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Lightning Only? Scaling Bitcoin Might Require A Whole 'Nother Layer

Researchers are putting new effort into developing bitcoin’s Lightning Network.

With the Segwit2x hard fork – which looked to increase the bitcoin block size parameter to 2MB – suspended, ETH Zurich researchers Conrad Burchert and Roger Wattenhofer and Blockstream engineer Christian Decker have proposed a more scalable version of the payments channel scheme, believed by developers to be the best way to expand bitcoin to accommodate more users.

Sometimes called bitcoin’s “layer two,” Lightning hasn’t yet been pushed live onto the bitcoin blockchain, but proponents of the idea see it as a way to boost bitcoin’s transaction capacity without increasing the block size (as bitcoin cash, which forked off bitcoin in August did).

In a new paper called “Scalable Funding of Bitcoin Micropayment Channel Networks,” however, the three developers now envision even another layer, one that would be sandwiched between the bitcoin blockchain and Lightning, which they think would overcome Lightning’s existing limits.

Perhaps most notably, the researchers argue that limit is somewhat defined by the bitcoin blockchain itself, which, capped at 1MB, can’t support infinite Lightning channels. After all, users must complete bitcoin transactions and record them on the blockchain each time channels are opened and closed.

In this way, Decker, pointing to existing research, suggests there’s an upward bound on just how many Lightning Network transactions are feasible today.

He writes:

“It turns out, it’s not that many. It’s a few million every week, which is still a long ways from serving the full Earth’s population.”

And while this isn’t a problem right now, it could lead to issues in the future – scaling issues that continue to be a hot, and contentious topic in the crypto community.

Channel ‘factories’

To understand what the new layer would provide, it’s helpful to compare the proposed layer to the way Lightning functions currently.

Today, a user must open a new Lightning “channel” with another user through a regular blockchain transaction. Once that’s established, the two users can make as many off-blockchain transactions as they want or are able to with the initial amount of value they put into the channel.

The new proposal, which Decker called “Lightning extended,” utilizes so-called “hook transactions” to move funds into a multi-party channel capable of supporting more than just two users. The paper calls this a “channel factory.”

The method allows two people in a multi-party channel of say four or six, or as many as 15, to start a separate isolated channel within the main channel.

While it sounds a bit complex, the mechanism allows the two users in the isolated channel to close that channel and be dropped back into the multi-party channel, where they could then open another isolated channel with someone else. And all this is done without going back to the blockchain and incurring the transaction fees associated.

In this way, users could hypothetically open and close channels several times without ever making an on-chain transaction.

“The only thing the blockchain needs to know in the end is where the money ends up. So, if we have many intermediate states, we don’t have to publish them ever. Instead, we just make a transaction that everyone signs. This is the only thing that goes to the blockchain,” Buchert, the lead author of the paper, explained.

He continued, “It offers more flexibility, basically.”

According to the authors, the channel factories will lead to reductions in cost, comparable to the number of people in the multi-party channel. For instance, a 100-person group would lead to a 90 percent reduction in costs, compared to 100 traditional payment channels, the paper explains.

Still far away?

While the benefits seem attractive, the authors contend there’s still a way to go before the project is finalized.

For one, the developers said, the technology would perform better with if another long-proposed technology, Schnorr signatures, was added to bitcoin.

Whereas channel factories are currently limited to groups of 15 people, with Schnorr signatures, users could open up groups of an unlimited size – scaling Lightning even further.

Although there could be downsides to larger groups, in that one user could spoil the channel for everyone else by sending a transaction from the inside to the bitcoin blockchain. According to Burchert, developers and users will have to experiment to see how many members per group works in a real-world setting most effectively.

Plus, with Lightning still in the testing phase, Burchert said that channel factories can’t jump to the front of the line.

He told CoinDesk:

“There are far more important things to work on right now, like getting the Lightning Network online. We’ll need [channel factory] technology when we have millions of channels, but we’re far from that right now.”

And when that time comes, Decker said it can be integrated more easily because Lightning sits on top of the bitcoin protocol, and so shouldn’t give rise to much conflict when upgrading.

“While we don’t plan to implement this right away, this could be a potential upgrade later on, without any disruption to the network,” Decker concluded.

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Blockstream.

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Bitcoin Classic Announces Closure In Wake of Segwit2x Suspension

Proposed bitcoin scaling solution Bitcoin Classic has announced it will be closing its doors, claiming bitcoin cash is now achieving what the project set out to do.

Speaking in a blog post, release manager for Bitcoin Classic, Tom Zander, said that, given the suspension of the Segwit2x hard fork, bitcoin’s scaling problem will continue, and the functionality of bitcoin cash will likely surpass that of bitcoin.

Zander wrote:

“In at most 6 months I’m sure we’ll just drop the ‘Cash’ and call it ‘Bitcoin’.”

Initiated in 2016, Bitcoin Classic’s stated goal was to increase bitcoin’s transaction capacity by raising the block size from 1MB to 2MB, however, it failed to gain traction as a bitcoin alternative.

Now, through bitcoin cash, which allows for adjustable block sizes and a default of 8MB, “Classic has fulfilled its promise,” the post states.

Earlier this week, the team behind controversial scaling proposal Segwit2x said it will not proceed due to a lack of consensus surrounding the hard fork.

Due to this decision, Zander wrote that the those behind the so-called “legacy chain” (Zander’s term for the bitcoin blockchain), “would rather go down with their ship” than upgrade the software to keep up with the rising numbers of transactions.

As such, he said, Classic will cease operations “in a matter of days or weeks,” urging all miners and nodes currently supporting the network to immediately migrate to an alternative.

Earlier this year, bitcoin activated a scaling solution called SegWit, which increases transaction quantity without raising the block size, and paves the way for future off-chain scaling solutions. However, the impact this has had on the network has so far been minimal, leading some to criticize the software.

While this has been attributed to a lack of adoption in the industry, Zander states that bitcoin’s failure to increase the block size limit merely “confirms the Cash chain’s viability.” With this perspective, Zander joins others in predicting that bitcoin cash will flourish following the Segwit2x cancellation. He concluded that regarding the future of bitcoin, “the market will decide.”

Road closure image via Shutterstock

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Money at Risk? Mobile Wallets Become New Battleground in Bitcoin Fork Debate

Mobile bitcoin wallets users might not realize it, but their money might be at a heightened risk this November.

While advertised as a tool bitcoin users can tap to achieve an experience more akin to a conventional financial product, mobile bitcoin wallets today send transactions to the bitcoin blockchain, though in a way that differs from the default wallet options. But come November this construction could cause turbulence, because that’s when the bitcoin protocol is aiming to undergo yet another major change to its software.

Following this summer’s activation of the code upgrade SegWit, a group of businesses are now seeking to trigger a hard fork to increase bitcoin’s block size and further expand its transaction capacity. The code, part of a larger upgrade called Segwit2x, could lead bitcoin to split into two (again), that is, if not everyone decides to support the upgrade.

Still, the difference is that, unlike bitcoin cash, Segwit2x’s developers are doing everything they can to keep all bitcoin users on the same blockchain.

Segwit2x lead developer Jeff Garzik told CoinDesk:

“The design goal of Segwit2x – just like [the latest] ethereum fork – is to upgrade bitcoin, not create a new currency.”

To do so, developers backing the project also have made a couple of key (if controversial) design decisions that have to do with maintaining compatibility with “simplified payment verification” wallets, the technical term for smartphone-based bitcoin wallet applications.

But developers argue that there are pros and cons of how they are trying to accomplish this.

For one, it might not exactly be safe for mobile wallet users to make transactions immediately after the hard fork is enacted.

Attack resistance or convenience?

The first design decision is omitting so-called “replay protection.”

A bit of a political term, it’s meant to describe what happens when a blockchain splits in two, as users suddenly have equal value on both blockchains. This means that when users move tokens on one blockchain, the tokens also move (or “replay”) on the other.

But this isn’t visible to people who might not know that they have money on two networks during a network split. Worse case: users might lose some of their money and not even notice.

“It becomes unpredictable what money you’re moving and when,” Bread Wallet CMO Aaron Lasher explained in conversation with CoinDesk.

Since not everyone agrees with the Segwit2x hard fork – some are even going as far as to write up manifestos in opposition – it’s likely to split into two competing networks, and this could be confusing for general users.

However, Segwit2x developers have a reason for leaving replay protection out: to keep Segwit2x compatible with SPV mobile wallets.

“‘Replay protection’, as you call it, splits the chain. It simply doesn’t make sense. You’d suddenly be breaking [more than 10 million] SPV clients that otherwise work just fine. It is a goal of Segwit2x to help avoid this,” BitGo CEO Mike Belshe wrote in an email debate between developers of the project.

In other words, replay protection would cause inconvenience for mobile wallet users who want to shift over to the Segwit2x blockchain, so Segwit2x developers don’t plan on adding it.

Hard fork decisions

Mobile wallets are the subject of debate in another area as well.

Many providers of this wallet option, such as Electrum and Bread Wallet, rely on SPV. This does away with need to hold a full copy of the blockchain, making the data far easier to store on storage-strapped cellphones.

But, they have some drawbacks. (Coinkite co-founder CEO Rodolfo Novak went as far as to quip that “the ‘V’ in SPV stands for Victim.”)

As implemented today, SPV wallets will automatically follow whatever version of bitcoin has the most miners backing it. So, if bitcoin splits into two, and Segwit2x attracts more computing power than the legacy bitcoin chain, then all of the SPV wallets will follow along. That’s by design.

But some mobile wallet providers aren’t so happy about this, as it’s hard to explain to users what’s happening.

“It’s really tough for us because we are so direly affected,” said Lasher.

This also has the potential to lead to some technical problems. If there are two bitcoins, mobile wallet software might get confused about which chain to follow, especially if miners switch between blockchains over time (as happened in the aftermath of the bitcoin cash fork).

“It could confuse SPV clients and result in clients switching back and forth between chains, making them lose money depending on which chain has more work at what point,” Chaincode engineer Matt Corallo said.

Novak painted another scenario.

“With SVP you don’t know if the node you are connected to is lying to you. For example, a Segwit2x node can spoof as a [bitcoin] node [on the other chain], this means that without replay protection your wallet may spend the funds in the wrong chain and lose them on the correct chain,” Novak told CoinDesk.

Overall, developers paint an assortment of “if-then” scenarios. Lasher admitted as much, noting that it’s unclear which ones will actually play out.

“It’s really this decision tree of many, many things that can happen. And all of them are on the scale of somewhat annoying to downright dangerous,” he said, adding that Bread Wallet plans to encourage users to stop making transactions during the hard fork, “if they can manage.”

A solution?

But with disarray at the application layer, protocol developers have been arguing about how best to handle what might come.

Bitcoin contributor James Hilliard, well-known for helping to prevent a bitcoin split earlier this year, suggested a change to the Segwit2x codebase that he argues would give mobile wallets more control over the which bitcoin they ultimately land on.

Again, though, Segwit2x developers argue that this change would make it more difficult for users to transition to a blockchain with a block size increase – something they believe many users want to do, so that they can make cheaper transactions. (Garzik argued that is the most “neutral” metric for determining which chain SPV wallets should follow.)

But, again, others believe that this will confuse users and perhaps even lead those that are unaware of the situation to lose money.

Some developers even agree that there needs to be a block-size parameter increase, but simply disagree with some of Segwit2x’s design decisions.

As such, the statements highlight that, while often portrayed as black and white, the scaling argument still has its shades of gray.

Lasher concluded:

“There might be some merits to a block-size increase. But we don’t agree with the current way it’s being pushed through.”

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which helped organize the Segwit2x proposal and has an ownership stake in BitGo.

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The leader in blockchain news, CoinDesk is an independent media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. Interested in offering your expertise or insights to our reporting? Contact us at

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Craig Wright Agrees Hodling Bitcoin Is A Waste of Time

Self-professed Bitcoin “creator” Craig Wright has agreed with a New York banker that there is “no really good reason” to ‘hodl’ Bitcoin.

Wright, who has divided the cryptocurrency community with his often provocative statements, was responding to comments by Federal Reserve Bank of New York assistant vice president Asani Sarkar during a presentation on Bitcoin.

“He is correct,” Wright wrote on Twitter after Sarkar rubbished holding Bitcoin “in and of itself.”

“Bitcoin is valuable as money, cash. As a pure settlement system, it is clumsy and inefficient.

The perspective challenges a widely-held belief in the cryptocurrency community that simply hodling coins will produce better profits than short-term trading. 

Nonetheless, the views contrast with recent statistics from even mainstream media, demonstrating the benefits of sitting on coins (565 percent returns) over shorting them (295 percent returns).

Wright nonetheless remains committed to his alternative to Bitcoin scaling, nChain, of which he is chief architect.

Alternative Bitcoin scaling

This week, partnership details surfaced with Bitcoin Unlimited, in which the two parties will test 1GB blocks and transaction capacity of 3,000 per second, similar to Visa.

If successful, a release says, Bitcoin Cash will form the testbed for any changes.

“We hope our efforts with BU inspire even more Bitcoin ecosystem players to work together – rather than fight each other – to advance Bitcoin’s role as the dominant cryptocurrency,” nChain Group CEO Stefan Matthews added in a release.