The bitcoin scaling debate has died down a bit in recent times but it remains a very real issue for the technology and long term adoption of both bitcoin and other coins. The argument boils down to this; we can make block sizes bigger, process more transactions and scale more easily but when we do fewer people can host nodes (because of the higher storage and bandwidth cost) so the decentralized effect of the network is compromised.
Ultimately that is the trade-off; scale versus de-centralization.
This debate broke bitcoin in two, Bitcoin and Bitcoin Cash. The latter having larger blocks and lower fees the former focussing on off-chain solutions to the scaling issue.
Those off-chain solutions are now live in the form of the Lightning Network. This network is very new and has all manner of issues much like bitcoin did in the early days, but it is worthy of review.
How does lightning work?
Lightning uses payment channels. Very broadly
Person A opens a multi-signature wallet with person B.
The address is saved to the blockchain along with the amount of BTC in it
This becomes A and B’s payment channel and they can move money back and forth between each other without ever writing to the blockchain itself or paying the fee, all that happens is the parties agree how much of the balance each owns
If there is a dispute the channel is closed and the last agreed balance stands
So far so boring. However, if person B now transacts with person C in a similar way then person A can also transact with person C, without knowing them or having connected directly using the same rules and protocol. Add person D and person E and pretty soon a web of payment channels is being formed, none of which are clogging up the bitcoin blockchain.
On 1 February 2018 this web of networks looked like this
Lightning Network February 2018
Nodes 43; Channels 68; Total Capacity 84443470 sat (US$9931.08 USD)
Today, 26 June 2018 it looked like this. Bear in mind there is still only $150k in the network it is still early days.
Lightning Network June 2018
Nodes 2762; Channels 5759; Total Capacity 2,442,766,245.00 sat (US$150,151.71 USD)
Network Effects
It may well be that the lightning network doesn’t take hold and superior methods are found for small digital payments. Personally, I feel like lightning is going back in time to when bitcoin was new. It’s too technical for most people to engage with, the barriers to entry are significant in terms of technical known-how etc. It isn’t particularly safe and money has gone missing while technical issues are ironed out (hence only $150k in there).
That all said, everything starts somewhere and networks like this are enormously powerful when they get traction. There are so many enthusiasts out there putting their own time money at risk to make this fly, exactly as there were with bitcoin.
You can follow the growth of lightning here: https://rompert.com/recksplorer/
I view it as a good leading indicator to the overall health of the bitcoin network. If lightning takes off it would be able to process far more transactions than Visas 50k/second, although that is some years away.
We’ll post an update on Lightning before the end of the year.
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