EP41 Bitcoin podcast with Bitcoin Q+A. (Lightning)

Bitcoin is close to becoming worthless.

Bitcoin is like rat poison. The greatest scam in history. Let's get it. Bitcoin will go to fucking zero.

Alright you ungovernable misfits. I'm your host Max. Everybody knows that Bitcoin is useless, worthless and doomed to fail. But what if everyone's wrong? What if it's the system that is doomed to fail?

Join me as I speak to some of the brightest people in the space and deliver to the deepest, darkest depths of the Bitcoin rabbit hole. Today I speak to Bitcoin Q&A for the third time. In episode 35 we talked about wallets.

In episode 38 we discussed nodes. And today episode 41 we talk about lightning. If you're listening to this now and you haven't already listened to our discussion on wallets or our discussion on nodes.

I suggest you go back and have a listen. I always enjoy speaking to Bitcoin Q&A and he has some of the best resources in the space. If you haven't already gone to his website, check it out now.

The links are available in the show notes. Enjoy.

Bitcoin Q&A. Welcome back to the show. This is a regular thing now. What are we going to be covering today? Good evening. Yes. I think we've got lightning on the card. Definitely for episode number three.

Exciting. All right. So lightning. What is it? You're talking to somebody who doesn't own any Bitcoin yet and they've heard the term, they've heard it talked about. What is it? Okay. So in simple terms, it's a scaling solution that is built on top of the Bitcoin network.

It leverages all of the security principles that the Bitcoin network implements, but kind of circumvents some of the limitations. So I think it's probably a good idea before I get into sort of how the network works, the lightning network works.

And it's probably a good idea to have a quick recap on sort of the basics of Bitcoin. And I know we touched on it in the previous episode with the nodes conversation that we did, but I think it's quite apt that we sort of have a bit of a recap and just highlight some of the, you know,

why do we need lightning before we get into the technicals of what it is and how it works. So obviously, one of the beautiful things about the Bitcoin network is its finality and it's completely transpiring.

So if you send me a million sat, then everybody else on the network knows that your address, said my address, a million sat, and that's one of the sort of core pitfalls of the Bitcoin network is that everything's all detectable.

So we know that nobody's cheated and everybody's held accountable. And everybody, we know that everybody's participating is playing by the same rules. Obviously, if we expand that worldwide, that is, although it's a very good thing in terms of finality and censorship resistance and making sure that nobody's cheated,

it's also not very scalable. I think the Bitcoin network has an average, I think there's about seven transactions per second, something like that. Obviously, I'm sure that that fluctuates based on network conditions, but I think that's the average.

Obviously, you know, if we're talking very long term here and global adoption, that just isn't going to cut it really. So the fallout from that, I guess, is that these flocks on the network mind every 10 minutes.

So if you're sending your transaction to me and you don't pay a high enough fee to get your transaction into the next block, then you basically join the queue and your fee is then compared by the miners to how you stack up.

And it's basically like a free market that people at the highest fees get to the front of the queue and the people at the lowest fees go to the back of the queue. So probably another quick thing we're touching on around sort of these flocks that are mined on the Bitcoin network on average take place every 10 minutes.

So, you know, if you're sending, let's say, a million dollars worth of Bitcoin to buy a house, you're probably not going to mind waiting 10, 20, even an hour for that to be considered final.

But if you'll say, I'll use the cliche example. If you're in Starbucks buying a coffee, you're probably not going to want to stand there. The 10 minutes waiting for a block to be mined before the cashier lets you disappear.

So, yeah, you can go under your lockdown and your transaction's concerned. So, obviously, we need a solution to deal with the smaller payments that are required to be cleared faster and to, you know, the lightning network, which is a solution built on top of this to sort of solve some of those problems,

but anchoring all of the good bits about Bitcoin. So, you know, you can't cheat the Bitcoin network and you require the Bitcoin network to have to make a lightning payment. We kind of touched on our last episode, which will now be live when people are listening to this one, which was on nodes.

We were touching on the alternative to the lightning network, which would be bigger blocks, which, for many, many reasons, just doesn't make sense. And, obviously, if you're not going to do that, then you have to have an alternative, and that's where the lightning network comes in, is that Bitcoin is fantastic for the bigger payments,

and it's fine now, but, you know, the fees, like you're saying, basically, it's a free market. And when the network gets congested, those fees will rise. And then if you're going to buy a cup of coffee, like you just said, you know, you're going to spend two, three quid on a coffee, and then the transaction fee is 30 or 40 pounds.

You're not going to want to use that payment system. You're not going to want to use Bitcoin, so you need to have an alternative, and from what I understand you're saying, lightning is that.

Yeah, definitely. Like you say, obviously, Bitcoin-based layer service fees do fluctuate. You know, they have been higher than normal in recent months, but yeah, like I say, it's a free market.

They fluctuate up and down. I'm probably going to go out on a limit and say that most of the time, for most types of payments, they are still at a very acceptable rate. But I think everybody is generally of the outlook that, over the longer term, fees are going to start the rise,

because miners are going to want to be compensated as the block subsidy reduces. I think fees will, there will be more competition for block space and fees will naturally rise, which I don't think is a bad thing because ultimately, we need to incentivize the miners to continue to secure the network and process the transaction.

So I think if I was a betting man, I'd say over the longer period, people are going to naturally gravitate towards using the base chain less frequently, and it's going to sort of face limits of what people are willing to spend on the base layer is going to slowly creep off and creep off them.

And obviously, the small payments, you know, the coffees and things of the world are going to naturally gravitate to the off-chain solutions like lightning. Yeah, okay. And so how does it work?

Obviously, what you're saying really is that this is something that works the same as Bitcoin, that you can send payments without anyone big in the middle and you can, or being able to censor those transactions, and you can know that you have final settlement when you actually receive the funds.

So are there any trade-offs here or, like, how does this work? What's the difference? Yeah, I'll probably come to the trade-offs of it later once you've sort of given the outline of how it works.

So lightning is essentially a network of payment channels. So what is a payment channel? A payment channel is basically a line of communication between two parties. So let's say me and you Max, we sort of pay each other quite regularly.

So let's say, I don't know, let's say you worked in the news agents and I'm quite often committed by a newspaper for myself. And I know I'm going to be spending regular small amounts of cash to you.

So I would think, well, if I'm going to do this on the Bitcoin base layer, it's going to start costing me, you know, a quite sizable amount in fees for a relatively inexpensive item like a newspaper, which is probably less than a quint.

So I think, okay, I'm going to set up a lightning payment channel to you. So what that looks like in simple terms is I would make an on-chain transaction known as a funding transaction where I basically sort of front you some Bitcoin.

So let's say I'm going to put 50 quads worth of Bitcoin into this multi-signature wallet. It's still my Bitcoin. I'm still fully in control of it. But it goes into a multi-signature address where you hold one of the keys and I hold the other case to spend from this multi-signature wallet.

It needs two signatures. So I suppose you're probably thinking now, well, all right. Well, you just put 50 quid in this payment channel. Well, you know, I could just run away with this. So to combat that, obviously, because this 50 pounds worth of Bitcoin is rightfully mine.

Every time I sort of go to the, I'll rewind a sec. When we do the opening transaction, both you and I would sign, but not broadcast Bitcoin transactions to say this 50 pounds is rightfully mine and none of it is rightfully Max's.

We both sign it and pass it across to each other. We wouldn't broadcast it because that would close the channel. So we've got this open channel now between me and you. I own all the funds that are in it and you own none of it.

So the next time I come and buy anything from your shop, I can just go on for lightning and send you however much it is, 10 feet, 50 feet a pound. And that transaction does not get broadcast to the Bitcoin network.

So we're not paying those on chain fees. We're not having to wait 10 minutes for a confirmation on the network. So under the hood, when I come in and buy my newspaper from you, what does that look like?

And so what we do basically is I take the newspaper from you, send you a lightning transaction for a pound. So essentially what we're doing there is we're creating another sound, but not broadcasted Bitcoin transaction, where I've now got 49 pounds and you've got a pound.

We both sign it and pass it to each other. So yet we agree that's the current state of our channel. And then this could go on any number of times. I could come in and pay you and none of it's happening on the Bitcoin network.

So again, we're saving on those fees. It's instant or near instant. We're talking, you know, five to 10 seconds for this transaction. So it's like a tally, basically. Yeah, it's kind of like our own ledger of I owe this, I owe you this much and you owe me this much.

And presumably this works both ways. So you could come in and buy a paper off me every day and seven days in. You've slid across seven pounds across to me if it's a pound of paper. But then we see each other at the pub and you say our buyer would drink.

So that's whatever it is, three pound 50. And then that then gets slid back the other way and it sort of rebalances itself. And this can presumably just happen as long as we want it to until we decide that we want to close that channel.

And only then is that broadcast and therefore the fees are basically zero. So to up to the value of whatever we open, I open the channel with, which is 50 pounds in the example, new news can exchange transactions for as long as the Bitcoin and the Lightning Network are running.

So we could keep this channel open for 10 years if you wanted to. Couple of the limitations. Obviously, we've got the 50 pound cap because that's all that we've put into the channel in the first place, which again, if I'm only buying newspapers.

It's not a problem. Another limitation is if I was to open the channel to you. And there's only me in its initial state, only me that can send money to you. If you think of it like beads on an abacus, all of the beads are on my side.

So you've got plenty of room to receive, but you've got nothing to spend. So that's one of the sort of pitfalls that when people are getting started with the with the Lightning Network is they sort of get their node running, they open a channel for somebody, and then they try and get somebody to send them some.

Sorry if they try and, yeah, they try and get somebody to send them some sat. And they've got no what known as inbound liquidity. And so you need. So go on.

Sorry, so do what you're saying is you need the same amount of inbound liquidity as you have going out. So if I wanted to receive, say, a pound from you, I have to have a pound to be able to go out as well so that it's balanced.

Yeah, so there's two ways you can gain inbound liquidity or be able to receive from number one is I go back to our example, I have opened the channel to you for 50 pounds. If I wanted to have inbound liquidity for you to spend for me, I'd have to spend some money away from my side of the abacus. So I'd have to sort of spend some sat.

So that's the simplest way to do it. But obviously, it's not desirable if you're going to end up just spending money for the sake of it just back just to gain some inbound liquidity. And the easiest way to do it is for you to open a channel back to me.

That's what's known as a sort of a reciprocal channel. But obviously, not everybody's going to be willing to do that. And you may not have any friends that run lightning nodes, or you may just not be able to find anybody that's willing to put up the capital to say, yeah, I'm going to open a channel back to you.

Because, you know, there is, although there's no security or very minimal security risk in doing so, you know, you've got the thought process of actually having to, you know, boost up their node or the lightning and open that channel.

And they've also got to pay some on chain fees. So, last week, you know, we were talking earlier about lightning nodes saving on fees, which they do in the long run. And if fees are, say, at, let's say peak ball one 2017 levels, it's still going to cost you.

You know, if you want this channel opened in a relatively decent amount of time, it may cost you for five pounds. So obviously there's that to consider but generally speaking fees are much lower than that on chain, but it is something to consider when trying to get some inbound liquidity.

You can actually purchase an inbound liquidity. So there are there are companies out there where you can go on to their website and say, here's my lightning credentials. I'm going to send you this much on chain Bitcoin.

I want you to open a channel to me for the same value, but it will be slightly less than the, than the actual value that you send them jobs, you feel that they'll take a quarter of that to that business model, and but that is another option as well to gain inbound liquidity.

Okay. Yeah, so I guess the cost is in terms of just, you have to effectively lock up funds or have them set on your node out of cold storage, or you have to use a company that does that for you.

And then therefore you're not fully self sovereign because you are using another company. So, do you have to say, open a channel for every single person that you'd ever want to pay, or Sarah had a channel open with you because you're buying papers from me and I occasionally

would drink. What if then you had a channel open with somebody else, Rodolfa Novak, as we just mentioned him before we started the conversation, like, what if then you had a channel open with him and I want to pay him for a cold car.

Can that work or or do I have to have a channel open with every person.

No, so this is where the Lightning Network sort of really shines. Obviously, it would be completely bonkers to have to open a channel to everybody that you want to pay by a lightning because you've still got to open that channel you've got to pay on, excuse me, you've got to pay on chain fees.

So it was completely defeat the object, you just be open in channels for the sake of it for a single payment, and you end up in more fees than you would have done if you did just do me on chain transaction. So the beauty of the Lightning Network is that these channels can be linked together.

So, yeah, I'll sort of expand on that example that you gave earlier. Obviously, me and you, we've got that channel open and you've got a channel open with Rodolfo from Coincai. So let's say I want to buy a cold car from Rodolfo, but I don't have a channel open with him.

I've got one to you, and you've got one for him. So what I can do is, again, everything I'm about to go to is completely obfuscated away from the user you'll never see all of this, this just sort of happens under the hood for you.

What effectively what my Lightning implementation will do was give you give you a little tap on the shoulders say, I need to get this, this many sats over the Novak.

So I give you a tap on the shoulder and say, I know you've got a channel open with Rodolfo, can you send in these funds for me? So I can sort of root through you to get my phone over to Rodolfo's to buy my cold car.

Now all of this is done in a completely secure and cryptographic way so that, you know, the obvious thought process there is that I could give the funds to you, and then you could just do a rudder, I don't get my cold car and I'm out of pocket.

So all of this is built in a way that you don't get paid until I get proof that you have paid Rodolfo. So it's all the system is built so that nobody can cheat.

And again we're just referring back to the baby or keeping it as basic as they can is that all that's happening is when we're doing these communications is that we are passing updated state channels.

But if I've got 50 pounds on my channel, I pass 40 of it over to you to buy a cold card, pretty cool card. And then, yeah, and then you would pass the exact same value over to Rodolfo, and then I get my cold card.

We all update to say, yeah, this is the new state state of our channels, you are the net the same up because you received the same amount that you have passed on to Rodolfo, and down 40 pounds and Rodolfo is up 40 pounds.

All I'm doing is I'm acting as a middle man. Effectively, but I don't even know that I am I'm just one link in a chain that helps connect the two of you. So how, how much can this spread out because obviously, you know, that's three people and setting up the channel, you know, it's not really a pain but

I'm sure it will get easier but like you said you don't want to set one up for every single person. What happens if say it's me and I've got no mates and so like, like my only friends is Bitcoin Q and A and I say Bitcoin Q and A like I want to use lightning but

no one wants to open a channel with me, no one wants to be my friend, could you somehow get this payment to whoever if you had a thousand lightning channels open with different people, can that go to any one of yours and any one of those thousand

channels, does it keep spreading like that do you see? Yeah, yeah, so the beauty of this beauty of the lightning network is that basically the more people that are participating and opening channels, think of it like a mesh network.

We've seen, you know, like a spider type diagram with sort of all of these circles and all these lines spiking off them. Well, that's kind of what the sort of visual of the lightning network looks like. So the more people that we've got running nodes and

channels basically gives everybody on the network more optionality and more possible paths to reach their recipient if you like. So I think there is a couple of concerns from some lightning critics that say that there's people on the network that I've got loads and loads and lightning

nodes and because they're sort of quite central feel like in the network because they're really well connected and they've got loads of channels and because they're well connected more and more people want to connect to them because that, you know, if you connect

to a well connected node, you in theory have got a higher chance of getting your rooted payments connected. So there is a slight concern from some people that say, well, this is kind of like a bit like the banks if you like in real life where, you know, they're kind of like

sucking up all of the world wealth if you like. And obviously, if a lot of payments are being routed through a few parties, there are some very some minor sort of risk in terms of, you know, if they turn into bad access, they could start

into central payments or they could start acting in bad faith, basically. I mean, the chances of that happening in a slim because of the way that these payments are routed through onion layers if you like, they can't actually sort of steal any funds or anything

like that, it would be more like a denial of service attack where they would just stop you getting your payment to me, rather than, you know, they wouldn't be able to sort of steal those funds sort of halfway across the route if you like.

That's an unlikely scenario. Let's say that there was a bad actor and they set up a load of lighting channels and they had a lot of connections and that payments were being routed through them and they were trying to stop them.

People then choose not to route through them, and basically people could just close their channels and go elsewhere because the way the way I see it is like, you know, the old like six degrees of separation thing. It's like, it doesn't actually take that many connections to actually be connected to everybody.

So presumably if this became used by more people, actually you don't need to have that many people running these nodes who are good actors to connect everyone.

Yeah, exactly. You know, the more people, you know, general users like me knew that running lightning nodes, the more, you know, if these big players were to sort of turn into adversaries, there's so many more options for my node to look to get a different path around them to your node.

So, I think, obviously we wouldn't know from the user level, or that you'd see if they were sort of acting up would be that you payment would fail. And if you were to restart it again, likely it is that your lightning nodes would look for a different path, and it will probably succeed the second time.

So yeah, it's just the case of the more people using this, the stronger it gets. So just to recap then, lightning is here, because Bitcoin is not currently scalable to look after the payments of the entire world, and for it to be fast enough at this point in time, the cost of these payments

probably will, and it's probably best for the network that those fees go up and that it's fine for those fees to go up. If you're doing large transactions, you're going to be okay with that and you're fine with it taking a little bit longer.

But if you are buying a coffee or doing smaller payments, you do want something faster. So that's where the lightning network comes in. And then the trade offs are that you do have to have these channels open.

But basically what you're saying is that the more people who use it, the more or the less channels you effectively need to have because your payments just find a route and they just see that you know someone who knows someone and that gets it there and it might only be

two hops or it might be six or it might be 10, but it's going to find just without you doing anything the most efficient and fastest way to get there. You were saying about it being onion routed or a similar kind of idea so that I assume that people don't necessarily

know where the hop prior to the hop that they've had is coming from so they can't it is probably better for privacy as well. Is there anything I've missed or are we sort of like up to date there.

Yeah, anything I'll add is let's say you're paying me and there are the route that your notes found is got six hot hot number three in that route would only know about hot number two and hot number four, we wouldn't know anything else other than their sort of

who they're receiving from and who they're sending to. So they wouldn't they wouldn't even know if they were the last person, the second person or the fourth person in that route. I'd say all they would know is that they've received and then send it on for them to get paid.

So yeah, probably probably a good point to add there is that all of those hops in between me and you to root those those shots across the network can if they want to say I'm only going to root this payment if you give me one.

So there are, you know, the lightning network is not completely free, you know we've paid our on chain from on chain fee to open the channel and you if you want to send me 50,000 sacks.

That might cost you one sack in fees so you know current Bitcoin prices we're talking less than a penny, you know, so comparatively to on chain fees it's, it's massively reduced.

And again, it is like an open free market again you know if somebody's set their routing fees on the lightning network to say everything's going to cost the pound to go through through my node.

Then basically everybody's just going to root around them and they won't get any fees whatsoever. So it's quite well. It's quite well structured in the fact that, you know, most like the Bitcoin network there's a there's a competitive fee market and you know if you're charging too much people are just going to root around

and I think, again, the more people that join the network, the more fierce the competition is going to be keep fees low to sort of gain, you know, one or two saps here or there, you know if you're rooting a lot of payments might soon start to add up.

I would say that to anybody listening, please don't spin up a lightning nose thinking that you're going to make some sizable income from it. I think even even the biggest and well connected nodes that have got millions of pounds worth of.

It's locked up in the lightning network and not only in a great deal and fees, you know, obviously a $4,000 a month if that but when you consider the trade offs of what they're having to go through, you know, in terms of managing those channels and having

all these funds effectively on a hot wallet that's connected to the internet is quite, quite risky I suppose at the end of the day, you know, any keys that are connected to the Internet do to have an increased risk which again.

You know, we covered this off in the wallops episodes that we did. Okay, so basically, really it just makes payments faster and cheaper and the people who route those payments or have these channels earn a small amount, but it's so small and the way you've said it there it should sort of find its equilibrium.

That would be a very, very low fee because it's a free market and like you said if somebody's charging fees that are too high someone else is going to undercut them and that's just going to keep happening until them until we find what the right fees are.

That's probably going to be quite low. So, it is, it is Bitcoin you're sending sat, you're just doing it in a different way. Does anyone control this or does it have some sort of.

Does it have some sort of issue where someone controls it or can censor it or that it's different to Bitcoin in that way. Well, in the short answer, obviously, the opening and closing transactions get mined into a block. So, on the base layer so again those have to adhere to all of the rules of the general Bitcoin network.

There's no cheating that, unfortunately, once you're sort of off chain and you've got your sat on lightning so to speak. Again, the network is structured in such a way that when you're reading these payments, whether you're sending receiving or you are one of the hops.

It's very, very difficult for the general layman to cheat the network and steal from them because everything's back in a similar way to Bitcoin is in terms of private keys and things like that everything's backed by cryptography.

And I'm not even going to try and explain sort of how the technicals were, but yeah, just rest assured that those protocol was built so that nobody can cheat them.

It answers, I mean, I'm sure you've had this before, like, when you're explaining all of the stuff and you know we mentioned that seven transactions per second and you have like the standard answer where people are like, Oh, well, Bitcoin's gonna fail because you can't buy your cup of coffee and you have all those kind of

just irritating questions, but at the end of the day, they are kind of valid because there's no question that Bitcoin as a money is better than what we currently have. There is just no question and anyone who argues that, in my opinion, is just flat out wrong.

But we do need to be able to use it as a payment system as well. And this from what I understand could be one of if not the answer to that issue and that if this is set up properly and it's adopted by more people.

There's no reason that you can't just use Bitcoin for everyday payments and tiny payments and micro payments and all these ideas that are floating around. Is there any sort of drawback to it? Is there any issue with it where people are concerned or is it just that this hasn't been adopted yet.

So obviously talking about the current state of the network. I mean, much like Bitcoin. It's changing on a monthly basis. But currently, you know, some of the drawbacks.

You've got, obviously we talked about these, you know, the network bill to all of these payment channels that kind of link together. So you've got to sort of manage the balances within those payment channels. So going back to our very first example.

If I put 50 pounds in a channel to you. And I bought 50 papers off you. I can't send you any more money in that channel. So I either need to open a new channel or you need to send me some money.

But if it's your shop and you don't want anything from me, that's never going to happen.

So there are a couple of tools known as looping and loop out which these come under the what's known as, and it's always perplexed me this term that they give it but a submarine swap where basically you can trustlessly change on chain Bitcoin for off chain lightning,

which is still Bitcoin, but it's lightning within a channel. So I would go to a loop provider and say, I'm going to give you 100,000. I want you to take your face and then put 950,000 into that channel.

I've just specified so that I can continue to go and buy my paper from maps every morning, which works, but obviously, currently with the way the tools are built, it's not for the average user. It's extra friction.

When people are used to just going and tapping their phone onto a card reader and, you know, they just spend their monthly wages like that. There's almost frictionless going from that to having to manage these channels or things were a long way off yet from this being ready for the mainstream.

But whether that's the reason that we haven't seen as much adoption of it, then we perhaps could have its potential for again, you know, I think we've mentioned it in all three or I've mentioned it in all three pods.

Again, it's about trade offs. I think there are wallets and apps that are working to, you know, take all all of this sort of channel management, a view away from the user, which I think is probably a good thing.

I think until we get to that stage where somebody's just got a wallet that has either just a lightning balance and it looks after itself or it's got a lightning, it's just got a single balance.

And then if I go to buy a paper off you, it knows that the best thing to do is spend by a lightning, or if I go to buy a car from your friend for 50,000 pounds, it knows that on chain is the best.

And then we just choose for you, but I think we're quite some way away from that yet. Again, it's bounded around a lot on Twitter, but I think we're still very, very early. And it's particularly in terms of the lightning network super early.

Yeah, I mean, definitely we're early and I think it kind of a lot of it comes down to this idea of, there's such a small percentage of people who are interested in Bitcoin and actually understand Bitcoin to some level where they're comfortable with it.

And see it as like, okay, this is probably going to be the future of money. So those people who do understand it don't really spend it that often, you know, like we said before, maybe it'd be for stickers or, you know, from things who are people who are within our network and people that we know

and who want to support the projects that they're doing, but they're not really spending it. And the people who aren't involved with Bitcoin and don't really see why it's important aren't probably going to use this until like you said, it is just an app that

does the best thing for the user without them having to think at all. And yeah, that probably is a while away. But what's exciting is that this stuff is possible.

And just the fact that it's possible and it's durable now even with that friction means that not too long from now, especially the way that things are developing all of this stuff is possible. And when we really think what that means, it means that we can have a payment

of work that can, well, it can service everyone on the planet potentially. And that's pretty crazy. Yeah, I think, just to add a bit of context to that, I've just, while you've just been talking through that last piece is I've just pulled up.

And then Paul dot space, I was going to think, I think we covered it off in our notes episode, but basically what that is a quick, well, a visualization of the current and then Paul, which is like all of the transactions that are queued up to get right now.

It's Friday night on the eight o'clock Friday night on the 7th of August to get your transaction mind into the next block on chain, you're looking at $3.70. So, you know, if that was to continue those sort of levels of fees and you needed an instant transaction for something that costs $10.

But if you wanted to do that on chain and pay in a 30% fee, well, nearly a 40% fee, nearly $4. You're not going to want to do it. Are you going to look for alternatives.

So, yeah, I think there's two, there's two ways that this lightning thing gets adopted. It's either through UX, which you just covered, or it's through forced in through fees where people just think, well, I know this lightning UX might not be the end product,

but there's no way I'm paying $3.50 for a $10 transaction for it to be mined into the next block when I can do it on lightning for five steps.

So, if the, since the halving obviously fees have slowly been trending up, which isn't a surprise to me and probably to most people, I think if they do continue to trend up, I think lightning adoption probably will see some more focus.

Yeah, because it's a case of like, certainly for me, I very rarely spend my Bitcoin. And if I do, it's normally in larger amounts. So then I'd be like, well, you know, if I'm sending it and it's a couple of dollars,

is it really the end of the world and I'm used to it and I don't have to mess around and sell channels and all that sort of stuff.

And it's kind of just like an ease of use, but yeah, if I was using it more or I was sending a transaction, I was thinking, actually, I don't want to be spending that it's kind of forced me more to use lightning.

And maybe that's what it takes for more people to use it is that it's like, Oh, the fees have gone up and I'm just, I'm not prepared to spend that right I need to actually spend some time and learn how to use that.

Yeah, definitely. And this one thing I'll probably add that we didn't cover off earlier around the sort of core principles of how it works, the lightning network.

Obviously I mentioned that we pass whenever one of us sends some lightning funds back and forth we pass across these signs but not broadcasted transactions that will date the current who's got who's rightful amount of sat.

If you were to try and cheat me. So let's say we agree on the current state of the of the channel, but you've got an old state that sort of gives you and let's say we go out to dinner.

And I paid for it and then you say I'll send it you back over lightning. You send me $10 back over lightning, but you, you grab an old state where you still had that $10 and then you close that channel and broadcast that to the network.

If my node catches you doing that, I have the ability to sort of broadcast the updated the rightful state of our channel. So basically catch you out say I know you're trying to cheat me and hit here's my proof I've got an updated version of our channel.

You get basically what's cool. I think it's something along the lines of a penalty transaction where basically I can steal all of the funds, but I'm not sweet. Yeah, I steal all of the funds in our channel.

So if you still add a hundred thousand sat that we're right for the yours in that channel, because you tried to cheat me, and I could prove that you were trying to cheat me because of the way that the network destruction and the way that these channel states are identified.

So I could then say, well, sorry, Matthew just tried to cheat me I'm going to take all these funds and the network would recognize that and confirm my transaction over yours. There is a time, there is a time window that I have to do this. So I have to sort of see you doing it.

I suppose it's one of the drawbacks, but if I am sorry. Is there not like something like watch towers that does this and it manages it for you is my right and saying I'm sure I've heard. Yeah, that's right, but there at the moment to my knowledge they're not widely used, and I'm pretty sure that you have to pay a fee for that as well.

But to my knowledge they haven't been widely implemented, but that is a fix for that way I could sort of pay a very small fee to, let's say, lightning labs to run a watch tower service I could pay them a very small fee to say, I've got this channel with Max.

I don't trust him to you. Well, what I say and don't trust verify. So I could say to them, I don't trust him. Can you watch our channel and let me know if he tries to close the channel in a non collaborative way without not finding me.

Yeah, I'm sure there's probably a more technical way to describe how they work but that's a general gist of it and they'll sort of notify me and potentially know the current state of the channel cross reference that with what you're trying to broadcast to go.

Hang on a minute. Max is trying to cheat here.

And they'll notify me or they'll even broadcast the justice transaction where I've got the rightful state of the channel and then kind of screw you out your stats basically because you were trying to screw me so, like you say, it's quite tough to cheat the lightning network, much like it is a big coin network so

Yeah, it's trying to read. Yeah, there's a copy of the potential penalty if you try to screw somebody over.

I got really excited about lightning couple of years ago like fairly early on when I was getting involved with Bitcoin and like I was obsessively watching all the address on some of those videos and him talking about micro payments and streaming money and all this stuff.

And I remember just sitting up all night just watching the stuff like, Oh, my God, this is crazy because your mind goes to the sort of the extremities of what this technology could do.

And what could actually happen if this is usable for most people and the ideas that have been talked about and the things that could potentially be possible are absolutely amazing. It just seems like all the building blocks are there, everything is there, we're just now waiting for it to be built and from what you've explained there.

It seems that there's very little downside it seems that managed correctly this is a system that can work for most people it just seems that maybe it's a little bit too difficult at the moment and for most people anyway and that, you know, give it a few years.

You know, is it something that you see could do things like micro payments and you could stream money and you could have like paywalls on websites and you could do all this kind of stuff.

Or do you think there's limitations on that. Yeah, I think there's two really good use cases that are kind of slowly coming into fruition at the moment. Number one being gaming.

And so obviously the beauty of the lightning network that, you know, these near instant transactions that can be of a very, very small value because of the almost lack of any fees whatsoever on across the network.

Being able, let's say me and you were playing a call of duty type game, you know, we could connect have our lightning wallets connected to this game. You know that links in via, you know, a plug in, and every time I beat you in a team death match your wallet pays me 100 taps.

Now obviously that just wouldn't be possible on the base chain because it would cost you more than that in fees alone. So, if me and you were playing college use the six hours on a Saturday, we might sort of pass back and forth, you know, a couple of thousand taps.

You know, it's like a little wager, you know, that would happen instantaneously and we pay almost no fees whatsoever to achieve that. So I think that's one use case that might come to the forefront. The other one is kind of streaming services.

Now, I personally haven't seen much of this at the moment. Obviously, I'd imagine it's quite technical to implement.

But you could have essentially a Netflix style service where, again, if you hooked your lightning wallet up to it, rather than paying Netflix £10 a month, you could just pay a couple of sats for every 10 minutes that you watch of a game of thrones.

It's kind of a paper play type thing. I suppose there are the two, the two main ones that sort of jump into my mind is to some of the power of lightning aside from the obvious of, you know, small payments buying a coffee that's instant and, you know, cheap fees.

I think we do start to see a lot more use cases like that start to pop up as the, well, as the base change fees grow and the lightning network itself matures and the UX improves.

I think we'll probably a couple of years away from some of the stuff that I've just mentioned, but you can see the sort of green shoe started to show at the moment, but in terms of actual need for the lightning network.

And I think one chain for most payments stays very manageable and achievable for a good memory year to come really. Yeah, I agree. But it's good to have this as a not backup, but just to know that it's being developed in the background because we're aware that the fee pressure is going to build and that these fees are going to go up.

The fact that it's set up in such a way that these different use cases can work. There's no reason you can't build them. It's just a case of building them and that's pretty amazing. Like the things you've mentioned, you know, like a Netflix kind of idea.

You're saying, you know, you watch 10 minutes, you pay for 10 minutes. There's so many different things like that where just it breaks down these barriers of having to have things in batches where it can be so much more fluid like money can really.

It can be so much of a better and sharper tool than it currently is because you can't make a payment for a half a penny. You can't do that. It's just not possible or you can't stream money for when you're actually paying for a service online.

It's just something that's literally not possible with any other system and that can actually be possible with this. And that has serious value.

Certainly, I think we probably start to see even new businesses and business models that we probably can't even think of at the moment, start to pop up because of what these instant and near fee free payments start to enable.

I'm sure if we would have this conversation again in another five, 10 years, this probably whole new business models, you know, much like most business cycles, you start to see things like Uber's probably a good example, you know, nobody would have even thought that they'd be able to just call an Uber on their phone 10 years ago,

call a tax on their phone or anything like that. So I think it's probably going to open up various new business models again that we can't even imagine at the moment.

So starting stuff, it really is, you know, obviously a lot of this stuff is a long way away, but for people who now are listening to this and maybe they already have some Bitcoin and they think, you know, this sounds cool.

I want to actually give it a go. What services are available now where people can dive in and have a play because you know that that really does seem to be the best way to learn with this stuff.

Yeah, for sure. So, so much like the base layer, there's two ways you can interact with lightning there's custodial and non custodial. So quickly clap and we've covered it with wallets or wallets pod and non custodial is where you're sort of in control of private

keys, and you're sort of interacting with your own lightning node and custodial is obviously the opposite of that. Some of the custodial services where you're using somebody else's lightning node.

I think blue wallet is a good example of that this blue wallet actually offers both you can default to using their lightning node. So if you were to send some Bitcoin on chain into your blue wallet, you could then use that to send some funds across lightning.

What that looks like under the hood basically would be that you're sending some sat to blue wallet and they're doing a lightning bit on your behalf.

So you still get the benefit of the low fees and the instant sort of transactions, but they're doing a legwork for you. So to speak. So, again, you know, that's an easy way to get started and a quick way to get started.

So obviously it comes with the same trade offs that it's there they're doing the security side of things. And so you are putting a little bit of trust in them.

Breeze is also a good option breeze as breeze wallets made a very good UX that kind of, I think they actually open a small channel to you as well when you set the wallet up so you can actually receive from straight away.

This is a good, a good sort of onboarding tool and how scalable that is in terms of if and when the so called masses turn up. I'm not sure whether they'd be able to sort of scale that to millions of people. But again, currently, a very good onboarding tool for most people.

It's a personal favorite because I'm a turbo nerd and I've got my own lightning nodes is that the exact wallet, which I've run on my Android phone.

So I've got my lightning node which runs on my my node, which again is covered off in the nodes pod. So what that is is basically it runs on a framework that allows it to communicate back to my node at home.

I can tend and receive lightning payments from anywhere in the world once I've got my phone with me, and they are being rooted essentially back to my node at home that sat in my office. So that's probably the ultimate way to interact with the lightning network, but certainly not necessary in terms of starting out.

And one final thing I probably will add is that, you know, the nature that most people are going to interact with the lightning network is that they're going to be doing really small low value transactions for stuff like not well at the moment is novelty stuff is made stickers

I don't know whether you've seen that Apollo feed that was the first lightning giant's action I ever made funny enough to see some chicken so like say it's low value stuff.

So the necessity that that is done in a sovereign and most censorship security resistant way is obviously much less important than if you're interacting with the base chain and you're doing much larger transactions or your

putting your life savings into it then, you know, obviously you want to do that in a much secure way so I personally, obviously I'm an advocate of everybody holding their own keys and running their own node but

if you're just putting 10 pounds into have a play around some of it, you know, breeze and things like that where you're using their nodes, probably isn't a bad option just to get started and play around you still get all the benefits of it.

And it's not the end of the world if you lose things, what is it. No, and you mentioned zap so zap is Jack Mallers isn't it. And from what I understand he's got another system that he's worked on which is basically that you can actually pay for things with a card and he's working with Visa or something like that.

That's another option strike that's the one. Yeah, so how does that work and like, do you see that that's something that's going to come to the UK and another country soon. Yeah, I think, did you buy the sentiment on Bitcoin Twitter everybody was laughing it up.

And I think from a UX perspective, it's very very clever. And so from what I can gather obviously I've never used it because I'm in the UK and I hate k what I say, which I'll come up to in a minute.

But essentially you link it to your debit card and you sort of you can just top it up so I can go on to my hey just BC account and I can throw 50 pounds into my strike wallet which is just it's just a mobile wallet.

And that that mobile wallet sort of speaks the lightning network. And so if I wanted to pay you over lightning you could send me a lightning invoice. I could scan that lightning invoice and my strike wallet in the background would use Jack Mallers is lightning network and it would convert that pounds sterling.

And on his end he would pay you enlightening so you receive lightning and I have a reduction in my pounds sterling balance in my strike wallet. So you're happy because you've got lightning. I'm happy because it's friction free for me all that done is just put some pounds in.

It was fast it was instant, you know, and it was really easy and slick to use. Problem being, again, a lot of people new to the space might not see this is an issue. This is a bit of a rabbit warren of KIC so to sign up to strike and many other services that make UX really, really slick and easy.

Obviously, if you're interacting with Bitcoin and the legacy system, the government want to know about it. So you have to provide. I don't believe it's much information, but it's some information to strike off to anybody that's operating a similar sort of service.

Basically, everything's recorded. And so in that instance where I've just sent you, you know, say, 100,000 sacks, they would know, the government would know about that if they were to subpoena Jack Mallers and say, I want to know all of these transactions on this day.

They could look at that and go, okay, Bitcoin Q&A sent this lightning node this much money. So, again, might not be a threat model for most people. But again, if you start digging into the privacy side of things and the things that governments are up to and the risk of that poses and the KIC only pots.

I think it will probably worry a lot of people so me personally just tying it back into strike, probably when it comes to the UK probably not going to sign up for it, because I can use the lightning network might not be as slick as as strike is but I could still use the lightning

to take that exact team invoice in a way that doesn't tell my personal identity to it and give away all my personal information. I could still pay that same invoice in a private more a lot more private way.

Yeah, the reason I think things like that are interesting. It's not something that I would be interested in for myself and it sounds like the same with you, but it's definitely something that could onboard people.

And until you're onboarded, it's difficult to actually understand why KYC isn't so good necessarily and why it's important to have privacy and it's only for a lot of people once you fall down that Bitcoin rabbit hole that all this other stuff becomes clear

Okay, this is why it's important to actually have privacy so I kind of see it as if it can onboard people and maybe they use that for a period of time because it's just easy and they don't have to think because they don't care.

Then it might then suck them into actually caring in the future. So it's kind of like a Trojan horse.

Oh, definitely. Yeah, I'm under no illusion that nobody's going to come into this space and go right I'm going to buy all of my Bitcoin off Bisk. I'm willing from day one to go through that that headache of, you know, setting up my Bisk Act.

Yeah, I'll be the first one to admit I'm the biggest non KYC advocate for one of the biggest non KYC advocates out there. But it genuinely is not as easy as going on to strike or to cash out and using their flashy UX and giving up that personal information.

It's nowhere near as easy. There is a lot more friction points by non KYC. It's definitely getting easier.

But yeah, nobody in the right mind that's just coming into this is going to try it. And the likelihood is, if they do go direct to somewhere non KYC, and they see all of these extra touch points, it's probably going to switch them off.

So I think tools like cash app and strike and do have their place. And yeah, they are great onboarding tool. I'm like you say, if I can get somebody to pay me 50, 50p lightning invoice and they see that happening split seconds by using strike.

And that gets them hooked a little bit to start asking more questions. That's probably a net positive for me. And then it sort of, it buys it enough interest then to, for you to sort of hold their attention long enough to say, okay, that's good.

Here's a trade off, and here's what you can do to circumvent that or to probably in my way to describe it, but to avoid and given up, you know, all this personal information that just to do exactly the same end result.

It's that wow factor, when it's fast, and it's the ease, and that is how you onboard people and you know that's why with coin floor my sponsors with anyone who's new.

I don't try and say I'll go on to this can, you know, download that and then, then write down your 24 words and blah, blah, but I just don't do it because most people will just get scared off so I say good coin floor.

And I know that, you know, in an ideal world you don't actually have the KYC stuff and once you've fallen down the rabbit hole that's that's the way that most people go but to onboard them.

I know that I can just say right coin floor UK, you go on there you buy a certain amount a week and they get comfortable with this stuff and but things like strike, they can, they can see how slick this stuff can be.

They can say okay right well I've bought some I'm actually getting interested in this stuff can you tell me how to go KYC and then they can do it but they have to actually care in the first place because if they don't care about it and most people don't until they understand why it's so important.

And then they're not going to bother messing around with hodl hodl or this or you know going and doing a cash transaction with the risks that go with that or mining or any of the other ways to get KYC free Bitcoin it's just too much effort for most people sadly.

Definitely, I mean you know we hear about and data leaks, almost on a weekly basis now and it's almost kind of just nobody pays any attention do they.

Certainly nobody outside of the Bitcoin echo chamber pays any attention whatsoever nobody cares I suppose it's just the sign of David life really and the where you know where we're at. So sadly, so I think like you say you've got to get that buy in first and then slowly start to infiltrate them with the with the trade offs yeah.

And Bitcoin fixes this. It does. Yeah, yeah. Well unless you're giving away all your information to buy it individually.

But that's what has been good talking to you about, you know, let's be realistic is that 99% of people who get involved in Bitcoin are going to go to a KYC exchange I did I'm not going to mention the exchange that I went to buy straight away went to exchange putting all my KYC information.

I didn't care didn't even think about it and then you know six months later a year later I was like oh we shouldn't have done that but I'd have never done it otherwise and what's good is that we're now talking about.

Okay, how do you have a wallet and how to control your own key step one take it off the exchange right now one step better how do you run a node and how do you connect that to your wallet so that you're not leaking data.

And now we've had this conversation about lightning which again actually can help prevent surveillance if it's using the right way and you're talking about the way that that can work and and I think maybe the next conversation needs to be on coin join and how to actually

you know maybe you've leeched your information on maybe you've actually given your KYC information and now you've fallen down the rabbit hole and you think okay well how can I change this what can I do.

And there are tools available to actually to change that so nothing's perfect but there are the tools to go back and sort of almost rewrite history. Yeah, definitely and again I'm obviously a massive advocate of coin join and again much like the lightning side of things.

Very much a hobbyist type thing at the moment, you know, we are not going to get newbies coming in by an on coin base and then go right and he's going to make that's what I'm going to do now because they're not just not at that level yet.

Again the UX is improving massively. And I'll probably just leave it at that because I know we're going to have another conversation I think and we'll probably get into the weeds of it all there.

I definitely like to speak to about coin join I think there's definitely a whole show in that and it's something that's really important. It's something that people won't realize at first but the further you go down the rabbit hole the more you realize how important privacy is and it's great that we have these tools available.

I mean I a couple of days ago I interviewed Chris Belcher who's working on some pretty amazing stuff that's going to be coming up with coin swap and that's got me really excited and outside of that got joined market and samurai and all this and I know you're

a fan of samurai fan and I love that wallet as well. So there's loads of tools out there and that I think should definitely be our next conversation and hopefully people will find it interesting and it will help them.

Yeah, definitely. I think it's again a good natural progression from the first three pods that we've done so I think it'll complement it quite well.

Brilliant. All right and so you know obviously this was a lightning show we sort of went a bit more on to privacy towards the end but was there anything that we've missed with lightning or do you think we sort of covered most things there.

I think we've covered it off I just want to reiterate a bit like the wallets one just just download one of these apps and just try it you know it doesn't have to be from us you can be for you know a couple of quid just try it you know see see the how it all works together

to sort of witness the benefits of it. You know if you've done a already done a non-change transaction and see what that user experience is like you know download breeze or blue wallet or one of those lightning ones and just make a lightning transaction

and just see how it works and you know you'll start to see the differences and how the two can sort of fit together try and make a note of the fees that you pay as well and sort of compare those to the fees that you paid on the last on change transaction.

If I get anything just trying to do this and throw in and get yourself started. Brilliant alright well Bitcoin Q&A thank you as always it's brilliant to go through this stuff and it's definitely useful for me and I'm sure it is for listeners as well.

So I can't wait for the next one and yeah it will be about a week from the release of this one week to 10 days so listen out for that and I'll link all of these different wallets in the show notes for people to have a play.

Yeah, look forward to speaking again, Max. Cheers. - All right, speak soon.