Any opinions from the crypto crowd? Cash seems like the ultimate libertarian way to go. My cash is physically in my wallet - nobody can touch it or take it. It is indisputably mine. And I know shops, vendors, and pubs will accept it. As soon as I de-materialize the cash into some electronic form, then I become dependent on (1) my phone provider (2) my computer (3) whatever coin exchange is involved (4) whatever method the merchant uses to convert electronic units into national currency so that they can pay their taxes (and probably their suppliers and employees). There are plenty of 100% cash business out there - I think because they like the same liberties which crypto offers...
Speaking for myself, I have high hopes for Bitcoin as a freedom technology. It’s climbing the adoption curve rapidly as a store of value. Hopefully the Lightning network gets it the rest of the way to medium of exchange. Lightning offers the same security and permission-less guarantees as the base blockchain, but adds instant settlement and ultra-low fees.
Digital cash is the goal, right? The problem with cash as we use it is that is a poor store of value because it is not a real commodity, but just a liability of the government. Bitcoin with Lightning could be both.
edit: Britain and the whole world should run from CBDCs at warp 10. That’s a total financial panopticon.
Unfortunately the lightning network re-introduces payment processor middle-men which is unacceptable in my opinion. Yes, anyone can open a channel with a merchant, but it will take at least 2 expensive on-chain transactions (open/close the channel) and it requires you to commit some capital to the channel which you can’t use elsewhere in the meantime.
Payment processors would also have the ability to censor transactions which is antithetical to the core ideals of Bitcoin and cryptocurrencies as a whole. This kind of processor structure would be fine in a cryptocurrency like Monero where the processor would not be able to see the sender address, recipient address, or transction amount. But in Bitcion where all that information is visible it is infeasible to use lightning network and maintain censorship resistance.
Lightning also completely fails in its original design goal which is to allow scaling while preventing node centralization due to expensive hardware requirements. Since a lightning node must maintain open channels with other nodes to operate, and since open channels require commitment of capital, and since the number of open channels required scales directly with number of users and merchants, only the wealthy with the deepest pockets can afford to operate a useful lightning node.
But I do agree that we should avoid CBDCs like the plague.
1. On chain transactions are fairly cheap and have been for a long time. What do you mean by expensive?
2. How can payment processors censor transactions? I don’t think you understand Lightning. It’s onion routed, similar to TOR. Routing nodes only know previous hop and the next hop, which they already have open channels with. They don’t even know if the previous hop was the first, or if the next hop is the last. Why/how could they censor it?
3. An open channel does not lock anything. When you commit funds to a channel, you can use those funds in the Lightning network. It’s not like they’re useless until you close the channel. That’s like saying that putting dollars on a pre-paid card is “committing capital” that you can’t use elsewhere. No, you’re just using an alternative payment method.
4. It doesn’t completely fail. It is somewhat more centralized than the layer 1, but that is to be expected. It’s good enough and private enough to be useful for most things. The blockchain doesn’t go away. You can still use layer 1. You can still use coinjoins or mixers or atomic Monero swaps if you want.
1. I see current fees are around $1.90/txn these days. My bad, it’s been quite some time since I’ve made a Bitcoin transaction. If on-chain transactions are cheap, what motivation does a user have to use lightning?
2. I actually didn’t know it was onion routed, that’s good! There is still the possibility of censorship at the edges though, which could propagate throughout the network via “I won’t open a channel with anyone who opens a channel with X”. Although this issue exists in most federated systems like Mastodon and Matrix. I don’t know a way to solve it other than full anonymity. I’m assuming it’s public knowledge who has an open channel with who.
3. My understanding is that opening a channel locks the funds into that channel. As you said you can still use those funds for lightning transactions, assuming that the other party is well connected and you can route to your destination via them.
4. I do agree that it can be useful for most things while at the same time failing its design goals. The thing I’m extremely wary of is creating a system which handles 99% of use cases perfectly but accidentally degrades the service for the rest. If lightning gets enough adoption that it handles 99% of Bitcoin traffic then I’d expect 2 things to happen. First, a small set of hub lightning nodes would emerge which everyone would route through. These nodes would be subject to KYC/AML laws by governments and would be required to begin censoring transactions in the manner described in #2 by refusing to open a channel with anyone who either is a node that does not comply with KYC/AML, or an individual who has not jumped through enough hoops. Second, anyone who makes an on-chain transaction that is not lightning related is instantly suspicious, like handing someone a brown paper bag full of cash. I think this would be an unfortunate state for Bitcoin to end up in as it would have become the very thing it sought to destroy.
On atomic swaps. I think they’re really great. The only issue is I can’t imagine myself ever converting Monero to Bitcoin for fear of ending up with coins tainted in some way that I’m not sophisticated enough to discover until it’s too late. I don’t have a solution for this.
Finally I want to say that I appreciate your response, as there is more nuance to the lightning network than I initially presented. Admittedly I was a little overzealous with my comment above, but I’m glad we can have a honest discussion about things. Rare on the internet these days!
1. Honestly, you could be right about fees. I don't keep up with them normally. I use the Strike app for buying Bitcoin, which doesn't charge any fees, including on-chain fees. That said, $1 or $2 might or might not be expensive, depending on how you view the role of on-chain transactions. I see on-chain transactions as "I'm using this to buy a house or car, not a cup of coffee."
2. Private channels exist. Most channels are private. Only channels used for routing must be public. So if you're just opening a channel for payments, the only way for a third-party to know would be use to on-chain analytics to maybe catch you. The actual channel wouldn't be broadcast to the Lightning network. Definitely not perfect, this will always be a downside of the transparent ledger.
3. Yup, this is ultimately the real problem with Lightning, which is that it tends to centralize around large connected nodes. Hopefully, payment splitting will resolve some this.
A lot of people worry about tainted coins, but I think regulators will realize that's a losing battle. Eventually the whole network will be tainted coins.
Interesting read! Apparently its concepts were taken over by https://en.m.wikipedia.org/wiki/GNU_Taler but I've never seen that in use before so idk of it's the dreaded never to be done micropayments thing or not but hey, it's a start, and less dead than mondex.
Cash is good, in fact Bitcoin was originally proposed as “Peer-to-peer digital cash”. Crypto attempts to extend some of the properties of cash to the internet. Unfortunately Bitcoin has kind of failed in this goal at this point and become used more as a store of value rather than a medium of exchange.
You have good points about the physicality of cash and the guarantee that merchants will accept it. Crypto can be carried around physically with a hardware wallet, though it’s still not quite as good as cash in this regard. And that guarantee that cash is accepted comes with legal tender status. You can’t be guaranteed to be able to spend CAD in US for example, but plenty of the world has multiple legal tenders, see Europe.
I like cryptocurrencies, but admittedly they are still pretty clunky to use. Bitcoin has a lot of development momentum behind it, but I don’t see it as the feasible option going forwards due to the scaling shitshow and lack of privacy (no, taproot won’t solve this because you need privacy by default otherwise private transaction default to “suspicious”). Ethereum is great, I really like Vitalik’s leadership and it arguably has even more development momentum than Bitcoin. Unfortunately it also has the scaling and privacy issues like Bitcoin and additionally it seems to be primarily used to create pump and dump scam coins and shit like NFTs which are always going to clog up the base layer. Monero seems to have the most potential to me. It is like Bitcoin but has default privacy and on-chain scaling (we will have to see how that holds up under more adoption) without the dogma.
Honestly, I think the solution to crypto and other e-payment methods being hard to use is for the next government that wants to adopt crypto to go with a PoS crypto. Then they can purchase a reserve, stake it, and issue a series of notes keyed to some portion of that reserve (in other words, if their reserve was split into a billion notes, they would have a billion unique serial numbers).
Citizens could then just use the notes (with counterfeit measures in place) or bring it to the bank to deposit, and (at their discretion) withdraw on-chain. If the citizens want the staking rewards, they'd have to self-custody on-chain, but the nation could implement a system where users/merchants could scan the notes on receipt (which would validate the authenticity, as well as provide information about circulation which would help with anti-counterfeit measures). Upon scanning, you'd then get a kickback from the staking rewards, proportional to the amount and the date of last scan.
Sounds like a nightmare, but it makes it accessible to homeless people, elderly, etc. and it's honestly more private than existing digital payments; scanning would be at your discretion.
Sure but doesn't that essentially ask the government to back the whole thing? In which case, how is that scenario any different than life w/o cryptocurrency (i.e. physical cash + debit cards + credit cards)?
The government is custodying the crypto, sure. But they can't arbitrarily print more. E.g. you can verify that your note is tied to some amount of crypto on the blockchain.
If you want to self-custody, you can. If you want to make payments on-chain, you can.
The cash is just for convenience and making it more accessible to people who might not have phones. Blending custodial solutions as a way to abstract the complexity of actually using crypto away from people, with the actual blockchain they serve as an interface to, lets people choose their approach based on their comfort level.
Bitcoin has already won; Satoshi proved it in the paper. Its pre-existing longer blockchain has more proof-of-work put into it than the competitors, they cannot overtake it because they're backed by the same underlying asset (energy). The demand for mining one squeezes out the market for the other.
I think lightning network is the next closet. You are correct in that you still need internet, but CBDCs will as well.
For lightning you will either need to host your own node, or rely on a third party node.
Lightning offers a high degree of privacy and fungibility, no exchanges needed, and freezing is not possible. ~2 second confirmation, final settlement.
It is backed by the Bitcoin network which is extremely secure, and not very generous with attack surfaces. To doublespend on it an attacker would need to use more hashpower (energy) than what the network is currently being secured by.
As it would require an enormous amount of resources, and since it is nearly impossible to pull off, mostly now attacks are trying to convince the general population to not use it with fear based tactics, general misinformation, and half truths; which should give you a good idea of how valuable it really is over any permissioned digital money.
Then you have to make the decision of how much you're willing to risk in taking out of your "totally safe" under-the-mattress stash each day, and that runs into inconvenience of if too high you lost a lot after a few beers on a Friday night, if too small you can't buy everything you wanted in the spur of the moment.
