Lingering Concerns about the Bitcoin Lightning Network


After controversially concluding the block size increases envisioned by the original Bitcoin developers were unsustainable, the off-chain, second layer Lightning Network was accepted as the primary scaling plan for the Bitcoin Core-dominated Bitcoin protocol implementation (BTC).

The Lightning Network is said by its developers to be far from complete or ready for production, but many members of the BTC community continue to push for its immediate use on the main network. This would see it controlling real, valuable funds. There are numerous concerns about the plan, some of which are outlined below.

  • Routing is inefficient – In order for a Lightning Network node to find a suitable route for moving funds it needs to know about every other transaction on the network. Nodes must be online to transact and have the bandwidth, disk space, memory and processing power to handle the load. With thousands and millions of transactions it could become too much for some nodes to handle, and with many competing users and even slight network delays calculated routes could quickly become invalid, causing transactions to fail.
  • Private keys are always online – In order to send payments Lightning Nodes need access to the private keys for user funds. That means the keys are always stored in memory and are potentially open to hackers and malware. All the risks inherent in online exchanges and their hot wallets will be borne by average users with potentially little technical know-how running consumer grade computers and operating systems. As second layer solutions are promoted above all else the former narrative that funds are only safe in an offline personal wallet or cold storage paper wallet will apparently no longer be acknowledged or encouraged, and such methods may become cost-prohibitive due to expected relatively high onchain, first layer fees.
  • Can't receive funds without a channel – In the past you could send Bitcoin to any new user by giving them a paper wallet or sending them funds when they didn't have any. With the Lightning Network a user must run the Lightning software and pay a fee in Bitcoin to open a channel before they can receive funds. The user will have to sign up to an exchange, buy Bitcoin and jump through technological hoops before they will be able to receive Bitcoin. This will certainly reduce appeal and slow down the spread of the currency to new users.
  • Fraud protection is costly and incomplete – With the Lightning Network users must continually monitor their open channels for fraud and publish a punishment transaction on the main chain if it's detected. Sometimes publishing this transaction will be difficult, impossible, or uneconomical. If onchain transactions are congested, it could take days or weeks to publish a transaction. If the cost of the punishment transaction is more than the loss it won't be economical. If a user loses their internet connection for any length of time they won't be able to publish a transaction or prevent one being published against them. Paid, third party overseers are envisioned to assist users who go offline, however the feature is not yet available.
  • Channel state must be strictly maintained – If a Lightning node loses track of a channel state it can be punished and the user can lose all of their funds. The current state could be lost due to an unexpected hard drive crash or by mistakenly restoring an old backup. To prevent loss all nodes will have to make an offline or cloud-based backup immediately after any transaction takes place.
  • Steep learning curve – Cryptocurrencies are already difficult for many people to learn and understand. The Lightning Network adds an additional layer of complexity that will make the prospect of using them even more daunting. This is particularly undesirable when cryptocurrencies are still relatively new and fighting for global market share with traditional financial products.

In our view the above concerns make the Lightning Network an unsatisfactory method of scaling Bitcoin and other cryptocurrencies. Further, Lightning is still in the early experimental stages and needs significant development and testing before it can be safely and effectively used.

We have much more confidence in Bitcoin Cash (BCH), which plans to scale the first layer as the original developers intended by increasing the block size. Scaling block size keeps fees low and transactions fast without overcomplicating things or adding new risks. Bigger blocks are a simple and effective solution that can be accomplished using current technology without compromising any aspect of the cryptocurrency.

While second layer solutions such as Lightning can potentially reduce load on the main chain, first layer scaling through block size increases should be utilized first and foremost whenever possible to keep onchain transactions inexpensive and fast, and the user experience positive.