can fix this problem one solution was just increase the block sites if the block sizes limiting the amount of transactions make it larger and you're going to be able to fit much more transactions in there they're going to be cheaper because people aren't going to be bidding up the transaction fee and that's the direction that big coin cash took now the alternative view was simply that increasing the block size was a short term solution and the argument was basically like okay you could increase that to four megabytes and then what you gonna do when that fills up because we have more network you just goto eight and then you're going to keep increasing and increasing it which increases the memory requirements for the bitcoin blockchain and basically they were arguing that's not a tree through long term scaling solution you can't just keep doubling the block size indefinitely so that's where lightning came in the lightning network as a second layer payment protocol or an off change solution which was thinking how can we create an ecosystem that surrounds the bitcoin blockchain where there's activity around it but off of the boxing and still interacting with the blocking so that's.

Karim:

A tough concept to wrap your head around. I had it's, um, serious trouble with it, so hopefully we're going tio kind of de mystify that for you. But since karim was our primary researcher on this particular subject, we're goingto have a forty five minute session on the history first. So kareem, he tell us the history of the lightning network and watch me do it in not forty five minutes.

Mike:

Take this out. All right, here's. The historic run matters.

Karim:

All right number one the original white paper for the lightning that work was written by joseph poon and today is drina the lightning network itself has actually been developed by multiple companies and the big three are block stream which you've probably heard of lightning labs and a sink which i believe is a french company that has someone called declare they all have multiple clients but they are built in such a way to be interoperable so you could be in the lightning network you could have activity in the lightning network but through different clients so first of all i want to give it to the idea that it's one company that has created the lightning network and they're in control of it that's not really true there are multiple companies that have collaborated and to creating a network which is the lightning network the launch of the lining network main it happened on march fifteenth or sixteenth i've seen both dates you know pretty whatever it was around march fifteenth or sixteenth and by the twenty eighth of march the main et had already surpassed the test dna in the amount of notes that it had working on it basically talking about rapid adoption when then the last thing i'll say here for the history is at least currently there are twenty two hundred and fifty nodes in the lining network which is already more notes than bitcoin cash has now brian, you and i have discussed in the past that we actually don't mind the technology for bytecoin cash that we felt that it was effective in reducing the fees will we hate from bytecoin caches all of the dishonesty that comes from the roger very type of people but we like the big quinn cash technology where okay it's bitcoin with a bigger block size well this shows you know even lightning that all scaly solution is growing quickly and the capacity right now for the lightning network which i'll explain later why there's a limit on how much you khun transact but right now if you wanted to transact via lightning network you could go up to twenty one big coin which is a lot of money i'm sure there's not a lot of listeners right now they need to move twenty one bitcoin so yeah i don't know if that's going to service my needs or not but i'll deal with it you'll have to break it down into two transactions so what that's it that's the history in less than forty five minutes i'm impressed i'm impressed the good news is our history started on march fifteenth so yeah not not really but so i wantto echo what you're saying about bitcoin cash because especially in the bitcoin zcash episode we're going to talk about how it's basically better in every way than bitcoin at the time minus the network that securing it and the biggest downside is the way the community is trying to pretend like it's bytecoin they're completely like if you go into the bitcoin cash subreddit which is actually our btc which makes no sense they will all relentlessly attacked bytecoin bitcoin will all relentlessly attack bytecoin cash it's just very dumb and it reminds you of u s politics where the truth may lies somewhere in the middle and nobody's going to see anything which i feel like maybe an off jane solution is kind of that in the middle i will say that one of my concerns about often solutions which i think we may address later in this episode is the possible centralization behind them so we'll keep that in mind going forward so now we get to the easy part how does it work?

Mike:

This should be really to take five minutes on this is the forty five minute section actually all right so let's actually break down what the lighting network is and how it works so here's the essential concept is how can we take how can we reduce the through put the actual amount of transactions that go on the bitcoin blockchain itself while maintaining the security and base we're just taking some of those smaller transactions off change so here's how it works first a multi signature wallet is created which holds some amount of becoming so let's say in this example it's going to be brent and myself brent and i want to be able to exchange bitcoin through the lightning network so we would both create a channel and we would load it up with some amount of big quinn let's say we put half a bitcoin that amount that we put up is essentially creating a multi signature wallet where you and i have a balance and that's going to dictate how much bitcoin weekend exchange right so the newly created multi signature wallet is saved on the big coin watching but it includes isn't it with an attachment to it so to speak ah balance sheet that says okay there's one bitcoin on this multi signature wallet karim put half a bitcoin on there and brent put half a big coin on there so there's essentially and attend them there says how those funds should be split up but as faras the rial public, blockchain on ly one wallet is showing up there now it becomes possible for the two parties to conduct unlimited amount of transactions without ever having a touch the information on the blocking so we have that you know my half a bitcoin brains have a big coin so we have an entire big going on there we can exchange i can send him a quarter of a big coin he could set me point one i could send him and back and forth and back and forth that never has to touch the big one block chain so we're reducing the number of transactions that are going on bitcoin every time that we have a transaction both parties sign an updated balance sheet so if i send the very first transaction is that i send brent a quarter of a big coin then now the balance sheet on the multi signature wallet that has a full bitcoin is going to show that point seven five belonged to brent and point two five belongs to me every single time that brent and i exchange we are signing with our private keys the updated balance sheet on that multi signature wallet and basically if there's ever a dispute or let's say that the payment channel is close to then both of us have the ability to retrieve whatever funds in the multi signature wallet we're entitled to using the last balance sheet that we both signed so let's say i sent brent a quarter of a big coin he receives that we've both signed the balance sheet and then i try to close the payment channel or something so that he thinking that he won't be able to cash that out well brent actually has a balance sheet that says the recorders of the bitcoin and there are hiss so he would be able to use that toe automatically if the multi symmetry wall to send that to him on the actual bitcoin blocking so that's more or less a pretty quick overview if that sounds complicated just obviously keep in mind that the idea is for most clients and wallets to be able to do this automatically right so like the lightning network labs wallet her clients called demon and it has an autopilot function so it's not like every little thing you're having to do manually this's happened automatically so that is a brief overview i want to go in a little bit deeper on the technical aspect and some of the security aspect but before i move on from that general outlook brent does that make sense to have any questions before months so the primary question i would have is is are any of those developers of lightning network holding the bitcoin out there as the piece of the wallet so like let's say i'm blocked extreme and i've got five hundred bytecoin and i now using that toe open these small little connections on the lightning network for the mutual wallets or is the person on the other end the one who is kind of putting up the collateral one or the other basically the way it works is when you're opening up a channel the total amount that's put on there is the maximum throughput that the maximum amount of bitcoin that could travel through that channel so if you and i open a channel and i put in one big coin and you put in half a bitcoin than on lee one point five big quinn could move through that channel if i put up a big coin and you put up zero bitcoin than one bytecoin would be able to move through that channel is that right?

Karim:

So the way these nodes air kind of creating the network they are all actively joining in on the collateral situation basically that is correct is there any incentive?

Mike:

Yes, there is an incentive there is an incentive to create and i will go into that a little bit further so let me first breakdown something that's important, which is the security okay, right.

Karim:

Because one of the concerns people would have is, i don't trust you.

Mike:

I don't want.

Karim:

I don't know you.

Mike:

Why am i opening up a a wallet with you?

Karim:

Why are we having a share of all that that's insane, so absolutely, i'm sure they thought does.

Mike:

Sound saying and then here's an even higher level because one of the questions i guess before i get into the the actual encryption of it one of the questions and it goes back to what you just said about creating notes is all right do i have to open up a payment channel with every single person that i want to transact with because that seems a little ridiculous right?

Karim:

Okay me and brent one exchange that makes sense but what does that mean every time i want to use the lining that work i'm gonna have to open up a brand new channel well not necessarily or no you don't because the way the lightning network works is by hopping around through the different notes finding a connection so let me give you an example let's say that there's an exchange let's say that by nance has a hub on the lightning network if i want to transact with somebody who i don't know i want to send a big coin and i don't have a payment channel open with them but i can say hey do you have a payment channel open with finance and if they do i can essentially send money to them because i'm connected to buy nance right and essentially go for me too bye nance to this their person now even if i don't have payment channel open with finance but let's say that brent does since i have a payment channel open with brent, i could send money to anybody that has a payment channel with brent, or with any note that brent is connected to.

Mike:

So you see that it starts very quickly becoming exponential.

Karim:

You don't need the ray two connections, anyone on the network that is connected to you in some way, you can send money to even if it had, even if it takes multiple jumps and tense your question, brent, people are incentivized to run these connecting notes because they get very small fees anytime at transaction uses one of their connections.

Mike:

So if i wanted to send money to bob but there's no connection between me and bob, however, i have a connection to brent bob's.

Karim:

Red had a connection to buy nance.

Mike:

Yeah.

Karim:

So if i wanted to send money to bob and it went for my channel to brent, that it went from brent to buy nance, and then it went from by nance toe bob than both brent and binance would collect a very small transaction fee.

Mike:

So that's more lesson.

Karim:

It's.

Mike:

Really cool, actually, how quickly this grows? I made a note here. There's something called the small world network theory and it's, basically, like, you know, six degrees of kevin bacon brent oh, yeah, right where you could take like any actor and they're connected to kevin bacon in some way like you just start moving around this person was in this movie well it's kind of like that it turns out that in a lot of networks from the internet to the animal kingdom to internet all kinds of situations when you put the network in a graph you see that most of the notes even though they're not neighbors to one another their neighbors have other neighbors and with just a couple of hobbs you can connect almost any two notes in the network so that's essentially you the dynamic that the lining network is trying to leverage the more people that get on lightning, the more connections there are and the easier it becomes to find a path between any two notes.

Karim:

So now here's the question number one that's going to happen automatically right?

Mike:

So i'm trying to give money to bob my wallet should automatically find that path it's not like i have to say hey bob, do you have an account on buying hands and hey brent, do you have a connection to buy nancy know the wallet would find that connection automatically but now that my transaction is going through brent and my transaction is going it's the room binance then one the questions is how can i make sure they don't know who i'm sending money to how much money i'm sending? Basically, how is your information protected? Well the way works is through something called source routing you might have heard that before but essentially the note that starts the payment in this case it would have been me receives information about all the available channels all the different ways i could get the bob so that would include the capacity of the channels like how much money i could send the total fees that would be involved and then it essentially constructs an optimal path so it looks at all the options and it says i am the best money the best way to get this money to bob is through brent and then through by nance and eventually to this guy well the way that it does it is once it's constructed a path it encrypts each hop in the path into different like layers so when brent you receive my transaction where your note receives my transaction your public key is being used to decrypt the first layer but all you get is basically where you should send it to next the address for by nance for example so your node is on ly getting that piece of information you have no clue how much i sent you have no clue where it's going you don't know if you're the next this and all you know is who sent it to you and where you're going to send the next once your note the creep sti address and sends it to buy nance now they're public he is used to decrypt the next step so they're going to send it to bob's address but they have no clue if bob's is the final place or if it's going to go there another twenty times it even uses fake data to make sure that you can't just infer from the remaining amount of data whether or not you're close to the last stop and ultimately when the transaction reaches bob's note his public key will unlock the final layer of encryption which is going to give him the full amount since he's the final destination so the reason i bring that up is just to explain how the lining network is protected using the same type of encryption and the same type of distributed protection that the bitcoin network itself is using so when i hear that, i'm wondering if that is more private than a normal bitcoin transaction, because with the extra layers, that almost sounds like what monero is doing with i mean, not exactly, but similar to ring signatures.

Karim:

I mean you, khun. Maybe we can't answer this question. But i'm wondering if you can trace that coin. Start to finish like you can on a normal bitcoin transaction. Or, if now, it's gained some layer of anonymity and is less traceable because of this one.

Mike:

Hundred percent brent your instincts are on point one of the advantages who wants a little later, we're going to get into advantages and disadvantages. One of the advantages to the lightning work is that it is a more private. Now i hesitate to say that it is completely private because i think we've learned our lesson there's a lot of technology out there, and a lot of companies and governments that are goingto sink a lot of resource is into tracking and mapping all of the these networks. So i'm not going to say that lightning transactions are definitely one hundred percent private. However, it is definitely more private than a stand trade up bitcoin transaction because it's happening on a second layer network that has multiple encrypted steps and no individual node has access to the entire path other than the node that sent the money, so it does have a higher level of privacy, and just specifically, this is essentially what's called like tour the onion routing network that's what it means it's, it's encrypted and layers like an onion and that's. Why it's called that is using the same technology is to torre now.

Karim:

That's interesting, obviously nobody's claiming that bitcoin is a privacy point anymore it was that ross albright learned his lesson on that one but there is it sounds like this might increase the anonima de i think the last time i checked about fifteen to twenty percent of all bitcoin wallets had been de anonymous ized so it's interesting as you get more points of data toe figure out where all the different wallets maybe and who they may be in contact with with that you can kind of figure out what they are, but this is kind of combating that a little bit that's nice, nice added bonus and for those of you that don't know ross ulbricht is the person that was running the silk road and you know through a bunch of situations is right now in prison.

Mike:

So that's why brandt was wrapping for life prison for life turns out when you pay somebody to torture and kill somebody and then they pretend to actually torture and kill the person that you end up in jail.

Karim:

There are a lot of people that they're like, well, we shouldn't be in jail all he was doing was running a marketplace i can't believe he's in jail for light now no duty thought he killed somebody know he ordered someone murder yet and the story father worked that was happy about it like that all right anyway anyway, how we just have angered everybody who wants ross ulbricht released.

Mike:

My goodness, i'm sorry.

Karim:

Look, i'm all about, you know, releasing justice, where it's releasing people when it's unjust in jail, like the number of people that are in jail for because they had some marijuana on him, which would be legal in a bunch of areas of the world in states.

Mike:

Ridiculous.

Karim:

But that is not what happened here.

Mike:

Yeah, ordering a hit on somebody is not what i consider unfair, like if you go to jail for that, i'm okay with it, but anyway, let's, move on.

Karim:

I'm not as good at right rain in this inn as you or mike might be, but looks like our next section is talking about the advantages of the lighting network.

Mike:

Now, we've touched on it least a couple here, but let's, keep digging in and figure out more.

Karim:

Yeah.

Mike:

Yeah well brent's observation powers and logical thinking nailed the privacy one so that one's right off the bat there's gonna be more privacy all right?

Karim:

So another advantage of lightning is the way in which its scales and i have to be on i'm gonna be honest with you here and with the audience when i had a really hard time figuring out where i stood on the big win cash bytecoin debate because i didn't understand the lining network and i had read a lot i don't know if it's going to be considered misinformation or valid information but i had read about private companies and banks essentially trying to take over a big coin you know, kind of like blocks ring through the lightning network but know that i understand it a little better i think it's totally makes sense as a scaling option because here's how it works meryl is telling you that we're creating a bunch of individual payment channels so each one of those channels can handle approximately the five hundred transactions per second but it's working in a network perspective which means that if you have thousands of channels being utilized that once in theory bitcoin khun scale way beyond visa actually theoretically it khun b infinitely scalable so just to give you an example right now there are eighty seven hundred channels open on the lightning network already it's only been a couple of months but there's eighty seven hundred channels in theory.

Mike:

Now, this is a very super simplistic theoretical calculations. I'm not saying that this is the real number, because there's other variables. But in theory, eighty, seven hundred channels, times five hundred transactions per second means that the network could handle something like four million transactions already. Now, it's more complicated than that, because i'm sure it's not like you, just fill up all the transactions and there's. Other things to consider.

Karim:

That one transaction might take seven or something, but there's, no way, exactly.

Mike:

Seven hops rival right but what is worth noting is that it's so early on in the development there's already a lot of channels and the more channels there are the higher the capacity goes without running into the problem that bitcoin cash will run into which i really hadn't considered but if the blocks eyes just keeps doubling but the network keeps growing and growing and growing there's no guarantee that the storage capacity is going to be able to be maintain so you can get to a situation where the only way to store the blockchain is if you have some mega mega facility that khun store thousands of gigabytes and then that's a form of centralization right there so it is ah high ceiling or no ceiling scaling solution which is a definite plus the other benefits or advantages is the fact that you can mean payments pretty much instantly the on ly thing that really matters is how long it takes the transaction to cross the network to your destination and back we're talking about the speed of light so these are basically fractions of a second you could make really small payments which are not really manageable on bitcoin you know fees are proportional to the payment itself so sometimes you can pay a fraction of a penny when you're doing a transaction and some of the accounting is even done in this thousands of us a toshi which obviously you can't do on the big horn watching just not gonna work improved privacy like bryant said it's not very resource intensive and from that i'm referring to specifically the proof of work now i'm saying that it's not adding a lot of resource intensive pivx ity it's still dependent on the bitcoin blockchain obviously so it's not eliminating proof of work but it's just a bunch of transactions that don't have to go on the chain wait still pretty trust list like bitcoin it's using smart contracts and with the balance sheet signature that i was telling you you're always gonna be able to make sure that the funds are either going to reach their destination all that you're going to get a refund if the funds don't reach their final paths like they could just be quickly intercept it just like that and then the last advantage that i think the lightning network has if you're a big coin user is that even if you hate the lightning network like let's say for whatever reason you don't trust it or you do think that it's a corporate control whatever your reasons are as a big corn user you're still better off that the lightning network exists because what it's doing is it's taking a big load off of the network now there's a bunch of transactions there are people that trust the lady network and they are going to transact on lightning so those are all transactions that you're not competing with from afi perspective in order to get your transaction on on the next block so overall that's just seems like a plus plus for everyone even the lightning haters are going to benefit that makes sense right yeah, it's, like the argument you made that actually will not be released until after we know that was, yeah, it was on friday.

Karim:

It was on the friday flagship where the argument that somebody else skirting taxes matters to you, even though it has nothing directly to do with you, like your taxes could go down kind of thing. So correct.

Mike:

Yeah, because it's what we're doing collectively. But anyway, i think that that, more or less gives you an idea of water. Some of the advantages of the lightning network implementation i like in the one owen updates were calling it advantages and disadvantages and not calling it frozen cons.

Karim:

So all right, that was it for the pros. Karim, why don't you?

Mike:

Ah, the cream.

Karim:

Won't you take us in on the cons and give us an idea of what we're looking at?

Mike:

Their yeah.

Karim:

Bob so, interesting thing here, khan, you're going to be changed into disadvantages anyway.

Mike:

Okay, so number one, you have to pay a fee to open a channel that's a disadvantage there can be routing problems if there's no connection, you know, i mean, that that could be pretty temporary, but as i was mentioning, like, okay, i wanted to get a payment channel to bob, and we had to go through brent and then to buy nance and then to bob, well, it could be that you are trying to get money to somebody and there's no channel between the two of you. They're not connected to know that you're connected to it. Some wait now i think that that is a very short term problem and the more than that, we're gross, the less likely it is, in theory that you won't be able to find a connection. Okay, this is a big one, but unfortunately, he is one of the ones that we don't have the technical capacity to analyze properly. But from what i read, it is possible even though it is unlikely for your funds to be stolen now the person trying to steal the funds would be taking a great risk and they're more likely to end up losing funds, but it is technically possible now how that works.

Karim:

I don't know, but here's, i'm just putting a quote from one of the bitcoin core developers his name is peter tied, and he said the following they are welcome to use a different argument, but the fact remains that lightning notes have the ability to steal user fund it's just that trying to do so will, under most circumstances be more likely to fail them, not resulting in an expensive punishment.

Mike:

Now how exactly that works, and i think they have something called watchtowers to prevent it. This is not the on ly crypto project, where it's unlikely that your funds will be stolen because to the minus evey move for the attacker. But it's important to note that it's not impossible.

Karim:

So i don't remember the specifics of how this penalty works, but i do know that early on in the lightning network development, we covered this on a flagship.

Mike:

They were super proud of catching somebody who was trying to do this and made a big deal about the fact that the system worked properly.

Karim:

It took their funds and either burn them or did something with it got rid of them because they were acting improperly to the network and look like they were trying to steal what actually happened?

Mike:

Is they, like, rolled back their drivers or something on their computer there node wasn't updated properly, so when they connected, they had a slightly outdated version.

Karim:

I'm paraphrasing here, but once you looked into it, they didn't try to steal anything. They literally just forgot to update something on their computer, reconnected to the network and lost a bunch of money, because it looked like they were doing something against the network. So that was a little while ago. I don't know whether they've sorted that out, but it is like any new technology there's going to be some growing pains here, and i'm hoping that they don't affect people poorly like that.

Mike:

Yeah, brand. Now that you mention that i remember that story. I hadn't thought of it while i was doing research. But i do remember when we put that on a black ship, and it was it was basically a user error that got punished pretty heavily. And these are the types of things that, you know, these are the types of risks that come to the early adopters, right? Because we mentioned before that a lot of these manual processes is what we would not expect to have to deal with. Once this technology has matured in the same way that you don't have to worry about your i p address is you don't have to worry about, like when you use the internet, you literally don't have to worry about anything. Because all of the browsers and all of the services have matured to the point where the user experience is simple influence, right?

Karim:

Although people probably don't worry about enough, you know they you're forcing https for example, would be something that people could do to protect themselves lt's so there will probably always be something you can do when utilizing cryptocurrencies, whether it's, bitcoin or something else that can increase your protection for yourself. Things like use a ledger nano that we we say things like keep your money off of exchanges are examples now, but there's going to be new examples in the future. There's there's going to be maybe lightning network three point oh, where you need to decide not to accept certain defunct nodes as a transfer method or something like that, or else your transaction will take a very long time, you know, there's, no way to know exactly what that's going to be, but yeah, there's going to be growing pains? Obviously, one of the benefits of getting in early on something like the lightning network is if people are routing through you, you're going to get more transaction fees over the course of the network. So if you're one of the earliest nodes and all of the lighting network ends up working like that, you are going to get all kinds of route's through your notes, so that is bingo.

Mike:

So brent i want two you're really hinting around another possible disadvantage and you mentioned this earlier in the episode so i think it's time to discuss it the possibility of centralization and why the network might become centralized so i'm going to give you the arguments as to why will become certain centralized and some of the arguments as to why i might not become that centralized so as you hinted it just now there's going to be a lot of value and being a node that gets a lot of traffic and you have to think about it this way each channel that you create needs tohave the amount of bitcoin that you want to be able to try and sack through it so just to clarify if i karim open up ah half a big corn channel with brent that doesn't mean that i now automatically have a half a big coin that i could also use to open up that channel with mike if i wanted to open up a channel with mike for half a bitcoin i'm going to have to put up another half a bitcoin soto have two channels have a bitcoin each i'm going to need a full big cord all right, so what does that mean?

Karim:

It means that the notes that can have a lot of channels and therefore a lot of connections and can also have a decent cap like a couple of big coin on each one of those channels they're going to become very valuable because a lot of people are going to be able to use them tow have their transactions and they're going to be able to manipulate fees they're goingto have just a lot of traffic going through them and the idea is this is going to lead to essentially what is a bank notes that have a ton of money that everybody uses to transact through and then they might have a bunch of k y c and all kinds of things to deal with and it'll become more and more centralized that's the argument all right some of the arguments against our you know the more money you have tied up there the more of a packing target you become so there is kind of like an upper limit to how much bitcoin and open channels you wantto have loaded up is one of the arguments i've heard another argument i've heard is that it should be pretty easy to avoid a note let's say for example that i don't like the way by nance is doing things and i want to send money to bob and since we're using source routing remember then my client is going to show me the path and i can choose not to use that path whether it's a slightly longer path whether i choose to you pay a little bit more transaction whatever the reasons are i can always try to find other paths and the idea is that if a big note starts misbehaving the network and punish it pretty fluidly so i can't look into the future it's pretty hard for me to say how it's gonna play out but there are legitimate fears about centralization and there are legitimate arguments about why might not be as big of a problem the only thing i'll mention is there is already centralization and bitcoin so worst case scenario would really discussing a different type of centralization in the network not taking a decentralized network and making it centralized that's not what's happening because bitcoin has already centralized around mining so we just have to be objective about you know the tradeoff that we're discussing even if you believe that lightning network will be centralized yeah i can see a couple of other arguments here, one being that the possible centralization may work around other entities.

Mike:

So, for instance, may be the number one mining group doesn't end up being the number one lightning network node.

Karim:

Maybe it's somebody with a lot of liquidity, like by answer something like that. But the arguments against centralization are a little bit rough.

Mike:

The argument that they're going to be a target for hacking.

Karim:

So they probably shouldn't put that much out there that anybody with any large amount is going to be a target for hacking. And i don't see anyone thinking, well, let's, slow down a little bit, just in case somebody targets us with hacking and thie other one being you consume, i create, but you might create multiple notes.

Mike:

Yeah, maybe, yeah, but that's so far, mostly.

Karim:

Still the same company, the other one being we can choose to route around a node if we understand how the lightning never works and we understand howto look at what's happening, and we understand which wallets are, which then, you know, we could find a way to route around it.

Mike:

I don't think the end users gonna have that ability, so we might be in a situation here where, for instance, gemini doesn't use segment support.

Karim:

Seguin has been out for a long time coin based does you said would support so a lot of members of the community say don't use gemini because they don't use segue wit and that's causing problems with the network.

Mike:

It would be better if they were using segment.

Karim:

We talked a little bit about segregated witness in the first bitcoin one on one episode, but it's an off team solution that is attempting to bring down the fees and all that as well and necessary for the lining, right?

Mike:

Yeah, they work, they work hand in hand so on the end user side know that maybe they shouldn't be using gemini, because it's not good for the network.

Karim:

So it's like that is a theoretical issue.

Mike:

Somebody could face if they were jacking up fees.

Karim:

But the rial answer is people aren't going to know the difference. So only those that are really even me. I wouldn't. I don't know today how to set up a lightning channel, because i don't use bitcoin very much. But yeah.

Mike:

So you haven't started to use it but i actually agree with most of the things you said i'm only going to mention one of the thing and this is more just an opinion but if we're talking about networks i agree with you that the average big corn user is not necessarily going to know hey, i should avoid bittrex or gemini or this note is behaving in a certain way but networks tend to center around large notes and there are like other influential nodes and this is like when we talk about cardano with the delegated or direct democratic liquidity your liquid democracy sorry the idea is that there are notes that you will trust you know what i mean so i'll put it to you this way yeah, maybe maybe you and i as end users don't directly no but we have people that we trust and if all of a sudden there's like an entire community drive where influential people or people that who's your opinion we respect like oh my god look at this note they're screwing everybody over there is going to be post about it and then people who are less influential but a little bit influential like for example, even ourselves like we might get that in some information and strategy disseminated for more influential notes and disseminated to other people who might listen to us and i'm saying that the network can act in ways where it's so much cheating and then that one decides to punish it it's not like the end user has to figure that out by himself there might be like a cascade of notes communicating that whether it's to read it through social media or whatever it is i'm not saying that that that ends the argument i agree with you and i and i still think that the arguments for possible centralization are legitimate just saying hey there are waste for the network too manipulate around them in an easy way and certainly in an easier way than for example bank so the argument one of the arguments that i saw while i was researching this i saw pretty well made youtube video that was basically saying how the lighting networks going to end up being the same thing as banks not surprisingly it was done by a channel that only had pro bitcoin cast on type bytecoin videos so you know but the difference is though it's not like anybody can start a bank you know what i mean so however anybody can start a lightning network note so there's just going to be more flexibility for the network overall there's less hoops to jump through so anyway the arguments for centralization remained though we'll have to see how it plays up maybe on a future future bitcoin up they will get to revisit so one more centralization concerned that i'm having here is the updates to the lightning network itself have to be done by those three companies correct?

Karim:

Maybe we don't know that, but it makes sense that normally if you update before code on bitcoin it's thie basically you choosed update x block this way and if you win it helps the network whatever so you're voting with your choice to mine whichever chain or whatever here my guess is if we need to update lighting network it is on block stream it's on lighting labs or it's on whatever that french company was well, so i don't want to speak here i'm a little bit hesitant just by not having the knowledge and i don't want to say something that's wrong but i believe based on what i read that they created essentially kind of like an industry standard for inter pair ability but everybody has independent clients that they can update that can have more features you know like that are interacting with the lighting network but they're updating their individual client so they can take their little wallet and okay now has an autopilot function or has a better way to find the optimal path or whatever it is, but not one of those companies is controlling the overall network they just created standards like coding standards, so to speak okay that's a thing i believe that's the case so i could make a lightning network functionality that goes ex everybody else could be using why?

Mike:

And then they can decide whether when i released that i'm like you guys should use this and they can decide whether to use it or not and it will all still work together on this yes, as on this, as long as you are using the standards of the lighting network like i'm sure that there's some very basic standards that you would have to you hide here too in order to be able to communicate.

Karim:

But yes, in theory you could develop your own client and say i don't like the way they're doing it i think this is better this is better designed and people could use it and still interact with their clients that are using the lining network in the end, the base way that it works is probably still like, for instance, the penalty if you try to attack the network in some way is probably still centralized, but there's been some sort of attempt at almost like a white label wallet kind of thing that we talked about with a different project.

Mike:

So okay, that is the biggest concern over are all with the eye mean late network sounds amazing other than basically what we've talked about, but you're right the bitcoin network is already very centralized on the mining pool rules, which is why we're in a situation where it wasn't possible to upgrade the core code, and we had to go with off chain solutions.

Karim:

They're gridlock, they're not going to update the code, they're leaving it the way it is.

Mike:

They were getting a lot of good fees as their mining and it's, tough for somebody to see past that into the future.

Karim:

So, you know, when we started this podcast, there would be a lot of bran hates bytecoin grenade.

Mike:

Bytecoin i hated less now, because it was late.

Karim:

Network has started to make it function more like what you want, the coin to function like i hold. Bytecoin now, we didn't say that it beginning episode we should have we both hold, bytecoin and you know, but one thing i will say is that usage has gone down, which is probably because, actually, we're going to get into that in a second. Sorry, comes up ahead.

Mike:

Yeah, but in last thing i'll say actually and i could be wrong about this but i just want to show an example of you don't have all the information we just simply can't tell how things are going to play out because ah lot of the properties of this network are probably going to evolve and i'm gonna give you two different scenarios that have totally different outcomes. It is in my opinion perfectly plausible that there's some kind of merger or acquisition between two of the major three developers of the lining network and then we end up in a situation where there's more and more centralization and control over the network let's say, for example, that block stream bought lining labs or ace bancor that they were able to emerge in some way so now the result is more centralization and we can tell that that's gonna happen in a year and a half. However, another plausible scenario is that the activity on the lightning that work costs a lot of companies to say hey, we need to develop a client for this all of a sudden you things start popping out, some of them become extremely popular. It could be that two years down the road block, stream or lining labs actually have one of the least use clients because so much activity has gone to other clients and the network evolved to be less centralized. So the only point that i'm trying to make there is even if you had all of the possible information available and you understood all of the technical details, it doesn't mean that you can tell that how it's gonna play out?

Karim:

Yep, we certainly can't write, especially us who don't have all the information and don't have the technical know it.

Mike:

All right, so steem those advantages, disadvantages, opinions.

Karim:

Brogan yeah, wanted teo finish up with some general fax about what has actually changed.

Mike:

So in december and january, brent, when beacon was really struggling, there were approximately four hundred thousand teo, you know, three hundred fifty, three hundred forty thousand transactions per day, and at that time, the fees had gone in december, up to six dollars, and at the peak in january twenty six, twenty seven, thirty dollars, an average transaction, feet, just a reminder that an average transactions b of thirty.

Karim:

It means that there's a lot of transactions over thirty.

Mike:

Yep, okay now.

Karim:

How do those transactions look like today?

Mike:

Well last month we were looking about a ninety sent average this month about a dollar and forty cent average so they have fallen significantly however as brent mentioned before the number of transactions has also going down so in january we're looking at three hundred fifty three hundred forty thousand transactions today right now we are only looking at about two hundred thousand transactions per day so what does that come the first thing that you should notice the transsexuals have only decreased by about fifty percent whereas is the transaction fees have decreased by eighty five percent or as much as ninety five percent of you look at the peaks but only thing i would like to know is we can't say that that's completely connected to the lightning network and the reason for that is the fees really start piling up when the network is close toe full so even though the transaction amount has only decreased by half we have approximately half the amount of activity on bytecoin that we did in january well wants the blocks are in full then we shouldn't expect the transactions to be as high so i guess basically what i'm saying is it's not a geometric scale you know it's not like for every percentage that the transactions go down the fees go down once the blocks are in full the thieves fall dramatically down so it's really hard to tell whether or not the change in fees overall is due to the efficiency of lightning and the usage of lightning or if it's simply due to the fact that there has been less interest in crypto over the past few months after the crash that there has been less activity on exchanges and therefore there's just been less bidding up of transaction fees overall and that's evident by the fact that you know back in january we could have as much as one hundred thousand unconfirmed transactions on the meme pool whereas today you know at any given day you're only looking at a couple of hundred maybe a thousand unconfirmed transactions so what is the verdict on the lightning network overall i'm going to say the fees have gone down it's difficult right now to know how much that's correlated but the bottom line is bitcoin is much more usable there are alternatives and overall if i have to decide whether or not lightning has been successful i would say that after the implementation of light the network's big one has leveled up on for those of you, they get that little reference.

Karim:

Yeah, you know, we love, you know, you know, i think we mentioned that in the past, yeah, if you know, you know, so but anyway, that i think that that's still general overview.

Brent:

Brent, i wanna toss in one one little thing there.

Karim:

They're going to be less transactions.

Mike:

The more lightning network notes are, so that could have something to do with it as well there, because if you and i are transacting back and forth, unless we close that channel, that doesn't go on the block chain.

Karim:

So that's goingto lower the transactions.

Mike:

Also.

Karim:

Brand real quick, this is a bad time, but you just reminded me of one more con for the lightning network.

Mike:

The lighting network is not really that good for large transactions because remember, every single channel or every single hop along the path has to be able to accommodate the size of the transaction, which means that if i wanted to send someone seven bytecoin, which is a lot of money, then whatever path we found, every single one of those channels, every single person would have had to put up a lease like seven bytecoin worth of equity. So you're very unlikely. Tto find an efficient path. So if you're going to try and sack the lot of bitcoin, you know, like hear cures one hundred thousand dollars worth of bitcoin, it's just better to go directly through the blockchain lightning's not going to be ideal for that, but for small payments. It's the bee's knees. Okay, well, that sounds like we took this thirty minute episode and turned it into an hour episode.

Karim:

I think we did a good job just to give you a little behind the scenes, we were deciding whether we should talk about the theory omise casper, which is really a five minute thing, maximum.

Mike:

And then we did, you know, karim to his research, and he's, like this episode is going to be way too long, easily it's at least thirty minutes.

Karim:

I think that's what he said. So here we are, in an hour with a thirty minute episode of the to be a brain brent.

Mike:

To be fair, i think even before i started research, i was like, come on in, you know that if you send me in to research something it's not going to be a fifteen minute episode, unless my assignment is literally karim, go research.

Karim:

What for post forests, then, maybe.

Mike:

Okay, that would be a ten minute.

Karim:

So that's going to wrap us up remember that the best way to interact with us is discord it is really difficult to get karim to use social media that's only when he's going to use these he's not going to be interacted with you on facebook he's not going to be an interacted with you on instagram but he will talk to you especially if you have a picture of kratos as your avatar in the discord channel he'll like really love you so now go in there like that it's beginning mohr and more active there's been a lot of great information being distributed there we haven't really had any ever had any issues we have banned anybody nothing it's been great yeah more importantly it's a great way for you to actually get on the show or participate because we have a male back section where you could submit questions for our weekly flagship we have a suggestion for one along concept ideas and we've actually made entire episode specifically from suggestions that we got on this cord we have a suggestion for our weekly flagship stories if you see a story that you want us to cover around friday and also a way to get involved in our contest so really a way for you to participate get on this scored it's a lot of fun and you might actually make it on the show or your idea of my making on the show so anyway, as faras arrest of stuff at crypto basically pot on twitter and you can also subscribed to us, please, we like that so that's going to do it?

Mike:

We're done here wasn't as much shenanigans as usual, but we talked a lot about bob.

Karim:

I feel like instead of seeing bob, we should, said mike. But we kept saying, bob, but bob jerk, so you're right, bob.

Mike:

Well, bobby's, your game show host altered.

Karim:

Yeah, why we send money to my game shows all three up in lightning that we're good because your shady broke free multiple and we'll be getting all right, thanks for listening for the crypto basic podcast.

Mike:

This has been karim and brent, and mike is here in spirit.

Karim:

We are happy we love you, bob two serve the community here also remember members of the crypto basic.

Mike:

My guests are not financial advisers where idiots this is for entertainment purposes only.

Karim:

Thank you for being here.

Mike:

Thank you for listening and thank you for double that episode should get

The members of the CryptoBasic podcast are not financial advisors, and this information is provided for entertainment purposes. Please do your own research, and don't listen to these idiots.

The CryptoBasic Podcast is owned and operated by Cipher Consulting Group LLC.