General Information
How are bitcoins on the Lightning Network different from on-chain bitcoins?
They are exactly the same coins. There are no Lightning Network tokens. The only difference is that bitcoins are stored in multi-signature addresses and transactions are settled between two parties without broadcasting anything to the blockchain (except when opening and closing the channel).
How are bitcoins on the Lightning Network different from on-chain bitcoins?
They are exactly the same coins. There are no Lightning Network tokens. The only difference is that bitcoins are stored in multi-signature addresses and transactions are settled between two parties without broadcasting anything to the blockchain (except when opening and closing the channel).
There are errors in the General information.
The Bitcoins on the blockchain and Lightning Network are not the same coins.
(They literally can't be as Bitcoins can not leave the bitcoin blockchain.)
Otherwise , when LN made any changes to the amount it would instantly be reflected on the actual blockchain, not waiting for a final settlement transaction to make the two ledgers match.
LN is a offchain fractional reserve IOU system, that can be used with Bitcoin or Litecoin or anything the LN network is coded for.
LN is not a true part of bitcoin. As Bitcoin can be used without LN and LN can be used without bitcoins.
LN notes/tokens or whatever you want to call them , are only and i repeat only representations of bitcoins or litecoins,
and only exist on the LN network , they transact in IOU of the given representation of value only.
There is nothing new under the sun.
*Banks used Gold or Silver, and let people transact with their bank notes and redeem those notes for gold or silver, if they so choose. *
*LN uses any segwit coin and lets people transact with their LN notes/tokens and redeem those note/tokens for any agreed upon segwit coins, if they so choose.*
Any denial of the above is pure nonsense.
If no one wants the truth to be mentioned, then I suggest locking this topic and restarting with a self moderated one ,
if the intended purpose is nothing more than a public relations hype machine.
G'Day
FYI:
Just to show how LN is nothing more than a Offchain Bank,
Here is Lightning Labs detailing how to swap LN IOUs of Bitcoins for LN IOUs of Litecoins.
At no time do either the bitcoins or litecoins actually leave their own blockchains.
Proving LN IOUs are transacting in pure representations of each coin, and only onchain transactions redeem the IOUs.
https://blog.lightning.engineering/announcement/2017/11/16/ln-swap.html
LN is Banking.
https://ambcrypto.com/bitcoins-btc-lightning-network-is-semi-custodial-banking-says-bitcoin-unlimiteds-peter-rizun/
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Peter R. Rizun, Chief Scientist at Bitcoin Unlimited, is one of the critics who remarked that the Lightning Network is a semi-custodial banking.
He further stated that the degree of custodianship is proportional to the fee required to escape from a non-cooperative channel.
"Rizun added that if the fee required to escape from a non-cooperative channel was in the same order of magnitude as a users channel balance, then the Lightning Network is effectively full-custodial banking.
Rizun views were backed by Emin Gun Sirer, a Cornell Professor, known to give his views on cryptocurrencies and the financial system on a regular basis. He said,Peter nails it. If channel creation is expensive, LN turns into a re-creation of the banking system.
He further stated that the degree of custodianship is proportional to the fee required to escape from a non-cooperative channel.
"Rizun added that if the fee required to escape from a non-cooperative channel was in the same order of magnitude as a users channel balance, then the Lightning Network is effectively full-custodial banking.
Rizun views were backed by Emin Gun Sirer, a Cornell Professor, known to give his views on cryptocurrencies and the financial system on a regular basis. He said,Peter nails it. If channel creation is expensive, LN turns into a re-creation of the banking system.
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Imagine that fees averaged $100 per transactions.
Youve been using a channel for a while and now your remaining channel balance is near $100.
When I say your remaining channel balance,
I mean the amount you actually have available in that channel, already net of the $100 fee to close the channel to the blockchain.
Youve been using a channel for a while and now your remaining channel balance is near $100.
When I say your remaining channel balance,
I mean the amount you actually have available in that channel, already net of the $100 fee to close the channel to the blockchain.
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$100 fees are a low estimate in a future where most transactions are done on LN.
But $100 is a lot of money to most people in the world.
This means that for most people,
LN will not bring them financial freedom and the ability to be their own bank and send payments to anyone they choose.
For most people, LN will look like banking looks today.
But $100 is a lot of money to most people in the world.
This means that for most people,
LN will not bring them financial freedom and the ability to be their own bank and send payments to anyone they choose.
For most people, LN will look like banking looks today.
Problems with LN : https://www.youtube.com/watch?v=Ew2MWVtNAt0
https://forum.bitcoin.com/bitcoin-discussion/how-the-lightning-network-could-ultimately-destroy-bitcoin-t21092.html
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The re-emergence of fractional reserve lending
At this stage, hubs would be financially incentivized and able to hold fractional reserves to start loaning out depositors' bitcoins to borrowers. As with modern banking, most of the general public would not be opposed to this. It is quite a familiar practice and arguably good for the economy. It would also allow the LN hubs to offer free accounts indefinitely, perhaps ultimately paying interest to depositors out of the revenue generated from the loans.
Now, hubs that implement all of these features would probably be very large. Smaller hubs wouldn't have quite the same ability or inclination to get into this kind of risky business (and stay in business). Naturally, these larger hubs would end up under the spotlight of government oversight and would move to preemptively register for all recommended licenses. To the general public, these hubs will become the best known and most attractive of the available options. They would have a good strong established reputation, be fully insured, have close government supervision, government approval, and provide a good free service.
Once hubs of this size and sophistication have developed, it would be next to impossible for anyone to compete, much as it is now essentially impossible for anyone to start a bank. As the industry becomes professionalized, all hubs would become subject to government regulation and it would become illegal to start one without first getting the relevant licenses. It might be possible for people in their basements to start black market hubs anyway. And even though they would be horribly expensive to set up and wouldn't make anything close to the profit of the regulated hubs, they might nevertheless continue to exist to help reduce costs for a small number of idealists passionate about privacy and true freedom. The network of black market hubs might end up somewhat similar to the Bitcoin network as it is today, or smaller; essentially a little-known irrelevance to the vast majority of people, but an option to escape the system for those who choose to do so.
At this stage, hubs would be financially incentivized and able to hold fractional reserves to start loaning out depositors' bitcoins to borrowers. As with modern banking, most of the general public would not be opposed to this. It is quite a familiar practice and arguably good for the economy. It would also allow the LN hubs to offer free accounts indefinitely, perhaps ultimately paying interest to depositors out of the revenue generated from the loans.
Now, hubs that implement all of these features would probably be very large. Smaller hubs wouldn't have quite the same ability or inclination to get into this kind of risky business (and stay in business). Naturally, these larger hubs would end up under the spotlight of government oversight and would move to preemptively register for all recommended licenses. To the general public, these hubs will become the best known and most attractive of the available options. They would have a good strong established reputation, be fully insured, have close government supervision, government approval, and provide a good free service.
Once hubs of this size and sophistication have developed, it would be next to impossible for anyone to compete, much as it is now essentially impossible for anyone to start a bank. As the industry becomes professionalized, all hubs would become subject to government regulation and it would become illegal to start one without first getting the relevant licenses. It might be possible for people in their basements to start black market hubs anyway. And even though they would be horribly expensive to set up and wouldn't make anything close to the profit of the regulated hubs, they might nevertheless continue to exist to help reduce costs for a small number of idealists passionate about privacy and true freedom. The network of black market hubs might end up somewhat similar to the Bitcoin network as it is today, or smaller; essentially a little-known irrelevance to the vast majority of people, but an option to escape the system for those who choose to do so.
Proposed Future Feature updates:
https://www.rene-pickhardt.de/index.html%3Fp=2131.html
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I suggest to add another feature to the lightning network which I call a virtual payment channel (or in short VPC) to be described in this article.
Such a virtual payment channel will NOT be backed by the blockchain and thus cannot operate in a trustless manner.
However I see several use cases for virtual payment channels.
The most important one seems to be the fact that two parties which agree to create a virtual payment channel can instantly create a channel at basically arbitrary capacity.
This will help to increase the max flow properties of the network and allow for routing to become much easier.
A virtual payment channel basically allows both channel partners to access the funds of the other channel partner which yields some flexibility and obviously a high risk in case of fraudulent behavior.
While writing down the article I realized there are also some dangers to virtual payment channels.
The main one is that to some degree VPCs resembles the fractional reserve banking system even though it is still only credit based on positive money
Such a virtual payment channel will NOT be backed by the blockchain and thus cannot operate in a trustless manner.
However I see several use cases for virtual payment channels.
The most important one seems to be the fact that two parties which agree to create a virtual payment channel can instantly create a channel at basically arbitrary capacity.
This will help to increase the max flow properties of the network and allow for routing to become much easier.
A virtual payment channel basically allows both channel partners to access the funds of the other channel partner which yields some flexibility and obviously a high risk in case of fraudulent behavior.
While writing down the article I realized there are also some dangers to virtual payment channels.
The main one is that to some degree VPCs resembles the fractional reserve banking system even though it is still only credit based on positive money