Title: LIGHTNING IS DOOMED

Author: Shinobi

Compiled by: Luccy, BlockBeats

Editor’s Note:

In an email dated October 16, 2023, the risks of fund loss faced by Lightning Network channels were mentioned, primarily arising from issues in the transaction pool. Self-taught educator in the Bitcoin space, Shinobi, analyzes some challenges and issues within the Lightning Network, particularly those related to high fees, transaction confirmations, and double spending.

Through a review of the original white paper and a detailed analysis of the network architecture and potential issues, Shinobi offers some insights into the future development of the Lightning Network. He believes that people's expectations of the Lightning Network are akin to hoping to buy coffee on-chain at an affordable rate, which is just like trying to fit a square wedge into a round hole. Although the Lightning Network may hit a dead end due to its scalability limitations, that does not mean it will fail; rather, it can become part of a settlement layer upon which other things are built, just like the blockchain itself.

The Lightning Network is doomed to fail. The high fees from Ordinals have stifled all hopes of scaling Bitcoin in a non-custodial manner, leaving little opportunity for people to open channels affordably or to execute pending payments on-chain when necessary. It’s all over; everyone can pack their bags and leave. It’s time to wander around and decide which platform, Coinbase or Cashapp, better suits our Bitcoin needs, as we can no longer operate directly on-chain in a high-fee environment.

The past was enjoyable. We will always have the pixelated images of private parts that appeared on Lightning Art Station, along with that meme of the Lightning Torch, during a time when everyone was afraid to send it to countries only inhabited by bad actors, while we continuously made Lightning payments from one custodial account to another. We are about to enter the era of the walled garden!

If you think I’m serious about what I just said and agree with it on any level, then go look in the mirror and give yourself a hard slap.

Excluding the Gaslight Smoke

The original Lightning Network white paper clearly states in its conclusion that for 7 billion people globally to open two channels each year, Bitcoin needs 133 MB blocks.

Section 9 of the white paper is titled "Risks," and this entire chapter details all the major issues that people believe are the reasons the Lightning Network is "doomed to fail" due to high fees. The first section of the paper discusses the time lock window, where "improper time locks" actually refer to the dynamics between fees and confirmation times that have recently garnered significant attention. When you make a payment over the network, you can define a successful path based on the hash lock preimage and a recovery path based on the refund time lock window. If fees become higher, to ensure that the preimage cost (successful transaction) does not fail to confirm before the refund transaction becomes spendable, the refund time lock window needs to be longer.

In other words, if you must confirm the payment on-chain, then the time lock on the refund path must be long enough for you to confirm the successful payment path before the other party requests funds via the refund path. As fees increase, this time lock window needs to become longer because the higher the fees, the lower the transaction fee for pre-signed channel closing transactions may be, to the extent that the confirmation speed may not be as fast as you expect when you pre-sign them.

Many people feel very anxious about this dynamic, as if it is some new cognition that marks the doom of the Lightning Network. In reality, this was clearly described in the original white paper as a risk in the first version of the Lightning protocol. It even explicitly describes the trade-off of opportunity costs from an economic perspective: "There exists a trade-off between longer time locks and the time value of money."

The next section is titled "Forced Expiry Spam," which describes the general concept of flooding and raiding attacks. If fees are too high, refund transactions could potentially succeed in double spending path transactions when something needs to be executed on-chain, leading adversaries to open a large number of channels and close them all on-chain at once. If you have a large number of channels in the process of making payments and you close them all at once while pushing fees to a sufficiently high level, then each counterparty of each channel must confirm the successful payment on-chain. If fees are pushed high enough to make time lock transactions valid before the successful transaction with the preimage is confirmed, they may find themselves caught in a race of double spending.

If you open enough channels and push fees to a sufficiently high level, you can profit from it. This was actually described in the white paper as a structural concern. Such attacks were described in various versions of the white paper between 2015 and 2016, but it wasn't until 2020 that they were formally modeled and introduced into the news cycle of the field.

The white paper describes scenarios of data loss, such as losing pre-signed closing transactions and old state penalty keys, which would allow malicious channel counterparts to steal your funds upon realizing this. It mentions the inability to broadcast penalty transactions and the potential for watchtowers as third parties being paid to observe the blockchain and submit these transactions on your behalf. The white paper explicitly describes miner censorship of channel penalty transactions as a risk and suggests miner anonymization (and implicit decentralization) as a mitigation against this risk.

But these are all new perspectives. The Lightning Network is doomed to fail because no one foresaw the emergence of these issues.

This Is You Idiots’ Blockchain

Well, I guess we can only admit that we have lost historical context, lost rationality, and lost logic. We live in a reality where we must pretend that the warnings of history do not exist, where no one points out the obvious problems that the future is destined to face, and everything is a completely unknown territory that no one has considered how things would develop.

What is the title of Section 9.6? Inability to perform necessary soft forks.

The original white paper clearly pointed out the risk of being unable to coordinate soft forks for the success of the Lightning Network. Are you surprised? Have you never read it before? Personally, I have a sense of déjà vu.

I remember years ago, a large group of Bitcoin supporters screaming that the blockchain itself was reaching its scaling limits, and unless we fundamentally changed the nature of the decentralization trade-offs of the system, it would fail. If people cannot directly submit all transactions and get confirmations affordably, the blockchain is fundamentally useless.

When people began to argue about the economic benefits of scaling the blockchain, the entire foundation of the Bitcoin ecosystem was thoroughly shaken, which was essentially the entire reason for the block size wars. What was at the core of this chaos? People’s expectations of what role the blockchain would play in the ever-evolving Bitcoin ecosystem. Everyone expected to buy coffee on-chain at affordable rates; otherwise, Bitcoin would be a complete failure.

Those holding this mindset completely misjudged the entire situation. They tried to fit a square wedge into a round hole. This is exactly the same as the situation with the Lightning Network.

Square Wedge, Round Hole.

People's judgment of the blockchain is actually a serious misjudgment; it is merely a place for handling channel openings and closings, not a place for buying coffee. However, it is almost impossible to misjudge the Lightning Network; it is definitely the place for placing coffee payments. You see, how ridiculous does it sound when you say that in the right context? The Lightning Network has issues with enforcing on-chain payments, and if the value of the payment is less than the fee to submit the transaction on-chain, that is a problem. Trying to enforce it on-chain makes no economic sense; this is a very well-known issue. Essentially, this is almost the same issue as low-value payments occurring directly on-chain, except in an optimistic scenario, things would proceed normally because people cooperate off-chain. But problems arise when they do not cooperate.

This problem is so well-known that there have been many debates about solving it for years, involving different trade-offs and sub-payment methods. If an HTLC is too small to enforce on-chain without trust, you can flow payments in a trusted manner one sat (or larger sats chunks) at a time. If someone at a hop point decides to steal a sat from you, the flow stops, and you choose another route. This idea means that while it is a trusted payment mechanism, you can only lose a little sats in the channel for on-chain payments; if someone steals from you during a payment, you simply stop routing through those nodes. This quote is from 2019, but this idea had been discussed long before that.

The Lightning Network has a problem! And for this problem, most readers may have never heard of a solution. People seem to think that all these problems that are about to collapse the sky have been fully understood since the inception of the Lightning Network. This raises a question: have we been wrong again?

It is not that it is wrong in the sense that the Lightning Network is doomed to fail, but rather that it is wrong in the sense that the Lightning Network will not be used long-term as we initially thought, just like the blockchain itself. We have seen the Lightning Network dominated by custodial applications, and people are working hard to deploy things specifically designed to sit on top of the Lightning Network. At first glance, Chaumian ecash mints, Uncle Jim setups like LNBits, where people have custodial accounts on someone’s Lightning node. We even have proposals like Ark being built in the proof-of-concept phase on Liquid, which can interact atomically with Lightning payments.

What if the Lightning Network does not become the killer protocol for consumers to directly interact with for online payments? What if, like the blockchain itself, it ultimately just becomes part of a settlement layer upon which other things are built?

Would that be the end of the world? Would that be the failure of the Lightning Network? I think absolutely not. From the very beginning of Lightning Network development, its scalability limitations have been very apparent. The white paper actually mentioned the lack of support for future necessary soft forks as a limiting issue for the potential scalability of the Lightning Network. That is by no means the end of the world, nor is it the failure of the Lightning Network.

The Lightning Network is proving that it can serve as an interaction layer between different custodial parties, and it operates very smoothly and efficiently in this regard. There is absolutely no reason to believe that the Lightning Network cannot function as a similar connective layer for other systems with superior trust models than explicit custodianship. If channels are not something individuals can cost-effectively use for their daily spending activities, that does not mean they are not cost-effective for LSPs running new protocols outside of Lightning and connecting with each other, thus allowing their users to interact. Arks, Statechains, and any new ideas that people will develop in the coming years.

It can become a translation layer for other systems, expanding the ability of end-users to onboard and transact on these layers, just as we ultimately realized the blockchain would have to become. There is nothing wrong with that.