It needs value proposition. In saying that, as a cryptocurrency, it still possess the most important feature: decentralisation. For bitcoin to succeed, the benefits of using it to buy a cup of coffee needs to outweigh those status-quo payments, like cash or credit. At this point in time, bitcoin’s benefits do not outweigh cash or credit. It’s slow and more importantly, too expensive. Although decentralisation is imperative- nobody wants to wait a minimum of 10 minutes to receive confirmation and pay multi dollar fees just to buy a cup of coffee. That’s why solutions to this problem have been debated for the last years.
On its face- increasing the block size seems like the logical solution. It’s been done before, so why arbitrarily limit it at 1MB. Satoshi Nakamoto- Bitcoin’s creator- stated that blocks should grow as big as they need to be; and implied that blocks should increase as they approach max capacity
If scaling takes place now, Bitcoin risks technical issues and centralization
Lightning developers are designing a routing facility that identifies which network nodes have sufficient funds to make a payment, calculates the shortest viable route to the payment destination across those nodes, and sends the payment. If this works, it would resolve the bitcoin dilemma.
It remarkable is how quickly users have flocked to the LN mainnet, a clear indication that enthusiasm for this scaling technology remains high.
Essentially, you fund the network with a transaction on the Bitcoin Mainnet and commitment transactions re-shift the original balances. To sign the funding transaction, they need to exchange their parent signatures and broadcast them back on the mainnet.
If I wanted to purchase a coffee from my local coffee shop, I might open up a payment channel with them, as I visit them often. Opening a channel with a funding transaction could potentially make economic sense if I frequently visit the coffee shop and make multiple purchases within a given period of time. However, I would still have to consider that the amount funded in the Funding Transaction will not be available to me on the Bitcoin mainnet.
What if Alice, Bob, Charles, Danny, Eddy, Francis and Gina are all connected to that third party? Not only will each route always possess the necessary capital, it will also be the shorted route. There will be no economic incentive for each user to open up new channels with each other. So, in practice, Lightning is more likely to look like this:
If a route has three intermediary nodes, each intermediary requires a fee. If each fee is 0.5 satoshis (totalling 1.5 satoshis), the large hop can just set their fees at 1.4999 satoshis to compete. Also, they can provide further incentive to create the scenario described, by covering mainnet funding transaction fees for all users.
It has been said that the Lightning Network is nothing more than shifting fees away from miners and the mainnet and- in effect centralising the network, by creating Visa and MasterCard like companies which operate Lightning hubs. Further, it is still not fully understood how ‘trustless’ these companies will be.
Lightning network is often touted as a solution to the problem of bitcoin’s rising transaction fees. Its proponents claim that transaction fees, which is one of the direct consequences of bitcoin’s clogged network, will come down after the technology takes transactions off the main blockchain
Towards the end of 2017, we saw a $50 fee for 1-input-transaction due to the cryptocurrency mania spike.
Lightning Network supporters like the idea of channel factories, and LN technology has been researched and developed heavily over the past few months. Those who dislike the purpose of this particular second layer concept believe that this latest idea pushes the LN technology even further behind because it’s essentially pushing the protocol to a third layer solution.
So LN might become a complex system with a few beneficiaries, which will require high onchain fees to exist. That will financially incentivise big hubs, watchtowers and other centralised LN services to lobby high fees by riding community influentials and using sock puppets, thus achieving even more centralisation and higher revenues.
Why bother creating a channel with a ‘small’ node, pay high onchain fees and later pay more off chain fees for routing, when you can just open one channel with a big hub for ‘free’ and route most payments with 1 hop?- most people will always choose the most convent option.
Why bother depositing lots of funds upfront to save on future fees, if user can keep using Visa or other alt coins with low transaction fees? Solution: this won’t be a problem if everybody uses LN, because all payments would be done off chain, but this is unlikely to happen soon
The CSV will literally lock the funds for certain amount of time, giving a counterparty a chance to punish a cheater by broadcasting a transaction that contains a ‘secret key’ from that old state.-- There is no perfect solution with current logic, because time-locks will always balance between safety and liquidity, but Submarine Swaps might help to get money onchain faster, if they will be widely adopted. 3rd party LN Watchtowers might also decrease a common delay time without a big safety trade-off