Hey Reddit, throwaway account. I'm currently doing some research for an article I hope to have published later this month. I have a very, very rough draft at the moment and your feedback would be lovely. The Elephant in the Room
Bitcoin is an enigma. It has renowned economists like Paul Krugman entirely perplexed whilst Silicon Valley CEO's are falling over one another to get a piece of the action. The headlines change on a daily basis: “It's A Ponzi Scheme!”, “It's Gold 2.0!” , “It's A Bubble!”, “It's The New Internet!”.
As a result of these, often conflicting articles, it's value shoots up and down like a yo-yo, swinging wildly to the slightest bit of news, good or bad.
Of course, these swings wouldn't be so exaggerated if there was a simple way to address the elephant in the room...is bitcoin legal?
Government officials have been oddly quiet in addressing this question. Aside from some rudimentary FINCEN guidelines and a vague ECB report, there's been no statement one way or another about its legal status.
Whilst I can't provide any definitive proof as to what decisions have and are being made behind closed government doors, I do think it's just possible we already have enough circumstantial evidence to suggest that the US government has already given Bitcoin the thumbs up. Satoshi's Lament
Back in December 2010 Satoshi was involved in a heated discussion amongst Bitcoin developers on BitcoinTalk as to whether they should support Julian Assange by offering Bitcoin as a means to bypass the notorious banking blockade that had rendered Wikileaks' cash reserves impotent. Bitcoin's creator, Satoshi Nakamoto, was extremely wary that any association with Julian and Wikileaks would 'bring too much heat' to the project.
“No, don't 'bring it on'” he pleaded with his fellow developers. “The project needs to grow gradually so the software can be strengthened along the way.” He went on to clarify. “I make this appeal to WikiLeaks not to try to use Bitcoin. Bitcoin is a small beta community in its infancy. You would not stand to get more than pocket change, and the heat you would bring would likely destroy us at this stage.”
By 'destroy us', he was likely talking about a government or corporation pulling the trigger on this nascent project. Amongst other things, Satoshi was fearful that if a nefarious entity such as a commercial bank got wind of the project, at that point in time they could have easily compromised the project by purchasing enough computing power to overrun the network (known as a 51% attack).
Despite Satoshi's protestations, Wikileaks went along and adopted Bitcoin and, it seemed Satoshi's worst fears were confirmed when, just 4 months later in April 2011, Gavin Andresen (now lead developer at the Bitcoin Foundation) announced that the C.I.A. had contacted him.
“I'm going to give a presentation
about Bitcoin at the C.I.A headquarters in June at an emerging technologies conference...I accepted the invitation to speak because the fact that I was invited means Bitcoin is already on their radar, and I think it might be a good chance to talk about why I think Bitcoin will make the world a better place. I think the goals of this project are to create a better currency...I don't think any of those goals are incompatible with the goals of government.”
Satoshi disappeared shortly after.
Gavin recently spoke to the New Yorker about the event. "...I think people realized once I got invited to speak at the C.I.A. that there was no kind of hiding. They, whoever “they” are, already knew about this project." [Source: http://www.newyorker.com/online/blogs/elements/2013/04/the-future-of-Bitcoin.html
] The Silk Road Goes Live
2011 also saw the release of the notorious 'Ebay for Drugs' website, Silk Road. It received much press attention, first breaking in June via Gawker where a developer described his experience of buying LSD through the site as "Kind of like being in the future". It was clear that the Silk Road was where Bitcoin would find its first major real-world trading niche and it's not a coincidence that the BTC price, client downloads and trading volume began to skyrocket after its inception. [Source: http://gizmodo.com/5805928/the-underground-website-where-you-can-buy-any-drug-imaginable
A week after the Gawker article, Senator Chuck Schumer called a press conference where he went on record demanding that the Silk Road be shut down “Something must be done about Silk Road...Literally, it allows buyers and users to sell illegal drugs online, including heroin, cocaine, and meth, and users sell by hiding their identities through a program that makes them virtually untraceable...[it's] the most brazen attempt to peddle drugs online that we have ever seen. It's more brazen than anything else by lightyears." he told the assembled press.
As an aside, it is worth noting that the program that “hides user identities” is TOR, developed by the US Naval Research laboratory and endorsed by Senator Hilary Clinton (Schuman's former co-Senator from the state of New York) as “an important tool for freedom of expression around the world”. Indeed, the TOR Project claims that over 80% of its funding in 2012 came directly from the U.S Government [Source: Tor Project Annual Report 2012] The Radar Screen Lights Up
Suddenly, thanks to the Silk Road and Wikileaks, Bitcoin was now on the radar of those in public office. The question on everyones lips must have been “How do we kill Bitcoin (and by extension Wikileaks and Silkroad)?”
The C.I.A, thanks to Gavin, were now fully aware of the threat Bitcoin posed to the the current monetary system, and the illegal activities it was funding via Silk Road and other places would have done nothing but confound their concerns (or so you would think). They must have also known (just as Satoshi did) that if there was ever an opportunity to kill Bitcoin (either with regulation, criminal proceedings and/or a 51% attack) then it was back then, in 2011, with the network still in its infancy, that they should strike.
We should have expected the kind of domain seizures that we saw with the likes of Megaupload; Bitcointalk, Bitcoin.org and the Bitcoin Foundation should have been wiped off the map. They could have also moved with the banks to shutdown any accounts seen to be associated with Bitcoin trading (as we saw happen with Online Gambling websites during the Bush Regime). They could have then disrupted what remained of the Bitcoin network by performing a relatively cheap and simple 51% attack.
And yet, none of that happened... Bitcoin.org and the Bitcoin Foundation have been left to prosper and go from strength to strength. VC's, Wall Street traders and the average Joe were all left free to pump money into this burgeoning experiment without any government intervention whatsoever. Eric, Julian and the Bilderberg Group
Back in 2010 Google dipped their toes into the world of virtual currencies, acquiring a little known company called Jambool for $70m. For awhile they ran a platform called Social Gold which was later usurped in 2011 by Facebook Credits (Facebook's attempt at a virtual currency). This was phased out in mid-2012. Techcrunch cites that this was likely due to the problems Facebook had encountered in educating the public about using another form of currency, and goes on to speculate that by offering a centralised means of exchange, Facebook may have also faced increasing legal and regulatory scrutiny.
In June 2011, Julian Assange met Eric Schmidt online in a secret 5 hour chat in which they discussed - amongst other things - Bitcoin. The full transcript - which was leaked last month - is available here: http://wikileaks.org/Transcript-Meeting-Assange-Schmidt
Also in attendance at the meeting was Jared Cohen, a former Secretary of State advisor to Hillary Clinton, Scott Malcomson, Director of Speechwriting for Ambassador Susan Rice at the US State Department and current Communications Director of the International Crisis Group, and Lisa Shields, Vice President of the Council on Foreign Relations.
Here's an excerpt: JA:
...there’s also a very nice little paper that I’ve seen in relation to Bitcoin, that… you know about Bitcoin? ES:
Okay, Bitcoin is something that evolved out of the cypherpunks a couple of years ago, and it is an alternative… it is a stateless currency.
And very important, actually. It has a few problems. But its innovations exceed its problems. Now there has been innovations along these lines in many different paths of digital currencies, anonymous, untraceable etc. People have been experimenting with over the past 20 years. The Bitcoin actually has the balance and incentives right, and that is why it is starting to take off. The different combination of these things. No central nodes. It is all point to point. One does not need to trust any central mint….
That's very interesting
So, now we know Bitcoin was on the radar of the C.I.A, various politicians and, thanks to Julian, the CEO of Google was now beginning to get an inkling as to its disruptive potential.
Just 13 days prior to the Assange meet, Eric had attended the annual meeting of the notoriously secretive Bilderberg Group in St. Moritz, Switzerland and went on to attend the meet again in June 2012.
Topics of discussion included:
- Emerging Economies: Roles and Responsibilities
- Economic and National Security in a Digital Age
- Technological Innovation in Western Economies: Stagnation or Promise?
- Imbalances, Austerity and Growth
Some of the 2011/12 attendees included:
- Josef Ackermann (Chairman of Deutsche Bank),
- Jean-Claude Trichet (President of the European Central Bank),
- Chris Hughes (Co-Founder of Facebook),
- Reid Hoffman (CEO of Linkedin),
- Jeff Bezos (CEO of Amazon)
- Keith Alexander (Commander, US Cyber Command; Director, NSA).
Heads of Barclays Bank, AXXA, HSBC and the President of The World Bank Group were also in attendance.
To see so many tech luminaries in attendance at Bilderberg is indicative of the kind of power and respect that geeks and hackers now command in shaping the world stage. Just how many high-level decisions are being influenced by this new technorati is hard to say, but in a rapidly changing world where technology is moving faster than the old rules remain relevant, we are seeing that people, united through technology on a global scale – not governments – are dictating the speed of change. Joining The Dots
None of this means that bitcoins ride is going to be friction-free - just because Eric Schmidt is open to the idea of bitcoin displacing traditional currencies (as he and Jared Cohen alluded to in a recent CNBC interview), does not mean that Douglas Flint (Group Chairman, HSBC) is going to be equally enthused.
However, I do think that if we join up all the dots the general conclusion that we can draw looks overwhelmingly positive for the future of bitcoin. That so many powerful actors within the intelligence community, technology industry and government have let bitcoin survive this long is almost an endorsement itself.
It suggests to me that any nefarious corporations that attempt to shutdown bitcoin because of a perceived threat to their business model, will be met by those same powerful actors coming together to ensure they will have a very tough fight on their hands.
Indeed, in the years to come, we may well see Hilary Clinton coming out to trumpet bitcoin as “an important tool for freedom of expression around the world” in much the same way she praised the TOR project.
And perhaps, ultimately, we will discover that bitcoin, like TOR, was also developed by the US Naval Research Laboratory.
Though I prefer to think it was just some lone genius sitting in his attic who accidentally changed the world.
Whatever may be the case, it seems that - for now at least - our governments have handed their people a rare gift – the freedom to shape their own future.
It's up to us to try not to screw that up.
Hey X and Y
Are you two aware that the Bitcoin Core devs are making big changes to the bitcoin network which fundamentally change the economics of bitcoin and what you can and can't do with bitcoin?
If people continue to use the Bitcoin Core software many of the things that we know work well in the bitcoin network, are going to be discarded and replaced with other things which may or may not work.
It's quite upsetting for me. I've watched Bitcoin make it this far and now it's like it's being torn apart in front of my eyes, largely by Blockstream and Viacoin employees/founders who develop Bitcoin Core. These people have a serious conflict of interest and they are clearly acting on that conflict.
At this point the only core devs I trust are: Gavin Andresen, Jeff Garzik and Mike Hearn. Of those 3, both Gavin and Hearn have been ostracized out of Bitcoin Core development and I think Jeff will be soon too as he clearly is pushing back against the agenda of the problematic Bitcoin Core devs (eg Peter Todd, Luke JR and G Maxwell).
One example of the destructive things the Core devs are doing is this:
Peter Todd is pushing for something called Full-RBF. 0-conf transactions are an essential part of the Bitcoin ecosystem. They are used widely by many businesses (eg ShapeShift.io). There are risks associated with accepting 0-conf transactions, but those risks can be mitigated and managed. Full-RBF will vastly decrease the usefulness of 0-conf transactions. Peter Todd is literally adding code to Bitcoin Core that damages Bitcoin. If they achieve their goal of getting a significant number of miners using Bitcoin Core with Full-RBF mode enabled, it will no longer be practical to use Bitcoin in stores to pay for goods as you will be forced to wait for 1 confirmation. People will be forced into off-chain solutions (eg Coinbase.com offchain transactions). It will no longer be safe for the shop keeper to accept bitcoin transactions from SPV wallets (eg Breadwallet).
With Full RBF, 0-conf transactions will become something you can only rely on for: * trading with trustworthy people (eg friends, family and businesses you have an established relationship with) * signalling that your transaction has entered the network (not that it will likely confirm).
Todd has already successfully committed code to Bitcoin Core's master branch that performs something called Opt-in Full-RBF. This Opt-in Full-RBF isn't as bad as Full RBF, but it has a whole bunch of really negative repercussions. The main ones being: * it makes Bitcoin more complicated for novice users to understand * it increases the complexity of wallets * it makes it more likely that novice users will be scammed
Also: the term "opt-in" is very (and probably deliberately) misleading. The sender of the transaction opts-in to creating a transaction, but the receiver does not opt-in. Wallet devs will also be forced to make changes to deal with this new transaction type if Bitcoin Core continues to be used. They will be forced to add weird messages to their wallet software which say something like: "You have received an RBF transaction. Unlike normal transactions, RBF transactions can be more easily double spent. If you are unsure what this means, you should wait for at least 1 confirmation."
In-fact. That lengthy message doesn't even give the user all the info they need to know. It doesn't explain why
they might have received the RBF transaction: * are they under attack? * is the sender trying to bump their transaction fee? * is the senders wallet software misconfigured?
It adds a layer of complexity which is completely unnecessary.
Another thing they are doing is unnecessarily keeping the maximum block size capped at 1MiB. 1MiB was always widely understood to be a temporary limit to stop the blockchain getting too bloated in the early days of the currency. It kept the network cheap to run and easy to join. Keeping it stuck this low now that we are hitting that limit regularly is going to cause what Jeff Garzik refers to as an "Economic Change Event" (ECE). You can read about it here: https://lists.linuxfoundation.org/pipermail/bitcoin-dev/2015-Decembe011973.html
This ECE is going to materialize as absolute havoc on the network; probably within the next 6 months. There will be many frustrated users on account of stuck/delayed transactions. It will become far more expensive to send transactions. Many people will sell their Bitcoin holdings causing the price to drop. Many people will simply not understand what is happening and out of fear and uncertainty they will sell off their holdings. Businesses that relied on cheap transactions will close up shop. Mainstream media will [correctly] portray Bitcoin as a failed attempt at creating a global currency. The growth of Bitcoin will be stumped.
I've heard probably every single reasoned argument related to the blocksize debate and it is abundantly obvious to me that it's perfectly safe to increase the maximum blocksize.
Anyway. I wanted to let you guys know what I think about what's going on. I'd be interested to know if you share any of my concerns or if this is the first you're hearing about these issues.
If you agree with me I strongly urge you to avoid using the Bitcoin Core software and advise others not to use it either. There are 3 decent full-node alternatives to choose from and soon there will soon be a forth: btcd: https://opensource.conformal.com/wiki/btcd
Bitcoin Unlimited: http://www.bitcoinunlimited.info/
Bitcoin XT: https://bitcoinxt.software/
[Warning: BETA software]
Also, you should avoid the following heavily censored websites: bitcoin.org reddit.com/bitcoin
There are decent replacements for those sites/pages where you can freely discuss these issues without being banned/muted: https://www.bitcoin.com https://forum.bitcoin.com/ https://reddit.com/btc https://bitco.in/forum/ https://letstalkbitcoin.com/forum/
Hope you are both well, Z
The Lightning Network
is a concept proposed by developers Thaddeus Dryja and Joseph Poon to create a network of trust-less payment channels on top of the Bitcoin Blockchain. The goal of this network is to allow for instantaneously secure Bitcoin payments of any amount, no matter how small.
The Scalability Problem
From the earliest days of Bitcoin, critics took issue with its scalability characteristics. The very first response
to Satoshi Nakamoto's described design was a total rejection of the system as being unable to deal with the enormous capacity demands of the world's economy. This message was the first, but far from the last time the scalability of Bitcoin would be called into question.
The reason for this skepticism is that in computer science, there are well understood system designs and algorithm designs, with vastly different costs. For example when a design calls for searching through a group of words, an adjustment to make the words alphabetically ordered can produce a potentially billion times faster solution
. Simply by using a strategy of checking in exponentially reducing half sections, the search is executed at an exponentially reduced cost. The Blockchain is an example of a system in which growth of use does not just grow cost linearly, but instead at an exponentially increasing rate.
The reason for this inefficiency is that when the Blockchain adds a new member who needs to send payments, the new member incurs a cost on all the other members who have a need to fully validate payments. All fully validating members of the Blockchain must sync and validate everything all other members produce. From the perspective of the total system, this means that the total system cost is increasing as a power of two
, the polar opposite outcome of what a more ideally scalable and efficient algorithm would yield.
Satoshi Nakamoto realized this deficiency in his original proposal, and came up with a proposed solution. His idea was to reduce the operative mode of validation to be scoped to a user, for users who had less need to validate. Since additional members only incurred costs on validating members, skipping validation from some clients would mean that the impact of adding members was more limited, to be borne only by those who wished to dependably receive payments, such as merchants.
This method he named Simplified Payments Verification
, and his original outlined plan would present a less secure but still acceptable model for normal consumers because there would be an alerting mechanism for rule breaches
that would signify the system was compromised, proactively preventing attacks on consensus rules.
Although long promised, the demands of Bitcoin Core's development meant that Satoshi was never able to deliver on his promised SPV-mode client. Over time others took his ideas and appropriated the SPV name in making their own similar, but not quite equal solutions. Due to wide differences of opinion in the correct methods and workability of SPV mode, a reference project was never created and the alerting system was never crafted. Nevertheless as a working solution many people adopted lower security but more user friendly and less operationally costly wallets, in many varied configurations.
Eventually the efficiencies of SPV came to be seen as only a temporary optimization of the Blockchain design. Instead of solving the exponential cost of the Blockchain system, SPV clients could only slow the cost increases. The lack of an alerting system and other faults of SPV meant that anyone receiving payments could not rely on it, muting the model's positive impact on the total system scalability cost. SPV's dependency on miner validation made miner centralization concerns more pronounced.
The validation cost burden on merchants and on the overall system began to have secondary negative effects, such as contributing directly to mining centralization by giving outsize advantages to miners with economies of scale. The high cost of a full node contributed to merchant validation centralization by creating an increasingly high cost to validate payments. Many efforts were made to optimize against these increasing costs, but the fundamental design of the Blockchain meant that an increasing tide of transactions would one day overwhelm any possible optimization that did not address the basic peer broadcasting design.
The End of SPV
Another marked failing of SPV clients proved to be that they could never successfully be secured against financial privacy leakage. This represented a threat to users' personal privacy and even to the overall utility of the currency where all equal denomination coins, no matter their origin, should have close to an equal value.
SPV clients were also seen as unsustainable in a decentralized configuration: since they cannot sync with each other they must make increasing demands on the limited and increasingly costly altruism of the node operators.
SPV could also not provide a solution to another much lamented Blockchain problem: the limitations preventing micro-payments. Early on in Bitcoin's life, to fight floods of small transactions that were called penny-flooding
, Satoshi had instituted barriers
against very small payments: payments smaller than a tenth of a bitcoin were blocked.
Satoshi also created a prioritization system to improve the Blockchain's reliability for high value payments, a marketplace for transactions in every block, with space being prioritized to the highest value transactions
as indicated by fees. This further pushed out very small payments, Satoshi often had to regretfully inform people that micro-payments were not feasible.
In the early years of Bitcoin, Satoshi Nakamoto and the other developers faced many and varied pressing immediate practical operational concerns and development realities of simply keeping the Blockchain reliable, durable and secure. Early plans for scalability and support for broad use-cases gave way to what was seen as the most important use-case: high value transactions with a high level of security and durability against network attack.
Over time the system's long-term scalability, various lower priority use cases, and difficult to implement features like instant settlement were all pushed to be developed outside of the Blockchain on a different layer, called Layer 2
. Layer 2 systems would still empower transactions denominated in Bitcoin units and be ultimately settled against the Blockchain, but also be able to avoid offering the same guarantees and functionality as the Blockchain, in order to serve a broader range of use cases.
The Lightning Network is an example of a Layer 2 service: a network service that seeks to provide instant settlement, tiny micro-payments, improved privacy, in a system that is fundamentally built on the Blockchain but also logically separated.
Lightning's solutions are based on a common and long running proposal for how to use the Blockchain to provide for instantly secure and arbitrarily small transactions: payment channels. Payment channels have existed for many years, in both well established theory and as real libraries and projects.
Payment channels are a method of using smart contracts to rapidly trade Bitcoin between two parties, without requiring the Blockchain for more than occasional settlement. The parties create a shared starting balance on the Blockchain and then using signed but un-broadcast transactions rapidly, cheaply, and privately update the balance between them.
Because the funds are locked in a multiple signature smart contract, cooperation with the channel partner is required to spend the funds, however a payment channel smart contract also specifies a timeout that acts an escape if there is a failure of cooperation. There are multiple ways to form these channels, but they all offer the same advantages: instant transactions, arbitrarily small denomination payments, low fees, and transaction privacy, although only between two joined together parties.
The key innovation in Lightning is to take these joined pairs and link them together in a network: pairs passing along funds to each other in a chain until they reach their destinations. This combines the Blockchain's benefit of sending to arbitrary users with all payment channel benefits like instantly secure transactions.
Opening Payment Channels
To open channels in Lightning, a Bitcoin transaction smart contract is published with rules for how deposited funds may be spent. The rules of the transaction essentially specify that funds deposited cannot be spent unless both parties agree, with the exception that one party can unilaterally refund his deposited funds to himself if he is willing to wait for a time delay before re-spending them.
The transaction establishing these rules is called a commitment transaction
and a transaction that adds funds into this channel is called a funding transaction
. For efficiency, when initiating the channel for the first time both transactions may be folded together into a single Blockchain transaction.
There are two proposed methods for accomplishing Lightning's channel timeout requirement. The first mechanism uses a feature called CLTV that first added to Bitcoin in the soft forking Bitcoin Core version 0.11.2, released in November of 2015. This feature allowed for time-locking funds against a certain date, meaning that channel partners could create fixed future time timeouts for their channels. Using this feature would mean that channels be routinely re-created to bump the timeout window forward.
Another method was also proposed, using a time-locking feature called CSV that was first added to Bitcoin in the soft forking Bitcoin Core version 0.12.1, released in April of 2016. CSV allowed for specifying relative time locking contracts, meaning that channel partners could instead choose their timeout relative to when they executed their channel escape clause, allowing for channels that could remain open indefinitely. Because of this improvement, CSV timeouts were selected as the standard for Lightning payment channels.
Lightning payment channels work pretty much like normal payment channels, they pass signed transactions between two parties to update their balance. There is however one unique aspect that allows for routing: a third party involved in a Lightning balance update transaction called an R value
. This R value, which is simply a lumping together of information about the movement of funds, allows a transaction between parties to be routable. R values represent hash-able information that can be used as Blockchain presentable proof that funds have been moved across the Lightning Network.
To understand how the R value allows moving money through the interaction of third party Lightning Network actors, it's important to understand that when spending funds on the Blockchain it is not actually the people who authorize funds. Instead it is only their private keys' signatures that authorize spending, all Blockchain funds are actually locked in contracts that have various rules about how they may be unlocked, the most common being that a singular private key may be used to unlock them.
Because Blockchain contracts simply deal in signatures and are scriptable, it is possible to create a type of transaction that is keyed against a signatory who actually knows nothing about the transaction and simply testifies to a system state in a signed way. For example, a server that produced cryptographically signed statements about the weather could be used in a transaction between two parties to be the arbiter of the execution of a weather based funds transfer, without any direct involvement of the server in the transaction itself.
This type of transaction is rare, and it was banned as part of a blanket banning effort by Gavin Andresen
and Jeff Garzik
who objected to general purpose smart contracts on the Blockchain and promoted the idea of a white listing system called standard
transactions. In February of 2014, the release of Bitcoin version 0.10.0 mostly lifted this restriction, allowing more novel transaction types. Included in the allowed transaction types were those keyed off of an arbitrary non participatory signature, called hash locked transactions
In February of 2016, Sean Bowe and Pieter Wuille published a work in progress
version of a special transaction type that could include a time locked transaction with a hash unlock code. This specific type of transaction, called a Hash Time Locked Contract
, enables the state changes within Lightning Network channels.
Lightning Network clients negotiate with the network to send out a transaction to be routed across the network, yielding an updated set of finalized settlement data which represents the settlement update hash lock solution, the R value. This R value is only represented to the Blockchain as an opaque signature, and it could signify any successful routing, including passing of value from the Bitcoin Blockchain to another Blockchain, like the Bitcoin Testnet.
This type of settlement transaction is very powerful, it can be used to create a wide variety of transactions, like multi-signature transactions within the Lightning Network, or even probabilistic settlements within the Lightning Network. A novel payment type called Pre-Image Length Probabilistic Payment
, or PILPP
has been proposed as a way to send payments on the Lightning Network that are actually provably probabilistic, meaning it is possible to send someone a one bitcoin with a fifty percent chance of arrival. Using this payment type, it is theorized that services could even charge sub-Satoshi fees for their services by asking customers for probabilistic payments of a single Satoshi.
The Lightning Network offers a particularly private solution to executing a transaction, called onion routing
, in a method similar to the online privacy system Tor, also known as The Onion Router
. The way that Lightning Network transactions are executed, each client considers the destination for funds and then decides on a linked series of pairs to execute the transfer. The client then wraps the pair series information in an encrypted format so that each pair jump is only given information on a need-to-know basis. The intermediary relays are not given information about any of the other pairs, including the final destination of the transfer they are assisting.
To avoid a situation where pairs fail to execute their fund passing duty, routed payments are given a TTL
, or a time to live
, meaning that the payments are no longer valid after a certain point. This allows automatic retrying of payments that fail to route successfully due to a third party fund transfer failure. Transactions can also use fees to incentivize pairs to successfully pass funds in a timely manner; pairs that fail to route may bear an opportunity cost.
In Breach of Contract
From the Blockchain's perspective, Lightning Network funds are just funds deposited in a two of two signature multi-signature wallet. As the balance of funds changes within a channel, the settlement is actually done through a transaction that may be broadcast at any time to the Blockchain to settle funds back to each party.
With potentially thousands of balance state change transactions, the balance within the channel is intended to go up and down over time. This presents a major problem for payment channels: what happens if the other party broadcasts an obsolete state of the balance of payment to the network that ignores a recent payment, and therefore steals funds?
This situation in which there is a breach of the basic channel contract where an out of date state is broadcast can only be solved by correcting the Blockchain record in response, meaning the stored funds must be monitored for breaches. In the Lightning Network the solution to this issue is to preemptively prepare a special type of transaction called a breach remedy
transaction that prevents the invalid old state from being used to steal funds.
A breach remedy transaction goes beyond reclaiming the injured party's funds. To discourage theft, the transaction also takes the entirety of the offending party's funds as a penalty. For this reason it is recommended that a channel never be allowed to empty, that some funds to take in penalty always remain, to avoid a situation called an exhausted
Breach remedy transactions are formed as a part of every update to the balance of payments in a Lightning Network channel, in a flow called the Revocable Sequence Maturity Contract
. The RSMC flow is done without requiring trust in the other party, generating and exchanging the guarantees against betrayal before completing the funds state update.
Breach remedy transactions are fully formed, fully signed, and they may even be safely published to third parties with rewards for the first publisher attached, to incentivize many eyes watching for and preventing a breach of contract.
Sometimes channel participants may wish to close their channels, for regular channel rebalancing or just to make a Blockchain payment. Lightning Network transactions that settle back to the Blockchain are called exercise settlement
transactions, and they are simply standard co-signed transactions. Funds are sent as in any standard multi-signature transaction and the channel is considered closed. This happens instantly, as long as the channel partner is cooperative.
In the event that a channel partner is unavailable to close the channel, another option is possible, which is to exercise the CSV clause specified in the channel opening contract. This clause says that any party may unilaterally close the channel and reclaim their funds, provided that they wait for a timeout period to spend their funds again freely.
This timeout period is called a dispute period
, because it gives the channel partner a chance to dispute the channel close in the case of a breach of contract, when the channel is closed with an out of date balance of payments.
There are a number of challenges inherent in the Lightning Network concept. In the most marked change from the Blockchain, Lightning flips the configuration of the network from a single shared Blockchain ledger to a wide array of individualized Lightning client ledgers. Users holding Lightning Network funds are holding funds that are just as good as Bitcoin, but the funds are actually signed claims on funds.
In the Blockchain a global ledger state is synced between everyone and a user must only save their private keys to retain control of their funds. In Lightning, securely holding both the key data and individualized ledger data is the responsibility of the client. One solution to this issue is to use the saved keys to securely encrypt the state data and then save the encrypted data to a networked backup.
Another departure from the Bitcoin network model that requires careful consideration is that Lightning transactions do not need to be broadcast to every member by relaying others transactions. Given a more limited number of transactions that are sent, this reveals more information as to the identity of the sender. To solve this, Tor channels could be used to obscure IP information from channel partners, but a more comprehensive and as yet undefined solution may be needed to help obscure other correlation efforts.
Funds in Lightning also work differently from Bitcoin funds. The Lightning channels lock the funds to an agreement with a Lightning relay, in which a set of cooperative rules are agreed upon to enable the Lightning protocol. But in the case of a cooperation failure, which can simply mean the connected Lightning relay suffering downtime, user funds will be locked from use for up to the preset lock time, which could be up to a week. To deal with this, it's suggested that the risk of locking be spread over multiple channels, or that a user be encouraged to limit their use of Lightning to smaller amounts of spending money. Spending down entire channels is also not an efficient use of Lightning, so that reinforces the idea of users separating their funds into spending money in Lightning channels and savings in traditional Bitcoin wallets.
Another tricky issue with Lightning funds is that a channel partner may try to steal funds from the channel. Wallets must either be semi-regularly online to prevent that, or third parties must be available who can be relied upon to prevent theft. Theoretically, miners could also execute a theft directly, by gaining majority control of the network for the dispute period and blocking any breach remedy transactions from occurring, although some of the standard guards against miners taking that action would still apply, such as their general block reward incentives. This means that Lightning benefits from a decentralized set of miners and a set of users who are able to access the Blockchain cheaply to respond to breaches of channel contracts.
There are actually two configuration types of Lightning, similar to how there are two common types of Bitcoin clients: light Lightning clients who only spend money occasionally, and full Lightning nodes who act as relays and comprise the body of the Lightning network. There is a benefit associated with running a Lightning relay: as transactions are passed through a relay, they carry a reward of small market-based fees. But there is also a potential cost with running a Lightning relay, these relays are software that must have the agency to move funds between their channels. Relays need to have some automated access to user funds, to complete the signatures needed for channel transaction routing. It is recommended that relay operators be sure to secure their systems from unauthorized access to protect the capital required to operate a relaying node. Lighter Lightning clients do not share this issue, by only connecting occasionally they may secure their funds in colder storage and through multi-signature setups, as is the standard for secure Bitcoin storage.
Gavin Andresen, Principal of the BitCoin Virtual Currency Project, talks with EconTalk host Russ Roberts about BitCoin, an innovative attempt to create a decentralized electronic currency. Andresen explains the origins of BitCoin, how new currency gets created, how you can acquire BitCoins and the prospects for BitCoin’s future. Can it compete with government-sanctioned money? I'm Gavin Andresen, Bitcoin geek. Ask me anything! Forum rules The more people that are involved, the more interesting this AMA series will be for everyone. Please help spread the word of this amazing AMA series on your own social media. (YES, EVEN YOURS!) Short URL: AMA.Bitcoin.com Hashtag: #BTCAMA When the AMAs are finished, all the answers will be compiled into a free E-book! 138 posts 1; 2 ... Gavin Andresen. Gavin Andresen ist ein Softwareentwickler, der vor allem für seine frühe Beteiligung am „Bitcoin Projekt“ bekannt ist. Er half bei der Gründung der Bitcoin Foundation und war immer auch ein großer Unterstützer der größten Kryptowährung. Obwohl er nicht mehr als Bitcoin Core Developer arbeitet, bleibt er weiterhin eine sehr einflussreiche Person in der digitalen ... Bitcoin is a decentralized digital currency that enables instant payments to anyone, anywhere in the world. Bitcoin uses peer-to-peer technology to operate with no central authority: transaction management and money issuance are carried out collectively by the network. The original Bitcoin software by Satoshi Nakamoto was released under the MIT license. . Most client software, derived or "from ... Gavin Andresen Bitcoin Foundation - Bitcoin Main Influences Gavin Andresen Bitcoin Foundation Bitcoin Block Hash Bitcoin Stock Price Ipo
Gavin Andresen, Principal of the BitCoin Virtual Currency Project, talks with EconTalk host Russ Roberts about BitCoin, an innovative attempt to create a decentralized electronic currency. Bitcoinkurs für Anfänger: https://goo.gl/x51gy4 #EB94 #– #Gavin #Andresen #- #On #The #Blocksize #And #Bitcoins #Governance Coinbase Tech Talk Gavin Andresen, Chief Scientist at the Bitcoin Foundation and member of the MIT Media Lab's Digital Currency Initiative Visit Coinbase: ht... Panel Discussion with: Bruce Wagner, Gavin Andresen the Lead Technical Developer for the Bitcoin project, Stefan Thomas of Weusecoins.com and BitcoinJS, and Yifu Guo of BitcoinNavigator.com ... He then handed over control of the source code repository and network alert key to Gavin Andresen, transferred several related domains to various prominent members of the bitcoin community ...