#1 Maximal Liberty - Lightning Network

Absolutely. And there have been as always in the Bitcoin ecosystem, many, many drastic changes over the last months. And one of the biggest ones, of course, was the whole scaling debate that, that started back in the early, early Bitcoin days and has been brewing over the last couple years to this point where it then happened in the Bitcoin hard fork in August with the big blockers forking off to the coin called Bitcoin Cash and the more second-layer solution-oriented folks stayed at Bitcoin, the classical Bitcoin, Bitcoin Core, that is still going and running. And so today we thought we're going to talk a bit about this debate in general, but we will focus mainly on the discussion on what is this new scaling solution that the people in the Bitcoin Core side are advocating called the Lightning Network, because it's a fascinating topic. And it's an entire rabbit hole that you could fall down to in its own. So just to get it off Niko, how did you first hear of the Lightning Network and what are your experiences so far?

Yeah, that's a good question. And you, you've been looking into it much longer and much more thoroughly than I have. And for me, it's still quite new. I did hear of it last year already through Twitter probably. I've been following it. I've been following the project, but I don't understand it so deeply. What I do understand is that it should enable instant payments and it should enable scaling as well. And I do have some questions for you regarding on how, like, there's these claims of centralization, for example, and I would like to know what that actually means.

Yes, absolutely. So this topic is huge and it's an entire new rabbit hole that you can fall down into. And I think what we're gonna do here on this podcast or video conference is simply a loose question and answer session where we each have questions for each other and we ask for the opinion of each other. And just to be clear, this is only our opinion. This is— Probably some of this is wrong opinions, as it turns out, because this is a quite changing space and quite evolving space. And always, as with everything, don't trust, verify. So do your own research, do your own due diligence, trust nobody, and educate yourself. And just take this as it is. This is us giving you some information that you might find valuable, but always, you know, check, back up references, and so on. Yeah, so absolutely. So do you want to get going? So what is the first big misconception that you think is out there in the Lightning Network?

The biggest misconception I think is the centralization claim and the lack of privacy claim. I feel like I don't— I fail to see how it's not. I think it's more private because the way I understand how Lightning Network works is that Not everything is recorded to the blockchain, but the starting and ending balance of a channel. Am I correct to assume that?

Yes. So the beautiful thing with a Lightning channel is that we can use the underlying strength of the Bitcoin network, this underlying security and censorship resistance that the Bitcoin network itself guarantees, and has shown over the last couple of years. And how we can leverage this specific technology to use this settlement mechanism as a trust mechanism in another layer. And this layer is called the Lightning Network. So what you do is you open up a channel, which is basically you make a Bitcoin transaction, a normal standard Bitcoin transaction like you've made hundreds before. Hopefully, but just to a specific address. And this address is a smart contract that is fancy, fancy cryptography and mathematics and Bitcoin code. And we can get a bit more into detail later, but for now it's just a smart contract. And all this does, it creates a hot wallet where you can store your Bitcoin in a Lightning Wallet. And with those Bitcoin in those— in this Lightning wallet, you can now start opening channels with other peers. So for example, if I want to send Niko some money, then I first put, let's say, 1 Bitcoin into this hot wallet, this Bitcoin Lightning wallet, and then I open a channel with Niko. And once I open this channel with him, we can send a transaction, for example, 0.1 Bitcoin, only from me to Niko. And the interesting thing is that we do not have to publish this transaction to the entire Bitcoin network. So we do not have to send it to every node in the system, but only be between the two of us. It is a valid Bitcoin transaction. But we only send it between the two of us. So the main privacy aspect that we get is that the transaction after— so the Lightning transaction after the opening of the channel, those are more private. But the transaction to open the channel is on the public blockchain. And we can use any of those private transactions that we send, any last state, and use this transaction on the public blockchain to close it again. So the closing transaction again is broadcasted to the entire network to make sure that, okay, this Lightning channel is now closed. But in between the opening and the closing, all those transactions in between are only between you and me.

Right. So that's, that's exactly what I was getting at. Like, that actually provides you another, uh, optional layer of privacy on Bitcoin network, which is great. Like, I was just reading about it today, actually. Yeah, that's, that's one, one thing that people do tend to get wrong. And I think another one is that for each and every transaction, you should open a channel, which I don't believe is true either. I think you open a channel and then you make as many transactions as you would like. And then once you close it, it will be recorded as one transaction to the blockchain, like you said. So that's something that needs to be clarified.

So the fundamental technology of the Lightning Network are payment channels. And payment channels have been around since 2010. Actually, Satoshi himself made the first statements about payment channels and how you can use the trust that that is built up in the Bitcoin system to use on a second layer payment channel between 2 persons. So he envisioned this payment channel just as I explained it earlier, only between the 2 persons. And if we would use this technology in a bigger network, then yes, for each transaction, we would have to open a new channel. The payment channel is only between 2 individuals, you and me. But the interesting thing that happened over the last years as technology improved is that we can now link several payment channels together. So, you know, now it's only us 2 in the conversation, so we have to add Alice and Bob into the mixture. So if I have a channel open with Alice and you have a channel open with Bob, and we 2 do not have a channel open together with each other, Then if Bob and Alice have a channel open with each other, then I can send my transaction to Alice, Alice can send your transaction to Bob, and Bob can send the transaction back to you. So without actually opening a channel to reach the transaction between us 2, we can manage to do this without any channel opening whatsoever.

Okay, so that's like, um, that requires a certain amount of nodes to be open all the time to be able to connect to each other?

Yes, that is, that is absolutely true. Um, you need many, many nodes in the system to, um, to keep the system running. But the good thing is that there are many Bitcoin Lightning nodes out there already. If you go to the website shabang.io, you can see stats on the current Lightning Network. So can you, can you share the screen?

Yeah, sure. I'm just trying to find the—

shabang.io. It's S-H-A-B-A-N-G dot I-O. And it's a website that shows the current Lightning Um, nodes. And right now we have on the mainnet 1,634 Lightning nodes. Um, so there are many, many nodes up and running. The system is well live and it's working, um, pretty much perfectly right now. That's it. So you can see 1,634 nodes that have opened, um, 40— almost 15,000 channels.

Right. Yeah, I understand that it has been growing rapidly since the beginning of the year.

Yes, absolutely.

So that's interesting to see. That would indicate to me that it actually is a legit technology and there's a lot of promise in that. What do you, what do you think about the scheduling of onboarding this technology in practical Applications because that's something also you hear some kind of well I classify it as as thought in a way that it takes such and such long time to implement and what would you respond to that kind of claims because I think it's kind of like a nobody knows kind of thing.

That is a good question because it is really interesting how the Bitcoin protocol itself upgrades. And it takes some time and, and some effort to upgrade such a decentralized system. Right.

Exactly.

And we, we saw that with the hard forks. Just the debate on the, on the, um, on whether or not we should upgrade the, the code in such a drastic manner that everyone has to agree with it. It's not going to happen in such a diverse and, and decentralized system. But the beautiful thing that Segregated Witness enabled Is that Lightning Network now is an opt-in system. So you as an individual have to be active in order to use the system. And now, when is the system ready? It has been ready for quite some time. I opened my first Lightning channel on testnet back in December 2017. So it's, it's been out there. It's been working. And you as an individual can choose to use the system as is. Now the question is, how long will it take for merchants to adopt it and for mass adoption to hit? What do you think?

That's actually a really good point because Lightning Network is not a company. It's not an ICO. Lightning Labs is a company that develops Lightning Network, but the Lightning Network itself is kind of like a protocol, like an open protocol, just like Bitcoin. That's a really interesting point because people are so used to, in my opinion, so used to this kind of like ICO type of a thing. Everything is a new ICO and you throw some money at it and hopefully you get some mad gains. But this is like building an actual protocol, a decentralized protocol, which is of course super hard and takes a lot of work and sacrifice to reach adaptation, critical adaptation levels. So yeah, very interesting point. And I think a lot of these misconceptions come from people actually thinking— I've actually seen people on Twitter and stuff talking about the Lightning ICO and, you know, stuff like that. And maybe people should look into it a little bit more. It's a protocol.

Yes. And the important thing is there's not only one company working on it. And it's not just one software. that is running on this protocol.

Right.

There are many, many different implementations of the Lightning protocol. I mean, there's the LND daemon. Then there's the Eclair, um, the AkinQL Labs, I think. Um, so there are 3 or 4 different implementa— implementations of the Lightning Network. However, they are all interoperable. So it doesn't matter which software you are running. Um, they all agree on the same fundamental, um, consensus, you might say, of the Lightning Network. This new second-layer consensus that is now being built on top of the first-layer consensus that is called the Bitcoin blockchain. We now have the second layer Lightning. And it's similar as it doesn't matter to which software you're running for your Bitcoin node. So you, you can use just the Bitcoin Core, but there are other nodes as well, full nodes that you could be running. Or wallets. Wallets, it's even more. You could, you could use multi-coin wallets like Jaxx. Or you can use a Bitcoin-only wallet like GreenAddress. There are many, many different softwares, but it doesn't matter. It's Bitcoin. It's, it's the, the protocol that matters. And Bitcoin itself is the protocol that is now being, being implemented in the second layer spending solution. And there's then also an interesting point. Is there a difference between a Bitcoin in the blockchain or a Bitcoin in the Lightning Network? Is there a fundamental difference or is it still the same?

Yeah, that's an interesting question. I was actually looking into— I'm sure you're familiar with Rootstock as well, which is a sidechain solution for Bitcoin smart contracts. You can use Ethereum ERC-20 contracts directly to implement smart contracts on Bitcoin, which is pretty amazing to me. It's on beta right now. So I was looking at that and reading the white paper and they have something called SBTC, which is short for Smart BTC. And once you lock up your Bitcoins into this smart contract, they will get locked up on the main chain. And then in the sidechain, an SBTC is kind of like unleashed. And then the smart contract stuff is done with that. And then once returned to the main chain, then the BTC will be released. So I think it's kind of similar, like when you lock up your BTC and then you move kind of like BTC as well in Lightning Network. I think it's the same. Like, would there be, in your opinion— I'm I have no idea. Would there be a way to actually take out the so-called Lightning Bitcoin without turning it into a Bitcoin first? Is it kind of like a, you know, like quantum physics kind of a thing that immediately something becomes the opposite instantaneously?

Yes, so I understand what you mean. That's an interesting point. So the thing is, once the— so the transaction to open the Lightning channel is similar as with any other Bitcoin transaction. So you have one UTXO, one unspent transaction output, and you assign it to a new unspent transaction output. Inputs and outputs. That's how a Bitcoin transaction is made. Just this new specific output is a script, a Bitcoin script, a smart contract. that does this Lightning transaction. So on that level, it is still completely inside the Bitcoin ecosystem, and the money is now just in this new unspent transaction output that is represented in the script. That is the Lightning Network. And it, it never leaves really the blockchain. It is always in the smart contract as, as long as you don't close it. As soon as you close the channel, Then you move it again. But then again, after that, it is on the Bitcoin blockchain. So it never really leaves the Bitcoin blockchain. But then what you could do in between with the Lightning is interesting because you could actually implement cross-chain atomic swaps on Lightning. Because the Lightning Network is— it works on any blockchain protocol that has 4 basic technological capabilities. That is multi-signature wallets, which is easy, you know, 2 out of 3 multisig or 2 out of 2 multisig in Lightning. Then you need Check Lock Time Verify or Check Sequence Verify, which is just a time indicator. And time is really, really important in money, and you need that in the Lightning Network as well. And you need something called a Hash Lock Time Contract. Which is kind of like an insurance mechanism to ensure that you get the Bitcoin if someone tries to cheat on you. But those 4 cryptographic principles are pretty easy, and most coin— most different coins have them. So you could have a Lightning Network on Litecoin, on Ethereum, on Zcash, on Monero, on Dogecoin, on Decred. And they could all be interoperable with each other. So it might be that you create a Lightning channel on Bitcoin, but then you spend your Lightning Bitcoin through the currency of Litecoin, for example, or Monero, and then pay the merchant in Monero. So for you, the Lightning coin can be sent throughout any network. Because it's interoperable. But on the Bitcoin level, it is still in the blockchain.

Yeah, that's actually a really, really good point. And also another misconception that people seem to have is that Lightning is a Bitcoin upgrade. It's not. It's a protocol that can be used with Litecoin, for example, I think. And there's other coins like Grussell Coin is one that has already implemented Lightning payments. And yeah, just like you said, and I'm pretty excited about the possibility for atomic swaps using Lightning. I think that's going to be something that is obvious in the future when people start to realize that we don't actually need necessarily a token for absolutely everything. And then we're probably going to end up with a couple tokens, like maybe 5 to 10. And then we're going to have the base currency. At least I think that's how it's going to be, and that's largely due to the Lightning Atomic Swap or a similar technology that allows instant transfers between— conversions rather— between 2 different assets. What do you

reckon? That is interesting. So does this liquidity between the different currencies and tokens and digital assets, does this liquidity Increase the supply of tokens, so the amount of tokens that are created, or does it decrease and centralize it? I would actually argue that the— that when we can easily interchange and swap between those assets, that the costs of creating a new asset decrease drastically. Because now you can easily swap your money or your funds into this new asset and out of it. which is, of course, cheaper and which gives you the incentive to create more digital assets because you can change it easily. So do you think that this will lead to a more open and more diverse ecosystem?

Yeah, yeah, I think so. Absolutely. Like, I think people are still going to want to use, like, in-game monies, for example. That's going to only grow that business. People are going to want to have digital collectibles Collectibles like CryptoKitties. That's going to be like— I expect that once we hit mainstream— before we hit mainstream, we need a killer app like that. Killer app which might not be that useful, but it will be entertaining, and that's what most people will be looking for, things like this. So I think that's going to be big, like gaming. Gaming is going to be huge. There's going to be different tokens that you can change between games. Maybe you can sell some in-game stuff. and convert it to another in-game money, stuff like that. So I think there will be like these— it will be used for these marginal uses for these different tokens. But I think the underlying asset that people swap to and from will be a scarce crypto asset. And right now it's Bitcoin. And I think in the future it will also be Bitcoin or it will be something else. But it has to be— it will be a scarce one because people will want to keep their— wealth in a non-inflatory asset, in my opinion. I think that's, that's pretty obvious to me, at least. What do you think?

Yeah, I agree 100%. And especially because, you know, we saw that with the gold standard. There are many different metals that you can use as a money. But because it is, it is in the— it incentivizes, or the system of money incentivizes people to get all into the same network. Because the more people are into this one currency, in this one money, and using this money as a currency, as a medium of exchange, they increase their possibility, the number of possible transactions that they can do in this entire ecosystem. So the more people join it, the bigger the network is. That's a network effect. Just like with Facebook or of course with Bitcoin. You hear Trace Mayer talking about the 7 network effects of Bitcoin. That is exactly what is money all about. And the stronger the network effect of money, the more valuable it is. So it makes theoretically sense that the market will tend towards this one medium of exchange, which almost everyone uses. And then, because everyone uses that, you can base every other good in the market onto this one currency. And now what we could see is that one currency, it might be Bitcoin, gets evolved as this one major reserve currency that is of course chosen voluntarily. It's not legal tender whatsoever. It's a free market. You can choose to do it, but it makes logical sense to do it because it's the most liquid currency. And then all the other projects are just being based upon that.

Yeah, totally. Like, Just, just what I think also. I think people tend to converge to the, to the most efficient and beneficial protocol.

Yes, yes, yes, I agree. And then again, the question is, will this Lightning Network be this efficiency and Will it handle the capacity of this trans— of the transaction throughput that will hopefully come? So, so what are your thoughts on the capacity of Lightning Network and how much transactions we could actually reach with that technology?

The capacity, I have no idea from the technical side how, how many transactions it can permit. But I assume since it's marketed as a scaling solution, Then that should be significantly more than the Bitcoin network, which is of course not that hard to do. But maybe you can shed some light on that, like how— what kind of realms of transaction speeds and amounts can we expect?

Yeah, so again, with the Bitcoin network, the base protocol, the blockchain, every transaction needs to be processed by every node in the entire system. That's the only way that we can form consensus on this one true state, the current block and its validity, and do that in a trustless fashion. And this can only be done if every node has to, has the transaction. This, of course, cannot scale really well. Just imagine if you have to run on your personal computer every website, a copy of every website on the entire internet. It's impossible. Doesn't make any sense. So what is this Lightning Network? This Lightning Network is pretty much just the signed transaction that can at any time be published onto the main Bitcoin blockchain. And the signed transaction is just passed between a couple individuals. So not the entire network, but just a couple individuals. And, you know, on small scale with just payment channels, it would be just me and you. But then on large scale in the entire network, it would be between 20 hops. It doesn't really matter. But the speed that you can sign this transaction is the speed that you can process, you know, elliptic curve cryptography, which is basic multiplication, which is milliseconds. So theoretically, you can create a new Lightning transaction, which again, it's just an unfinished Bitcoin transaction. And you can sign hundreds of thousands of those transactions per second. And you can send it to whatever website you want. So theoretically, one person might just do that and the other persons in the network don't even realize it. Because for them, they only see what's happening on the Bitcoin blockchain, on the public blockchain, not in that private channel. So theoretically, the throughput on the system is limitless because you Or it at least depends on the, on the amount of hardware and computational power that the individuals have available. And we have a lot on our smartphones.

Right. So, so it will, it will be able to rival the likes of Visa and MasterCard for sure in amount of transactions. Let's say that each and every node will be kind of like a decentralized service provider. Mm-hmm. So how would you respond to claims that this is actually centralization? Because you do need— you're kind of working with the payment processors here, and the way it sounds right now is that, you know, in terms of hardware, running hardware, and the hardware specifications getting harder to reach for regular people, there could be a claim to be made that the centralization is to some extent Similar to mining centralization claims, I suppose. But the way I understand it, actually it's a trustless system because of how Bitcoin works. So actually there wouldn't be any way to identify those processors. Is that correct at all, or can you add to that?

Well, in order to be a full participant to the utmost percentage that you can be in the Lightning Network, you need to be running a Bitcoin full node. So you need to have a copy of every Bitcoin transaction on your own hardware, um, so that you can check if someone is cheating you in one of your open channels. If someone is closing the channel, um, with a previous state, which means if someone is stealing your money. So if you want to by yourself and trustlessly verifiable by yourself, want to check for this, you need to be running a Bitcoin full node. Now, what are the hardware costs of running a Bitcoin full node? A Raspberry Pi costs €30, and a 500 gigabyte tera— 500 gigabyte hard drive costs you $30 again. So for under €100, you can have a Bitcoin, like a Bitcoin full node, um, that has all the blockchain transactions. And it also has enough capacity to also run a Bitcoin Lightning node, which manages all your channels and keeps, keeps an eye on everything. So the hardware costs of opening a full channel is minimal. However— or any questions to that? Sorry.

Yeah, yeah. I mean, are you saying that you can run Bitcoin full node and Lightning node on the same Raspberry Pi?

Yes, you could run it on the same Raspberry Pi. You could run it on a different Raspberry Pi. It doesn't matter.

Interesting.

As long as you tru— as long as you trust the full node, and if it's your own, on your own hardware, you should trust it, then it can be anywhere. It can be any IP address that is open. Or you could route it over Tor. So you could make it private as well.

So it's actually, actually, uh, not that hard to run. Yeah, you're— I assume you're running, uh, one yourself?

I, I am, yes. Um, but again, running the Bitcoin full node, um, 100% is even the most difficult thing that you can do. What, what you could also do is use kind of like an SPV, um, node or a light node, a light client node of the Lightning Network on your phone. So this means that on your phone you have your private keys that manage the channels in the Lightning Network. But you do not have to be online to check all the time if someone is cheating on you. You can outsource this responsibility to something that is called a watchtower. Which is basically just a network of nodes that can tell you if someone is stealing from you and can stop that transaction and refund you that stolen money without you being online. Now, that will decrease your privacy because of course you are telling people, hey, watch for this transaction. But on the other hand, you do not have to run a full node all the time. In that manner. But on the other hand, with efficiency, we might get to a place where you can run a full node on your phone easily. Which then again, okay, maybe it is useful that way as well. So have you ever set up a full node?

No, I haven't. I've been meaning to, but been too busy. Had to prioritize other things and Also due to moving around a little bit more than maybe regular, it's not super practical for me to run a computer all the time. But like you said, that's very interesting that if I understood it correctly, you could kind of tap into your channel using a mobile app.

Yes. Yes.

Without actually being present. But does that mean that your node has to be still running somewhere online?

So you can, it can, but it doesn't have to be. So when running the client on your phone, the Lite client on your phone, you can either connect it to a specific node, a specific IP address that has the node, that might be your own IP address, or it can connect to any other node. And it might— I think it chooses 8 different nodes that it connects to. Don't quote me on that number. I'm not sure. But it connects to a number of nodes and uses them kind of like as a freelancer to check for that information. Just like you might use blockchain.info to check if your transaction has been, you know, received on the Bitcoin blockchain. There can be some trust applied. if you want to, if you choose to do so. You don't have to. You can go completely trustless. But it can be very, very convenient for you to decrease the trust— or sorry, to increase the trust in another third party and to increase the risk that is inherent in that. But again, the Lightning Network is used— most likely going to be used for small payments. And you do not have to be like that paranoid about a $50 or €50 Lightning payment channel.

Right. I mean, if you're sending a sizable amount of money, then are you really in that much of a rush to get it through? So why not just use a standard Bitcoin transaction? A really good point.

Yeah. So, so what are your thoughts? Because I think that's, that's a really interesting point on how you personally can choose the security model that you want to have, um, on, on, um, on your transaction. So you can go shopping for the different individual types of transaction that you want to have. So maybe you want to add a Tumbler for privacy, maybe you want to add Lightning Network for efficiency and stuff like that. And you yourself as the end user can choose the amount of sophistication that you want to have in your transaction.

Yeah, I think that's really great. I mean, more, more options is always great as long as those are opt-in and nobody's forced to do anything. And there's a consensus. So yeah, that's fantastic. Of course, and I mean, it strengthens the network effects because the product becomes exponentially more useful, obviously. And that even speeds up the adaptation, in my opinion. And back to the point that you made about kind of like trusting these central trusted third parties, I think that's a really good point for anybody thinking into getting crypto. And if we think about regular people. I don't think that we will ever reach a moment where people, generally speaking, would want to be in full responsibility of their own funds or wealth. I don't think that's ever going to happen. I think there's always going to be a sizable amount of people who would rather trust a third party than themselves. So I think this is what the banks are going to be like, or the exchanges are going to be like, custodian services, or rather like people who take care of this for you because you don't trust yourself. What do you think?

Interesting. I agree, there's still a lot of space for custodial services, especially for collections of funds. So for example, investment fund, there's always custodial problems here. But I actually think that Bitcoin is the best technology to solve the problem. And it's, in my opinion, a question of user interface and user design and graphic design. Because if it's for you easy to securely store your private keys, then you'll do it. I mean, just look at hardware wallets. They are pretty easy. I mean, it's a USB stick, you plug it into the computer, it opens automatically, and you can easily send it as with any other wallet. It's easy. It's good. It's good user interface. And that's why many people have hardware wallets, because they are secure and they are easy to use. Now, how far can we get there? Maybe we can soon have smartphones that have integrated hardware wallets, integrated secure enclave environments, computational environments. Once we have that and you don't even recognize a difference between something that is happening on your hardware wallet internally or on your, like, open processor that might be infested with viruses. So that, I think, is a big part user interface. And again, what we can do with multi-signature wallets is really interesting because I think there is where the biggest need lies. To not be the custodial, the 100% custodial over the money, but to be a neutral arbitrage— arbitrageur in a difference in like a 2-out-of-3 multi-signature. So we 2 make a transaction. We don't trust each other. We take this one guy that we know and trust, this one bank, to be the third party in this 2-out-of-3 multisig. So if anything happens, we go to that guy to arbitrage and to decide what is going on. So I think that is where the banks, quote unquote, the custodians, still have leverage and where they can still be useful. To be of 100% over the control of the money, then I think we're back at At just traditional banks that can screw over the consumer? Or do you think that once the banks have the power of 100% ownership over the funds, that anything can stop them from misusing it either themselves or from being hacked and forced to misuse it?

No, I think those hacks are going to be inevitable like bank robberies back in the day. But I think that's just going to be like, that's going to be built in the bank's or custodian service's business model and they will cover for that risk with insurance or something like that. I think, yeah, I think you're probably right with the user interface. Like, that's actually a really good bridge to a project that we both kind of work on, the Weeconomy, that we try to kind of like solve this interface problem, user interface problem for cryptocurrencies and blockchain in general. Like these amazing technologies that can really make people's life much better. But the problem is that people won't adapt unless it's in every way better than what they're used to.

That's right.

So the key is a very user-friendly interface, like you said, and wallets are a big, big thing because, like, for example, in Weconomy, what you would actually have in your mobile is a wallet. And if that wallet is not secure or you don't know, like your phone gets stolen or something like that, or you have your backup online and somebody hacks it, those kind of problems are going to be like something to solve for sure. So I think you're right on that. I think there's already one or two different phone manufacturers or at least projects that are trying to do like hardware crypto wallet phone type of device. I think those are probably going to be a thing in the future.

Yes.

But I think we're a far cry from public adaptation yet. And some kind of like model could be like a soft wallet on your mobile that is easy to back up to an offline file. And the implementation of that will be kind of like— I think it could be a killer app for the blockchain and cryptocurrency. That's why I'm so excited about Weconomy actually, because it's what we're trying to basically solve, an interface for Bitcoin and smart contracts. Yes. So I also—

it's use cases. Sorry, go ahead, go ahead.

Yeah, uh, what you said— oh crap, I forgot what I was gonna say. Okay, you go.

So

I'll get back.

So I think it's, it's use cases. Um, the first 9 years of Bitcoin, and, and to this day and up to the future, we have to work on infrastructure and making this currency itself work as a currency for the entire world. This needs to happen and this will happen and many smart people are working on it. But this is only one part of the ecosystem, is the currency. Now you actually have to use it. You have to do cool stuff with it. And that's where the real innovation will come in. Once we have this good money that is useful and that we can play with, that we can do new and novel things with, once we have that kind of technology and we use it in the open market and people innovate, That is going to be where the real, like, mind-blowing stuff will happen. And Weconomy is really one part of that, absolutely. It shows how many different and new ways of coordinating society there are and what else we can try out and see if it works. And collaborating in economical activity and free trade is beautiful. So it's, yeah, absolutely.

Right, totally. And yeah, like what it could make possible in the future, for example, to make democracy work actually, like make voting work because you could record your votes in a blockchain. And similar way, like in Weconomy, we've been working on this quorum model. Like there will be, because if we're providing a platform for 2 people to transact with each other, there will be disputes at some point. of time, sooner than later. So how to solve those disputes? And you were talking about the arbitrator earlier, and I feel like that can— that doesn't even have to be a centralized person. It can be a smart contract that actually like works as a quorum. Like let's say that in Weconomy there's like high karma users that every time there's a dispute, the invitation goes out to like, let's say, 100 or 1,000. possible good users in good standing, let's say that. And of those, those ones, a certain amount will be picked for the quorum, or they can rather opt in. They will be shown the case and they will be shown the, you know, the possible reward that they're going to get on a positive resolution, accepted resolution. And then once the quorum is filled up, then they can vote. And then the verdict will be executed and it will be undisputable because it's totally decentralized system. Like a smart contract can just, based on numbers alone, based on the standing alone without any identification of those users, to solve actually very complex problems.

Yes, I agree. And I think one really, really interesting rabbit hole to go down to is how we can integrate this form of consensus and of of organizing a group. How can we integrate fast and instant transactions, cheap and worldwide? How can we add that into that system? And that is really, really interesting. Yeah. Because once you got into all the topics of use cases in the Lightning Network and you integrate that in a peaceful and in a growing and productive ecosystem, That is amazing. I mean, simply think about content creation, which is a really, really important and new genre that has been created with the internet over the last years, which has been thriving. I mean, look at Google, look at YouTube, Facebook, Reddit. It's all this content creation. And for the first 30 years of the internet, we did not have a payment mechanism. for content creation. Now we do have a payment mechanism for content creation. And simply streaming video is amazing. So have you looked into how the Lightning Network can be used in streaming video?

Not at all. But what you said earlier, I'm very interested in seeing like how the smart contracts— this is actually what I've been thinking for Weeconomy for the past week or so. Like how will it scale? how will Lightning Network work with, let's say, Rootstock smart contracts? And does it really, or can we, like I've also read that you can kind of do smart contracts inside the Lightning Network as well using the timelock features and stuff like that. So yeah, very interesting and certainly something I'm looking forward to learning more from.

Lightning Network is basically just a smart contract. And it is running in the Bitcoin Script language. And it can also run on the Rootstock language. The Rootstock language is just an extension to the scripting language or the scripting capabilities in Bitcoin. So on the Rootstock sidechain that has the scripting language enabled, there can also be a Lightning Network on the specific sidechain. So now we have one Lightning Network on the main chain of Bitcoin and we have one Lightning Network on the Rootstock chain of Bitcoin. And they can do atomic cross-chain swaps. Cross-chain, although they are the same chain. Like they're, um, you know, it's a sidechain, but it's, it's kind of like a cross-sidechain swap.

But it doesn't matter if— Sorry.

Go ahead. Go ahead.

I, I was saying you could, uh, atomically swap SPV SBTC to BTC.

Yes.

Interesting.

Yes. Or, or how about that? You could route a payment that you started on the Bitcoin Lightning Network, you route it through the, um, through a node on the Bitcoin Rootstock Lightning, then you route it through a Litecoin Lightning node, then you route it through a Monero Lightning node, and then you route it through an Ethereum Raiden or Lightning node, and then it ends up at the merchant. It's all possible. It's the same user experience as just using the network only on the Bitcoin— only between Bitcoin Lightning nodes.

Let's see, that's great. Yeah, I, I went to this meetup, uh, where they talked about Interledger. Have you read into that at all? The Interledger protocol, which is kind of like It sounded to me, at that time I hadn't looked into Lightning that much, but it sounded to me awful lot like Lightning. Like, you know, you can put in basically any currency and out comes any other currency and it's a global payment system. So that's basically like atomic swapping like fiat currencies. So, but of course this would be much, much more useful to be able to swap any assets.

Yes.

Yes. Do you think in the future, for example, the Lightning Network and the atomic swaps could be used to swap assets like real-life assets like security tokens, for example?

Anything that is tokenized can be used in such transactions. So the question is not can we use the token that represents the real estate, for example, but how can we represent— how can we make a token that represents this real estate? And that is the tricky question. And it's always difficult to link a real-life 3D property with a digital and virtual property. It is doable, but you always have some third-party risk simply because there has to be one individual taking ownership over the real-life property. And Fraud is rampant and you have to be as trustless as possible. And that is, I think, still a problem that many people are working on. And I don't think that there's yet a perfect solution for it.

That's actually a great segue to another project we worked together on, which is NX Solar. Because this is also a thing that we are— a problem that we are trying to solve. How to decentralize security tokens. And like you said, there is a kind of like centralized party risk which can be mitigated in my opinion by having several, maybe have the network owned by several different companies like regional annexes that form circles that decrease the risk of like one single point of failure kind of thing. Like if one of the companies goes down, then the operation can still continue, something like that. Yeah. But definitely there's a case to be made that it's super centralized compared to what normally, normal cryptocurrencies are, or supposed to be decentralized ones like Bitcoin.

Yes, yes. And the main goal, the end goal of decentralization is censorship resistance. So Bitcoin needs to be censorship resistant. That's why it's so useful that it is such a resistant system. And the question is, how much censorship resistance do we need to have in such an equity financing token? Yes, we need some censorship resistance. And we need to have some resistance in general, that if one company or one individual turns adversary, that the system itself still works and that the game theory behind it still works out. So that is definitely one big point. Yes. But then we do not need to have the same level of decentralization in such an asset token as in a money token that is Bitcoin. So really interesting differentiation. And where do you think does Annex lie? How can we toe that line?

Well, the thing is, like, no matter how you spin it, if you have real-life assets, they can be confiscated. by violence. There's no way around that. You can't simply put it in a blockchain, like in digital form. You can have ownership there, but it's always subject to recognition. And somebody can just decide, well, I don't recognize that ownership and take it anyway. So then what you're left with is a bunch of worthless tokens in the blockchain that say you own it, but you actually don't anymore because somebody took it. So it's a matter of perception. So in that sense as well, I don't think we should even try to strive for like perfect centralization because it will be never never achieved. What we can do, however, is to make it as decentralized as possible and as independent as possible from like any single point of like any single group of people or any single person. And that's basically all we can do as founders to try to step away from the project as quickly as possible. Because I think that's the only reason why Bitcoin has made it so far. And, you know, if you look at projects like, for example, Ethereum that has a strong leader, or even Monero to some extent, those projects— I feel like those projects suffer from the strong leadership rather than benefit greatly.

Yes, yes, absolutely. And I think that is one of—

Yeah, sorry, sorry, go ahead.

That is one of the greatest gifts that Satoshi gave us, that he got out.

Yeah, yes. I mean,

yeah, he took one for the team.

Yeah, yeah, for sure. And yeah, I don't expect he's ever going to return. Like, why would he? That would kind of defeat the whole, whole idea. I think that will kill the ideology to some extent. So I don't think that's going to— I don't think that simply can happen, that he would suddenly come back and start moving his coins. That would be outrageous. Yes.

Or, or a sign that the Bitcoin cryptography is broken.

Right.

Yeah. So yes, but to get back to Lightning. So what, what are your thoughts on the security assumptions in Lightning? And, and how secure is it?

How secure is Lightning? Well, I mean, isn't that subject to the network having enough nodes that are up? Because if a node falls out, then somebody should be able to handle the transaction. Or is there a way that if enough nodes drop offline that the transactions will get stuck in a limbo or something like that? Or will they just simply wait for another node to be online? Kind of like what happened with—

Yes, yes. So I think as long as you are somehow connected To the person that you want to send the money to, it reaches. No matter if you're connected with like the only 10 nodes in the network or if there are thousands of nodes and you're somehow connected to that person. It doesn't matter. You just need to be connected somehow. Now the— I think the interesting question here is about throughput. Because Lightning is fully equity-based, you need to preload You need to prepay for the channel. You need to open it with equity. There's no debt. There is no— there is no, yeah, IOUs. It's all full equity-based. So you need to pre-finance the opening of the channel. And this means that the number or the amount of Bitcoin that can be transacted through this network depends on how many open payment channels there are. Do you understand what I mean?

Yeah, yeah, of course.

And now the interesting thing is how can we, or how can we manage or increase or measure the throughput of this network?

Are you asking me? Because I have no idea.

No. Okay. So I was wondering that it doesn't really matter how much money is preloaded in those channels. So let's say hypothetically there, I want to make a 1 Bitcoin transaction on the Lightning Network, but all the channels are only filled with 0.1 Bitcoin. Mm-hmm. So theoretically, I cannot send my 1 Bitcoin through this net— through this network. Because all the channels are only with 0.1 Bitcoin. So I cannot send the desired amount in one transaction. But what I can do is splice them up and make 10 smaller transactions or 100 smaller transactions and send them over 100 different routes. So each 0.01 Bitcoin then eventually reaches the target and I can trans— I can, I can structure this transaction in that way that the transaction only goes through if the entire 1 Bitcoin, so the entire 100 packages that I just spliced up, actually arrived at the target. So in this way, even though the network has only limited capacity because the payment channels are only filled to a limited amount, because I can splice the transactions in the Lightning Network, It actually increases the throughput drastically.

And I assume that this can be coded into the interface just like, let's say, a hardware wallet like a Trezor can automatically just combine all those small addresses and consolidate, and you don't actually have to worry about a thing. Just punch in the number you want to send and then the system will do its thing. So I guess that's where it's going. I don't know what's the current status.

So right now there are 2 different options that you can make. Either you can, you yourself, when setting up your Lightning node, can search for the nodes that you want to open a channel with. So you can do that by hand typing in the IP address, or you can put it in autopilot and just, just say, okay, give me the 20 most connected payment nodes that I can open a payment channel with. So that I have the most connected and the most diverse set of actors that I can transact with. And then it opens 10 different payment channels, each with a small amount. You can still send in aggregate the entire Bitcoin, but it is already spliced up in 10 different payment channels. But as you said, the main goal is to make this as user-friendly as possible and to put as much of this into the backend and that on the frontend it only says 1 Bitcoin, that's your balance, you can spend it no matter how you want to do.

Yeah, I think the user interface is key, like I said before. And also like in terms of what WeEconomy is going to bring is that no matter what currency you actually use in day-to-day life when you go buy groceries, and then it will just— the interface will take care of whatever the underlying assets are. Like, you can be owning and earning and saving up Bitcoin without even knowing that. And if fiat is still here, you would just be then seeing the value in fiat, which I think will be an interesting thing and a paradigm shift once people start to realize that the work they did a month ago is actually worth a lot more than it was then. When the work was done. I do believe that's the real evolution or revolution when people actually realize what it makes possible.

Yes. The virtues of sound money are amazing. It increases your time horizon and your time preference. You start to plan much more advanced and you start to save more and invest more into the future, consume less and spend less on wasteful things.

Yeah, it encourages investing in good things, sustainable things, things that bring you more happiness, wealth, and good things in the world. Yes, absolutely. Decreases waste. And yeah, this is a whole other topic, of course, we're talking about here, but we'll shoot another video for that. Yes. Yeah.

Yes,

it's great. It's really going to change the world.

And we have to say that the years that we had a full gold standard were the most prosperous years that we ever had as a human civilization. And I think that the amount of prosperity that this new sound money called Bitcoin is gonna, gonna bring to this world is, is fantastic. Um, it's, it's, it's really gonna change a lot.

Yeah, just, I just actually heard online somebody comparing the evolution or like an advance in society to agriculture, that we haven't had this much of this, this big of a change since agriculture. And that's a pretty bold statement to me. But yeah, I can, of course, obviously now, right now, it's hard to see, but it could be, it could very well be like it could launch us to a new, let's say, golden age. Which is kind of what happened with agriculture. Like, it changed everything from hunter-gatherers. We became much more. So what will be the next level? Will Bitcoin and blockchain take us to the next level? That's an interesting thing.

Yes. And a great book on the subject is The Bitcoin Standard, which is a phenomenal book, and you should definitely go out and read it. Have you Oh, it's amazing.

I'm gonna include the link on the description so I can find

it. Yes. So it's been written by Saifedean Ammous, and he's a great economist and a great technician talking about the subject. And he goes into detail on how the— how money itself has been used throughout ages in human society, and how some currencies and some medium of exchanges, some goods have been used as good monies, and some are really, really bad. And of course, gold was one of those really good monies, and Bitcoin is going to be one of those good monies as well. And he just shows so much prosperity that will bring. It's a fantastic book, so check it out. Okay. It's really nice.

Yeah, I'll definitely— will add it to my reading list.

Yes. So then one big talk that is going around in the Bitcoin community is to talk about the medium of exchange and the store of value aspect of currency. And many people say that Bitcoin's most advantage is the store of value, that one Bitcoin is always worth one Bitcoin, and that it cannot be taken away from you. It cannot be stolen from you if you take care of it. It does not corrode. It does not rot away. It just is one Bitcoin. It doesn't decay. And that is the main strength of Bitcoin according to some. Now others say that The medium of exchange is also really important and probably more important because, yes, it is important that you have a good that does not decay, that has a suitable store of value. But what are you going to do with that good if you're not going to transact with it? So if you do not use it in exchange as a medium of exchange, it is a useful— it is a useless token that is just flying around somewhere. You actually have to use it in commerce and in exchange in order to make it useful money. So Niko, what do you think? What is the more important aspect of Bitcoin, the store of value or the medium of exchange?

It's a really good question, and I would say both are needed, like you said yourself. But I think even more important than acting as medium of exchange is the possibility to act as medium of exchange. That doesn't mean that people frequently transact with Bitcoin. The, the thing that I think that gives it value is that for the first time in human history, We have a possibility to store value of our work for later without it decaying. And not only that, we can also transfer it if need be. But I think the revolution— the evolution here is the store of value part. And with the possibility of spending it or liquidating it to whatever is the currency or whatever the thing that you want to purchase or need to purchase food or whatever. you have that possibility, that is what gives it the ultimate value. Not necessarily that you actually actively use that ability, but that you have kind of like, I would say like, I like to live in the city and I would probably die inside if I had to move to the countryside where there's not a possibility. But the truth is, when you look at it, I spend on my computer at home like 80% of my time, of my awake time. So it would actually not make that much of a difference. But there's the possibility that when I live in the city, anytime I decide to do something, I can go to a movie, I can go to a bar or restaurant, or I can go to a 24-hour shop. I have that possibility. So for me, that's valuable, even though I don't exercise that option that often.

Yes, absolutely. And it's the perceived or the expected utility that you get out of money. So with money, we have a good that you could use right now in this instant to exchange for any other good, a consumption or an investment good, a production good. And you could consume the value that you get right here and now with this money. But what you could also do is wait until a future time, until you exchange this good that you call money for any other consumption good that you want to have. And the difference between you consuming now and you consuming in a future time is called the time preference. And the higher this time preference, the more longer you think and the more you save and the more you invest for the future and the more long-term you think. And I agree that Bitcoin really gives you this more forward-looking, the more appreciative outlook on things, and you become much, much more less wasteful. HODLing is pretty much that. You don't spend your Bitcoin. It's gonna increase in value. You want to save it. You do not want to waste it.

Right. Yeah, I totally agree. And once I got into Bitcoin, which is Like I've heard of it back in 2010 already, but when I really got into it, it's actually quite recent, like about a year ago when I went all in and it changed my life. Like I swear I was so different. Like I used to waste money on going out in the bars and, you know, getting all these hangovers and stuff like that and buying electronics, things I didn't need. Now every time I'm making my— I'm contemplating on a purchase, I ask myself, do I value, uh, this thing I'm about to purchase more than I value my freedom? And oftentimes than not, I actually don't. So that's a revelation to myself that I value freedom so much. Like, ever since I've been into Bitcoin, like, I've— I don't have to go to work anymore. Like, of course, I, I work on Bitcoin all the time, and I work on investments and stuff like that, and content creation. Of That's where I get the support from my family right now. But Bitcoin made all that possible for me to take that leap from my old life, which was like this wasteful, disposable kind of running in the treadmill type of grinding life, which I do believe most people are still exercising, and opened my eyes to the possibilities of human development. and commerce and everything, like, like a way I didn't realize was possible. So definitely an eye-opener.

And isn't that beautiful that a currency can, can do that for you?

Yeah.

It actually really changes the outlook on life and that it changes your perspective on, on, on, and your preferences and what you actually want to do with your life.

Yeah.

And, and, and moving into a healthier state, into a more, um, more sustainable state where you provide not only for yourself but also for your family and for your loved ones. Right. That switch is so important because we live in this— historically speaking, the last 100 years have been just from a money, from a financial point of view, been inflationary as crazy. And this is, especially if you follow the Austrian school of economic thought, this is horrible. Because exactly, it creates wasteful thoughts and wasteful agendas. And you start wasting your money because it loses its value all the time. It's a worthless piece of paper. You want to get rid of it. You want to consume.

It's designed like that, the system.

Exactly. And then being like trained into this mindset of expanding monetary policy and what that all brings to you for hundreds of years by now, and then switching all of a sudden. into this new currency that is completely free, that is sound in economic policy, and that gives you the freedom and the liberation to be the owner of your own property and of your own money. That's amazing. And, and just having that drastic, drastic 180-degree switch is, I think, why people misunderstand Bitcoin and what it is, because we have not had a free money in so, so long. And now we have it again. And it's, it's a huge mindset shift.

Right, right. Like, for the past 70 years or so, like, most people alive today don't know actually how it feels to have sound money. And I don't think in any way, in this shape and form, we haven't even, even really had this true, uh, sound money like what Bitcoin can provide, like true scarcity and, and true, uh, deflatoria effects. So definitely, like, currency can do that. And all this talk about kind of like, you know, capitalism is bad or stuff like that, I don't understand that kind of narrative because what we really try to accomplish here is a new kind of a system where instead of short-term profits, we are actually building a better society for everybody and wealth. Everybody can take control of their own wealth. rather than hoping that somebody will give it to them, which is the current system.

Yes, I agree.

I think you're right that people just don't realize what it's useful for because people think in the old ways. People think in terms of fiat, like how much fiat can this buy me in a certain amount of time. And this is, I feel like the cryptocurrency scene is rife with people, uh, short— like short-term speculators still. Like, uh, it's mostly about that, and the true users are still minorities. So once that, uh, kind of like a mindset sets in and people actually realize that, oh shit, like, uh, you know, my whole life sucked compared to this new life that I can have. Like, I'm bullish on life because of Bitcoin. It's amazing. it makes you so hopeful for the future and what we can do. Like, you know, I haven't been— personally, I haven't been voting for like at least 10 years, maybe 15 years. I've lost all faith and hope in the systems right now. Now I have hope because of Bitcoin, because I do believe that people are going to take the power back and it's going to be a very different world. But of course, still a long way to go, but definitely in our lifetime. Oh yeah. That's pretty exciting.

Yes, absolutely. Freedom in our lifetime. That's, that's what it's going to be.

Yeah.

And economic freedom is one, one big part of it.

Right.

And, um, maybe, maybe to, to bring that all back then, um, to the Lightning Network, and especially how, how you could use this technology to secure, um, more freedom. Um, and especially in, in, um, areas of freedom of speech. Because I think that is one real, really big, well, vital point of freedom in general. And what we can see right now with social media is that it is becoming more and more a hype-driven circulation of, well, how do you— Ideas. Attention, and the question is now that we have this you know hype and and uninform or uneducated news or fake news quote unquote. How is that affected from now having the possibility of having cheap and instant transactions on a small scale so that you could use currency to curate quality content and without necessarily impacting negatively the freedom of speech?

How would it negatively impact freedom of speech? I don't understand.

Or to phrase it differently, how do you think that Lightning transactions can be used to improve the content that is provided to the end user. Similar to what Steam is doing.

Right. Do you mean like in terms of transparency

or— Yes.

Like scaling of the network? Because I think Steem is actually scaling pretty well. I don't think Steem needs Lightning Network for anything. Well, I mean, maybe in the future, but at the moment I think it's using like 1% of capacity.

Oh, really?

Yeah, I think it scales amazingly. Like, of course it's proof of stake, proof of stake rather, consensus algorithms are quite a different thing from Bitcoin.

No.

So yeah, hard to say in the future, like, if that kind of a platform is suspected for an attack or something, or is it even possible. Probably once there's enough users, attack vectors like that become more and more attractive and plausible. So yeah, I think some kind of messaging protocol probably running on Lightning Network is going to be possible and probably, probably happening. So then that way you would have a decentralized way to message peer-to-peer as well. I mean, after all, Bitcoin is a messaging service as well. So I guess Lightning Network could provide that kind of instant messaging service, if that makes any, any sense to what you asked.

Yes, yes, no, it does. Absolutely. Do you have anything else? We have like an hour and a half.

Yeah, we had a long pause. Yeah, this is like once you start falling down the rabbit hole and talking about freedom and, you know, sound money, then there's no end. I'm sure we can wrap the video up because I doubt that many people want to watch like 2-hour videos. I watch sometimes, but yeah, I know a lot of people don't have the patience for that. And yeah, we can totally timestamp this as well and help people to jump around because we touched a lot of topics today and I need to chew on some of it because I'm fairly recent to Lightning compared to you. And yeah, definitely a lot of good points here, very useful. And I'll be thinking about putting up my own node. And yeah, it would be nice to know if people would like to see a video or tutorial or something like that. I could probably film my experience and then try to help people avoid some mistakes or something like that. And so it would be great if you guys left some comments or ideas or whatever topics we could discuss later. And yeah, other than that, you can just find those, all those links to our social media from the description. Yeah, I think we can wrap up, fortunate for today, unless you have some closing remarks there.

Well, I think Lightning Network is one of the most fascinating technologies out there in Bitcoin right now. It really is a lot of fun to get into that stuff, and there's many, many, many, many great resources. Start with, with watching all the videos made by Andreas Antonopoulos. He has a YouTube playlist of 25 videos on the Lightning Network.

Watch all of them. Yeah, we should link that as well.

Yes. Once you've gone through them, you have a basic understanding. That's always good. And Andreas is such a phenomenal dude. So that is definitely something. Do your own research, as I said in the beginning. It's really, really important. Don't trust, verify. It's not just an empty slogan. It's your money. It's your responsibility. It's your private ownership of your private property. And this is really, really cool and really important that we take this seriously. Yes, so definitely, if you have any further questions, if you have any follow-up statements, leave a comment, reach out. We're quite available. Check out Niko's website, omnifin.com. Check out my website, towardsliberty.com. Check us out on Twitter. Niko's @omnifin. I'm @hillebrandmax. And we'll see you next time. Thank you for joining us. Thank you.

Yeah, thanks for your attention and see you next time. Bye.