Spencer Noon is the Latest to Express Current BTC Lightning Network Concerns


This year has been expected to be the year of Lightning Network given the way it has been growing at such a rapid pace.

The network capacity has reached 775 BTC which at its current price has surpassed $3 million at the rate of 8 percent. The number of nodes and channels are also growing at a rapid pace of about 18 and 40 percent respectively.

Recently, a movement of Lightning Network through a torch has been relayed all over the world that further put it into the limelight. It further captured the attention of mainstream masses when Twitter and Square CEO Jack Dorsey apart from participating in this movement started running his own Bitcoin node.

“Lightning aims to scale Bitcoin. Lightning was one of the first Layer-2 solutions, ingeniously proposing to take transactions off-chain, while continuing to rely on the security of the blockchain. It promises to not only scale payments, but to do so with low latency, and minimal fees.”

The Drawbacks of Lightning Network

There is a number of reasons to be excited about this second layer on the network that makes transactions on the Bitcoin network fast and scalable with low fees. Buying pizza has been the most recent and every-day use of Lightning Network.

However, there might not be all hunky dory with Lightning Network as recently StarkWare on a medium post addressed the drawbacks of Lightning, the layer-2 payment solution.

In Lightning, unlike Bitcoin, in order to make a payment, not just a payer but also the payee must also be online to sign the transaction with their private key. This is not all, the routing nodes also have to be online to participate in the protocol, before the upstream HTLC expires. But Lightning Network is trying to solve this issue through watchtowers, a service to which users can delegate this monitoring responsibility for a fee.

Another issue comes from the requirement to lock up capital per channel, not just per Payer. Moreover, in case the payment is not sent directly to the Payee rather through routing nodes, then these nodes also have to lock up the amount being paid.

For instance, one BTC payment with 3 routing nodes would need 3 BTC of collateral so it gets ugly really fast. As Spencer Noon puts it:

“Inherently centralizing: The solution to the capital inefficiency problem is to have huge and centralized routing nodes (as opposed to many routing nodes) but these huge nodes are honeypots for hackers.”

The multi-hop payment needs also mean higher value payments have a lower probability of completion due to the reason that they will have fewer routes because of at least full value of the transaction in collateral.

Furthermore, the restricted supply might also translate into “higher fees with increasing payment value.”  This increasing payment value will lead them to compete for a limited supply of routing nodes capacity.

A few more disadvantages are added by fundamentals-focused crypto investor Spencer Noon viz. potentially high fees as the solution to these drawbacks would be adding fees for security and payment. However, as Noon points out this can get tricky because Lightning Network's biggest selling point is low fees.

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