Okay, guys, we're live. This is the Future Gravy Channel with Rod Rojas, and our guest
today is Jameson Lopp. He's the infrastructure team lead at Bitgo. Can you tell us a little
bit more about yourself, Jameson?
Sure. So I've been interested in Bitcoin and crypto assets for a number of years and
have been fortunate enough to be doing it full-time for about two and a half years now and run
a variety of meetup groups and online discussion groups and have been doing a little bit of
dabbling in open source, have a few projects in this space. The first one that I really
got up and running was Toshii, which is a fork of Bitcoin core and is basically just
providing a lot of metrics to give you some insight into what's actually happening inside
of a Bitcoin node on the network.
Excellent. Is there a GitHub repository that you would like to plug or invite people to
check out?
Also, you can see the main dashboards at statoshi.info. It's S-T-A-S-I. Let's see. It's just Satoshi
with an extra T. So it's like statoshi.info.
Okay, awesome. Awesome. So today we're going to be talking about the Lightning Network.
Could you give us a rundown of what the Lightning Network is?
So basically a second layer network where we're trying to use some of the base level
functionality of Bitcoin itself to then create ways of doing faster and higher speed, higher
transaction volume interactions or transactions on this new network. So Bitcoin itself is
fairly slow. It can take anywhere from minutes to hours to actually get a transaction that
is confirmed to the point that you're sure that it's not going to be reversed. And that
makes it hard to do a lot of things like internet of things, micro payments, and even just like
brick and mortar retail transactions, accepting unconfirmed transactions carries a whole set
of new risks. And so these second layer networks kind of provide additional cryptographic guarantees
that allow you to accept instant transactions. And then they also provide some new levels
of scalability regarding transaction volume simply because instead of doing a broadcast
to the entire world of your transaction, you're only really sending the transaction information
through a minimal set of network participants. So it's actually very much like the architecture
of the internet itself, where the internet is generally considered to be comprised of
this like seven layer stack of different hardware and software technologies. And at the very,
very low level, it's doing broadcast all broadcasting data to everyone on your local network. But
if you were trying to scale that up to the internet, as we know it today, that would
never work. The reason that the internet as we know it today works is because we have
lots of routing technologies that allow the data that you are sending and receiving to
only go through a small set of other network participants.
Interesting. So a lot of people are scared of the off chain part of the lightning network.
But what you're saying is that actually we may be improving the security of the transactions
by making them instant and not depending on confirmations. Is that what you're saying?
Yes. So the people are scared of anything that's new and they tend to be scared of additional
complexities and actually talking about the low level architecture of lightning network
technology is even more difficult than talking about Bitcoin because it is based upon Bitcoin
and now you have an additional set of game theory and cryptography that gets added on
top of that. So you are, in a sense, you still have the same base security that the Bitcoin
blockchain itself gives you, but you are using some additional locking and game theoretic
encryption ability to then create these off chain transactions.
And so you're essentially creating data and swapping data with people in a very real time
and low latency fashion. But the data that you're swapping back and forth is all valid
like Bitcoin on chain transaction data. It's just instead of broadcasting it out on the
main Bitcoin network and putting it into the blockchain, you're only sending it back and
forth between a few people that really care about it.
Sounds great. So basically you're taking a regular Bitcoin transaction and making it
do more things in between before it gets confirmed at the end.
Yeah. And so we can still harness the same security of Bitcoin itself. We're not losing
anything that you would normally have from doing traditional on chain payments. We're
just adding additional functionality that gives us some better speed and better scale.
Is it decentralized?
And that's a loaded question because there is no black and white way to describe centralized
versus decentralized. It's always this matter of a spectrum. And then people will argue
about whether it's on one end of the spectrum or the other. And it is especially hard to
argue about this type of stuff considering that the Lightning Network doesn't actually
exist yet. So you're basically speculating. And the speculation that I basically settled
on after doing a lot of research and ended up writing an article on CoinDesk a year or
so ago was that it seems like the most likely topographical shape of a Lightning Network
is going to be something that's called scale-free. And this means that it will have both centralized
and decentralized aspects. And so yes, there likely will be some well-connected, well-capitalized
nodes on the Lightning Network that have lots of channels coming into them. And they are
handling a large amount of traffic. But that will be like this tight cluster in the middle
of the more well-connected part of the network. And then you'll kind of see this mesh expanding
out from that of slightly less well-connected nodes. And then at the very edges of it will
just be single participants here and there that are only connecting at one or two places
into the network. So I think it will be both centralized and decentralized depending upon
how you're looking at it. And of course, we want it to be as decentralized as possible
just to make it more robust against different types of failures.
If I made a comparison to our viewers, let me know if you think that would be a good
comparison. Could it be you said like, for example, email where you have a few participants
that are very dominant like Google and Hotmail and so on. But at any time you can roll up
your own email server. You can choose to patronize a privacy centric email. You have all those
options but you still have market dominance. Yes, that's I think a very good metaphor is
probably going to look something like that. Okay, awesome. And so there is no possibility
that we know of of a monopoly of somebody just taking over the entire thing. I mean,
you can always roll up your own hub, your own lightning network node. Nobody can prevent
you from doing so, right? Yeah, I mean, it would be very hard to maintain
a monopoly on a permissionless network where anyone else can join the network and compete.
And so basically, I think the reason why someone would of course want a monopoly is so that
they can then control the fees and control the flows of data and money on the network.
And as soon as someone got to the point that they were able to raise the fees, then that's
going to create an environment where competition can come in and undercut. And so I think there
will be a natural free market equilibrium there. There are going to be costs to running
a lightning network node that is routing money. You are going to be putting capital at risk.
It's going to be online and potentially hackable. And then the potential payoffs is that you
will be able to collect tiny transaction fees that should add up over time if you're able
to do high transaction volumes. I'll touch on that later, but on the node
running and why you need to have bitcoins in order to run a hub and so on. But for now,
how high a volume of transactions can we have on the lightning network? I mean, are there
limits? So it also depends on what you are considering a transaction. So within the context
of a single payment channel, you can update the state of single payment channel and you're
basically only going to be limited by the latency of your network connection between
those two participants. So you could theoretically be updating the payment channel every few
milliseconds if you want to look at a sort of naive way of saying this is the theoretical
limit of transaction volume. On the other hand, there will be limitations in terms of
liquidity. There may be times at which you want to send so much value that you may not
be able to find a route through the network. That's going to be one of the challenges to
building out this network. Especially at the beginning, right? Oh yeah. At the beginning,
most of the payment channels I think are going to be very small in value simply because we
don't want anybody to risk too much money while it's still in an experimental phase.
But then on the other hand, if you're looking at more of a macro view of the network, the
payment channels are not necessarily going to be able to be sustained forever because
the act of taking fees when you're routing payments kind of degrades the payment channel
and that fee that you're taking is no longer available for being routed around the network.
So eventually payment channels will be closed out, on-chain transaction will be created,
but then they may be immediately reopened as well if that person just wants to reinvest
their profits back into routing more liquidity around the network.
When you're talking about losing money, you're talking about the Lightning Network node operators,
right? Not the actual consumer.
Right. So as the node operator is taking fees while they're routing the payments, my understanding
is that those fees cannot then be routed on. They're basically holding them onto their
end of the payment channel and eventually will have to close and reopen the channel.
I see. Great. How low is the cost of transactions expected to be? Has anybody made any calculations?
So the kind of crazy thing from the research that I did and just talking to the Lightning
developers is that there's actually going to be a range of fees and in some cases they
actually may be negative fees. So suffice to say that I think in general they're going
to be extremely low, whether that means it's just like a few satoshis or a hundred satoshis.
I think that one of the differences that you will see right off the bat is that the fees
will probably not be based on the same type of mechanism that we see in Bitcoin where
a Bitcoin transaction fee, you're basically bidding for blocks. Like that's the limited
resource. So you end up paying fees that are related to the data size of your transaction.
That's not really the case on Lightning Network. There is no scarce space other than I guess
bandwidth, but the bandwidth use is going to be negligible. So the fees are probably
either... Sorry, Jimson. I think we dropped a few packets there and we lost you. Okay.
So suffice to say that the fee situation is going to be different from what you see in
Bitcoin. They're probably either going to be flat fees of like so many satoshis for
doing a single channel update or maybe really, really, really low percentage of value fees.
But like I said with the negative fee situation, if there are cases where payment channels
are incredibly unbalanced, then it would make sense for a node operator to actually offer
a negative fee if you are able to rebalance the channel because you will be saving the
node operator money by preventing them from having to do the on-chain transaction, which
is going to have a much higher fee. So basically an unbalanced node would be a node that is
only sending transactions in one direction as opposed to having bi-directional activity.
Is that right? Yeah. Wherever they've had a lot more activity in one direction on the
channels than the other. Right. So basically you would have a monetary imbalance towards
one side that would force you to eventually settle the transaction on-chain, which is
the expensive part, right? Yeah. And to avoid this settlement and to keep that channel running,
the node operators might be incentivized to give out free transactions or negative transaction
fees in order to even out the other side of their channel. Exactly. And that's assuming
that they don't have other channels open where they could rebalance themselves. The potential
operations theory gets pretty complicated, but there could also be cases where if you
have a very well-connected node with lots of channels, then you might just be sending
out of one and putting it back into another, basically routing around back into yourself.
I see. And people are concerned that there won't be enough on-chain fees for miners.
Is that a reasonable concern? So I think that the concerns here are overblown for a
few reasons. One of which is that miners are actually some of the most well-capitalized
people in the industry. And if for some reason miners were no longer able to make a lot of
money by mining blocks, which I highly doubt, they could always take some of the bitcoins
that they have accrued and actually use them to start running lightning nodes and making
more money by competing on the lightning network. But apart from that, the major things are
that like we said, payment channels cannot stay open indefinitely, so they will have
to close them out, which means they will have to make on-chain transactions and they will
have to pay fees for those on-chain transactions. Then the speculation basically comes down
to how does that fee situation work? And I think that it will basically be like a trickle
down type of effect. So if we think about this network, like what would happen if lightning
network really becomes extremely popular? Then from a user point of view, if the lightning
network allows you to reduce your on-chain transactions by a factor of X, say like 100,
then it makes economic sense for a user to be willing to pay any fee that is less than
the average on-chain transaction fee times X minus the average lightning transaction
fee times X. So as a result, I think you will see that within that differential that with
a popular network, the on-chain transaction fees could actually go up significantly. Because
if you are saving 100 times of your fees by doing all this stuff on the lightning network,
then you would be more than happy to pay 2X or 3X multiple times more in on-chain transaction
fees than you were before the lightning network even existed.
Because you can do so much more on lightning that it would be worth it.
Yeah, so essentially it's lightning network creating a lot of utility, creating a lot
of value, and as a result the base layer, the blockchain, also becomes more valuable.
So I think it's a win-win situation for everybody.
And ultimately miners can refuse to put a transaction into a block if it doesn't have
a fee, am I right? So there could be a competition there.
Oh yeah, I mean miners can always choose any number of attributes of what type of transactions
they want to put into blocks.
Another concern of people is they think, do I have to open a channel with everybody, with
my friends or things like that? I think people have not really understood the routing system,
how things will hop, how transactions will hop. Can you explain a little bit?
So I think you'll probably see the average wallet under the hood, it should be doing
this without the user needing to worry about it, but I would expect the average wallet
will probably open three or four payment channels. That should be plenty. Once you get connected
to different parts of the network mesh that you would then be able to find paths with
sufficient liquidity to be able to route your money around.
You definitely don't have to connect to the entire network or even 100 people. It's really
going to come down to what the distribution of the liquidity around the network looks
like.
And it is conceivable that you could just connect to one very well-connected hub and
that's it, right?
Yeah, and the main reasons that you would want to avoid that are just for redundancy.
Because you can never be sure that any of those nodes out there are going to remain
online indefinitely. I think over time, various nodes will basically gain reputations for
how reliable they are. But at least at first, you should basically assume that the other
end of that payment channel might disappear. So you'll want to have multiple different
liquidity paths that you can use.
And what you said just now, I think is very important. So the user will probably not even
know that this is happening. So could we expect that a lightning wallet will look just like
a regular wallet where you just send and nothing else?
Definitely. I think that's one of the main goals that all of us who are working on software
in this space should be going for is the security aspects first, and then second, the usability
aspects where you want to push as much of the details and complexity under the hood
as possible. Just provide a nice clean interface so that people can push a button and have
things work.
Awesome. And the transactions would be instant.
That's right.
Excellent. Give me just a second. What does it mean that the payments are atomic?
So when you're doing an update of a channel, basically you're creating your new Bitcoin.
It is a Bitcoin transaction, which you are then using what's called the hash time lock
contract, basically encrypting this data that you're sending, sending it only along a simple
path between you and your final destination counterparty, which then receives that data
and then sends message back along that path all the way to you that is proving that they
did receive your data and your money. And this entire process is able to happen in a
matter of milliseconds, basically based upon the network latency.
And so once your message has gone all the way and come back, then both of the parties
now have new updated states of their payment channel at the same time. So that's really
like the atomic aspect of it, where you're both updating your payment channel space.
Okay. So that has to do with the latency of the network. That's what it is. Okay. Thank
you. And can users lose their money? Do they have to trust the node operators?
So the way that it's set up is that the intermediaries that are routing the money cannot actually
take it. The routed hash time like contract has to go all the way from the initial creator
to the recipient. And then the initial creator gets kind of the acknowledgement that it went
through before everybody updates their channel state. But in terms of like can people lose
money, that's where sort of the game theory aspects of this come into play. And it's one
of the reasons why lightning network is a lot more complicated just to think about.
But essentially these transactions that are getting created and updated within the payment
channel have a number of different like logical paths of what could happen, of what the recipients
could be spending the outputs of the transactions. And they're using various things like time
locks using the check sequence verify functionality of Bitcoin. And that basically allows you
to if your counterparty tries to close a transaction or close a payment channel and take money
out of the payment channel, like using a previous state of the payment channel where they had
more money at that time, then it is possible for you to then detect that by seeing that
they spent that specific output and put it out on the main Bitcoin network. And then
there is actually another transaction that you can broadcast, which is called the breach
remedy transaction, which basically says no, I'm overriding you like now that you tried
to spend that and you were no longer allowed to do that. I can actually take that money
back in a different transaction. And it gets kind of complicated like the different logical
branches of what could happen in a adversarial situation. But suffice to say that in a cooperative
situation where both of the counterparties on the payment channel are cooperating with
each other and doing the optimal set of steps back and forth, everything is really fast
and is basically limited by network latency. If you get into some of the adversarial scenarios
where someone is trying to steal money from another person, then basically things slow
down a lot and you start having to basically drop back onto the Bitcoin blockchain and
wait for confirmations to happen before you can be sure that your money is safe again.
So what you're saying is basically they cannot take your coins, but if there is some sort
of an attack, you may have to wait. Yeah. The worst case scenario is if your counterparty
on the other end of the payment channel tries to steal money from you by broadcasting in
a no longer valid state and you're not paying attention for several days, then they could
steal money from you. So one of the things that is required in order for the game theory
of the Lightning Network to work is that you need to be listening for attempts of theft
or fraud. And it doesn't even necessarily need to be you. You can actually outsource
this service to other entities and have them listen for those transactions on the network.
But basically someone has to be listening. You just have to be checking each other's
work. So, and this would be done automatically by the wallets probably? I imagine so. Yeah.
If it had to be a manual effort, then I don't think many people would do it. Exactly. How
about the use case scenario for point of sale terminals? Would this be compatible? Yeah.
I think this is really one of the first cases where point of sale actually becomes feasible.
We had some point of sale attempts in previous years and those were trying to use analytics
of the network itself to try to guard against double spending. And they could get a pretty
high degree of certainty, but it was never cryptographically provable that an unconfirmed
transaction received at point of sale would not be double spent. So this is actually providing
much better security, I would say, for instant transactions at brick and mortar businesses.
And how about machine to machine payments like subscriptions and things like that? Yeah.
In fact, you know, sort of Internet of Things and machine to machine payments is one of
the more interesting aspects, I guess, from an economic theory point of view of like,
we can actually unlock this entire new economy that never really existed before. And it's
interesting to hear some people theorize about what that might look like. We have already
seen some attempts at doing that with like 21 and their micropayment network that uses
payment channels, but not Lightning Network yet, though I'm sure they will eventually
add Lightning Network support. And we even see other entities with other technologies
like Hyperledger I know is very keen on Internet of Things interactions. And I've seen a number
of talks from their folks about, you know, the type of like new economies that you can
create where, for example, you have millions of very dumb sensors, you know, situated around
the world that are collecting data, where each individual sensor on its own is not particularly
valuable. But once you figure out a way to, you know, combine them all and and make that
available in mass, such that you can sell data using, you know, smart contracts, essentially,
you know, time based or data based contracts, then now you can have other machines that
would like to ingest that data that can actually just go back, go out onto the Internet and,
you know, basically look at what would be a new type of information market and buy the
information that they want, ingest it, and if they like it, you know, set up a contract
to continue buying it and whatnot. It's really, it's like the Internet itself, where we, we
managed to create a new way of communicating with each other, which has resulted in the
creation of a great deal of value. And now we're instead building new types of networks
that enable us to communicate economically with each other. So I think it's just unlocking
more value that has just been laying dormant.
And part of this that you're talking about has to do with how small the transactions
can be, right? Yeah. And so, you know, if, if you're trying
to sell data or access to something where you're basically metering it, the current
payment networks where, you know, they might have an overhead of five or 10 cents to do
a transaction, that actually makes it infeasible to do transactions where the value is for
something that is far less than a penny. And now that we get onto these new types of networks,
actually the value of what you can be transacting can even be far below one Satoshi. You can
basically subdivide it out to be as small as you want.
Interesting. So, sub-Satoshi transactions. That's very, very cool.
Can channels stay open indefinitely, theoretically speaking?
Yeah, well, between two parties, you could do that. You mainly have to be worrying more
about the fee situation, degrading channels that are routing value. I think for a number
of different reasons, including channel rebalancing stuff, the average channel is not going to
stay open for that long. It'll be interesting to see how long they stay open. But, I don't
know, I would be surprised if channels are able to stay open for longer than like weeks
or months at a time.
And is there anybody controlling Lightning? Like there are conspiracy theories about Blockstream.
Are there any, are there competing implementations?
Well, there are competing implementations on the same protocol. Last I checked, there
were five or six different implementations. And only one of them is being developed by
Blockstream developers. There is, let's see, there's the Lightning team, which is like,
let's see, Elizabeth Stark and Olalu and maybe a couple of other people. And then there's
the Blockstream team with, I think, Christian Decker and Rusty Russell. And there are some
European teams as well. And we've even got a developer at BitGo who is working on his
own Lightning wallet. So I think there's, you know, more and more people are getting
interested in the technology and creating their own open source projects. So there's
not going to be, I think, any type of monopoly over the software or over the operations of
the network.
That's excellent. And are we, when we're using the Lightning network, are we delegating ownership
of our Bitcoins to anybody?
No. So it's completely non-custodial. And that's really the kind of magical part about
the way that the hash time lock contracts allow you to like route this value securely
through third parties. Like, you are routing it through third parties, but the third parties
don't actually take custody of that money until the entire channel update has happened,
until both of the ends of the sender and the receiver on the channel are satisfied with
it.
Now, you're talking about routing payments hopping around. Now, can I prove to somebody
that I made a payment? Or can they say, oh, I never received it?
Yeah. So you can almost think of it as like the same way that low-level internet packets
are sent. When you're opening a connection on the internet and you're sending some packets,
you actually have to get a response back before you're going to send any more packets. And
it's the same type of thing with the Lightning network, where if you just try to send and
send out some money across the network to somebody and you don't get the correct response
back that proves that they received the data, then you don't update your channel state and
you consider that a failed send and then you might try to route around in a different way.
So even if we used an anonymizing technique, like a type of onion routing to obfuscate
connections, you would still have some sort of a proof that you made a payment.
Yeah, definitely. So each time that you make a payment and you update that channel state,
you will keep track of some of the values that were used to update it. That is one of
the additional things that's required of a Lightning wallet or a Lightning node is that
you do need to keep a local copy of some of that data around. And that's slightly different
from Bitcoin, where because you're broadcasting it on the network and it's going into a block
on everybody's computer, you don't necessarily have to keep redundant copies of it around.
Sounds great. Now, some people are saying that now with the Lightning network, Bitcoin
will no longer be peer to peer. My thoughts on that was that in the regular Bitcoin network,
it's not, I'm not sending money straight to you like it's going, the transactions are
being put into the blocks by the miners, they're being relayed by the nodes and SPV wallet
operators are also involved. It is still peer to peer, but you have different participants
participating in the maintenance of the running of the network. Is Lightning any different
node? I would argue that Lightning is more peer to peer than what we're seeing currently
in Bitcoin, where the vast majority of Bitcoin users are not using Bitcoin in a peer to peer
way. They're probably using a centralized service like Coinbase or an exchange and just
using a web interface or using a mobile wallet that uses a centralized API. Only really the
users that are running their own nodes or running an SPV client, I guess, would be considered
to be using the peer to peer Bitcoin. Even a lot of BitGo users, for example, are just
using our API and then they're basically relying upon our nodes to do the peer to peer
aspects. There are ways where you can still be running your own Bitcoin node and using
a centralized API and then having that double check to make sure that you're not trusting
anybody. But if you're using the Lightning network, then you really are having to get
onto the peer to peer network. Though I suspect there will still, that's if you're using a
Lightning wallet, though there will be people who, I guess, unintentionally use the Lightning
network. For example, I expect that a lot of these exchanges will end up hopping onto
the Lightning network themselves and so there will be users of centralized services that
are doing stuff on the centralized service and then the centralized service actually
sends out transactions via the Lightning network if it's deemed possible to do so.
Awesome. Another fear that people have is that their Bitcoins will be locked for a certain
amount of time. Can a channel be closed at any time or can you pull out sort of an agreement
with a channel with a hub? Yes. So kind of like we mentioned earlier, there
are multiple paths for closing channels. There's the cooperative way of doing a channel closure
and then there's uncooperative, like fraudulent ways. But at any given time, if your counterparty
of the channel is online and responding to you, then you can cooperatively close the
channel instantly and basically create that closing Bitcoin transaction that you broadcast
out and then you just have to wait for it to get confirmed on the network. But regarding
the sort of view of Bitcoins being locked into the Lightning channels, there's two different
ways where you can look at this and one of them is that you're locking up your Bitcoins
on the Lightning network. Another way of looking at it is you're freeing up your Bitcoins to
be available on the Lightning network. In the early days, it will probably feel more
like you're locking them up because there may not be as much value and utility and the
network effect of the Lightning network is probably going to be a lot smaller than Bitcoin
itself. But eventually, if Lightning becomes as well accepted and as popular as we hope,
then in fact, the Lightning network should have greater utility and value and so you'll
actually be freeing up your Bitcoins to be more useful by putting them into payment channels.
And when you pull them out of Lightning, you'll be locking them up or putting them in cold
storage or something like that. Exactly. Okay, cool. Now talking about privacy a little bit,
how will Lightning improve privacy? Specifically, we've seen that Chain Analysis is selling
data to the IRS and things like that and some people are concerned about that.
Yeah, so there will still be the same type of on-chain privacy problems where you will
have services that are trying to analyze what's happening on-chain. There are a couple different
potential things we can speculate about is that first of all, when you're doing a Lightning
network transaction, you aren't telling the entire world about it. You're only telling
a small subset of maybe 3 to 5 to 10 users on the network. But even those hops along
the network that are routing the money for you, they don't know the original destination
or the origination and the final destination. Each hop that is routing money only knows
the previous hop and the next hop. So that's where the onion routing comes into play with
encrypting that data. But there will also be some new potential in terms of privacy
for cross-chain atomic swaps. So if you could do an atomic swap between Bitcoin and Monero
or Zcash or Litecoin or whatever, then there's not really going to be any way that I'm aware
of that a third party global surveillance actor would be able to detect that unless
they were the counterparty that was doing the swap with you. So I think there will be
some interesting new technologies. We may even see new types of mixers pop up or new
type of atomic swap mixers pop up. It will be interesting to see how it evolves.
So for those viewers that don't know, an atomic swap is when you can do a currency swap without
an exchange, right?
Yes. It's completely cryptographic based swap without any third party required.
That's really exciting. Could that be done in the background? You just choose to patronize
a privacy centric lightning wallet and your payments get routed and obfuscated that way?
Yeah. I don't know how much you would want to automate the actual atomic swaps across
chains. I would think that in general, it would be more of a one time or occasional
thing where you might want to swap into a cryptocurrency that has better privacy on
chain, potentially move around some there and then eventually come back to Bitcoin or
whatever.
Cool. And how about we briefly touched on it, but how about onion routing?
Yeah. So that's basically one of the strong privacy aspects that were built into the low
level lightning network.
So it's built in already.
Yeah. I forget. I think it's based upon Sphinx, if I recall correctly, which is this other
onion routing protocol. It's basically how we're encrypting the data inside of each transaction
and it's getting forwarded along that routed chain of nodes that is hop by hop sending
it closer to your final destination, but it's using some secret values so that along the
way each hop only knows the one previous hop before and the next hop, but not the entire
full path of the chain itself. So much more harder for an actor that is sitting on the
network and trying to listen to data to be able to tell what the full flow of money is
on the network.
And would this type of routing be potentially vulnerable to like, I don't know if you remember
that hack. I don't remember if it was the CIA or the FBI that owned a bunch of Tor nodes
and then they were able to unmask certain traffic.
So I don't think it would be as bad because I think that the issue with Tor is that if
you had enough exit nodes, then you can help. You can basically de-anonymize a lot of traffic,
but because there isn't, you know, that really that concept of like entry into the network
and exit from the network, I don't think that particular type of attack would be true. However,
you know, if an attacker, I guess, was running like the vast majority of routing nodes on
the network, then they could potentially start to figure out more of the paths by trying
to fill in the gaps, I guess, of the flow of money. But I think that would require running
quite a few nodes, not just exit nodes, but basically like taking over the entire network.
I see. And you touched upon the atomic swaps. Does that mean that you could actually make
payments in altcoins to third parties?
I don't think that anyone has actually written that quite yet to be fully automated. We're
still at the stage where a lot of the atomic swaps are, you know, being very manually constructed,
but I think it's only a matter of time before we see that type of payment processor where
I could, like I know there are already some on-chain payment processors that accept like
any altcoin and will, you know, automatically convert it for you. I think, you know, ShapeShift
may even do payment processing like that, and it would not be a stretch of the imagination
for them or other payment processors to offer the same type of service but through Lightning
Network instead.
Cool. And in general, how far along in development are we? When can we expect to see a live Lightning
Wallet?
Yeah. Well, there are already live Lightning Wallets on testnet, so we're pretty far along
in that regard. I would expect that, you know, we'll start to see people playing around with
them on the main network, you know, within the next few months. But then the real question
is, you know, when is Lightning going to be ready for mainstream, you know, consumer day-to-day
use? And that is a more difficult question to answer. From that perspective, I think
it's very early. I would be surprised if, you know, Lightning Network is extremely popular
and well-used, you know, in less than a year. You know, we're talking more along the like
year, two-year, you know, multi-year timeframe simply because we're building a new network
and there's going to be problems and we're going to have to fix problems and just incrementally
improve it until everyone is comfortable enough with both the cryptography and the game theory
and the operational aspects of it that we're confident that it's a production-ready network.
Yeah, it seems like people want to hear a date, but it seems like it's going to be more
of a gradual thing, just like with Bitcoin, right? That it was hard to use at the beginning
and then slowly things become easier to use. But there are already testnet wallets that
we can use, right? Yeah. And so, you know, it'll be easy to make
it work in the optimal scenarios, but it's the edge cases where, you know, you see, you
know, hardware or software failures and being able to gracefully handle those failures,
like that's the hard part where I think most of the engineering effort will end up being
is to make sure that we can have, you know, graceful degradation of the network and make,
you know, automatic maintenance to fix problems with the network. And so, you know, Bitcoin
itself has, it has not grown and matured on its own automatically. Like there has been
a lot of engineering effort over the years to improve Bitcoin to get where we are today.
And I know that a lot of people are dissatisfied with the current state of Bitcoin because
of high fees or full blocks, slow confirmations, whatever. But if we had not had the massive
amount of effort that had been put into it over the past few years, it would actually
be a lot worse than it is right now. So we're going to see that same type of thing happen
with Lightning Network where, you know, over the years, more and more engineers manage
to basically button up all of the edge cases to make sure that is really a production quality
reliable network.
Well, I really hope that we end up having success problems like in Bitcoin, like the
problems that we're having in Bitcoin have to do with the success that it has had. So
that's my personal preference, right? So now when it comes to implementing the Lightning
project, do we need consensus? Are we going to need any sort of Bitcoin network consensus
into a soft fork or hard fork to achieve this?
Well, so it was using the payment channels on the Lightning Network were using various
functionality like check sequence, verify, lock time functionality, where that got activated
over a year ago, I believe. And then the only thing that it was waiting on was for segregated
witness to get activated so that we had the third party transaction malleability fix.
So at this time, all of the functionality that is required at the Bitcoin blockchain
level is there. We don't need any more changes to Bitcoin itself in order for Lightning Network
to function as intended.
Cool. And why would you need to have capital in like BTC in order to run a Lightning node?
Well, because essentially what you're doing is you're creating this channel that has a
value at two different ends of the channel. And it can start out with zero at one end
and a lot at the other end. But I think preferably you're going to want to see it more like a
50-50 weight. And then as you're making these transactions over time, what you're really
doing is you're updating the channel and saying, I'm moving this amount of value over here,
or I'm moving this amount of value back over here. And so all you're really doing is moving
value back and forth between two different points. And this type of technology has been
around since like 2011, I think, when it was implemented in BitcoinJ. And it's not that
particularly interesting. But what's interesting about Lightning Network is it takes that low-level
concept and then creates other channels that are connected. And so now you have this whole
network of channels that are doing that same very simple updating back and forth, back
and forth, but in a way that you can say, update this and then update this and route
it all the way around. So it's just a requirement at a very low level for the network to be
able to have a flow of value. I see. And how about let's say that you have all your money
in a Bitcoin wallet, sorry, in a Lightning wallet, and for some reason, you need to make
an on-chain transaction. Would there be a way with a third-party service to generate
such a transaction where it settles actually on-chain? Yeah. So there's multiple different
things that you can do. I think the most obvious one would be that we'll probably see services
where they will accept a Lightning payment and then create an on-chain transaction for
you. They may, you know, I could envision someone running a service that is well-connected
that accepts all kinds of Lightning transactions and then creates like a bulk, you know, many
output on-chain transaction. And then, you know, they'll probably take a fee for the
ability to do so. There's also more complicated ways that are more theoretical that I've only
heard about recently of ideas of ways that you might be able to shave off some value
from the payment channel itself and create an on-chain transaction. And would you need
a certain level of trust, just like we do with Coinbase or ShapeShift or whatever, in
order to achieve this? So for the first one, I would say so, yes, because essentially what
you would be doing is sending your money to a custodian with the expectation that they
would then create the on-chain transaction. With the second one, which is going to be
more complicated, you would just be doing it yourself. So that would be trustless.
Cool. Well, Jemison, I don't know if there's anything else you wanted to add to this interview.
I thoroughly enjoyed it. I think there's a lot of misinformation about Lightning and
it's great that you have come on to clarify a lot of these things. Is there anything else
you want to add? No. I mean, it pretty much comes down to what
we were just talking about of this is an ongoing project. You hear a lot of fear and pessimistic
worst-case scenario type of situations that are highly speculative. But I think that those
of us who are going to be working on this technology are going to be aware of those
worst-case scenarios and actively working to prevent them from happening.
Sounds great. Well, again, thank you so much for participating. Take care.
It's been a pleasure. Bye.