Peter Rizun's Lightning Critique: FUD or Fair?

WBD049 - Peter Van Valkenburgh (Banner).png

Where to find the show

iTunes | Google | Spotify | Stitcher | SoundCloud | YouTube | Deezer | TuneIn | RSS Feed

Download Episode MP3 File
The file will open in a new window. Click down arrow to download the file.

“Bitcoin is a peer to peer electronic cash system, and the main design goal is to allow me to send money to you without going through any intermediaries. ”
— Peter Rizun

Interview location: Skype
Interview date: Wednesday 18th April, 2019
Company: Bitcoin Unlimited
Role: Chief Scientist

The scaling war pitched two ideologies for the future of Bitcoin against each other. One side believes that Bitcoin can scale on-chain with larger block sizes while the other side believes that the base layer should be kept small with payments scaled off-chain, using second layer technologies such as the Lightning Network.

Peter Rizun is firmly in the large block camp, and while there are questions over his previous thoughts and work, he is technical, and he offers a harsh eye over the Lightning Network. Yes, Peter’s approach has a bias, he wants the Lightning Network to fail to support his vision of larger blocks, but does this make his claims invalid?

In this interview, we discuss why Peter supports on-chain scaling and his Five Fundamental Flaws of The Lightning Network, including issues such as how small payments are not trustless and how high layer 1 fees impact layer 2.

Are his criticisms FUD or fair?

TIMESTAMPS

00:05:00: Introductions
00:05:43: Furore around the interview
00:09:45: Background to Peter and Bitcoin Unlimited
00:11:28: Discussing the Bitcoin hard fork and creation of Bitcoin Cash
00:21:52: Exploring further the controversy surrounding this interview
00:27:40: Touching on Craig Wright and Bitcoin BSV
00:28:51: Introduction to Lightning
00:30:46: Defining what Bitcoin and Lightning are
00:33:45: Discussing alternatives to scaling Bitcoin, separate to the Lightning network
00:40:03: Peter’s Fundamental flaw #5: running non-custodial wallets suck
00:45:28: Discussing trade offs with different alternative wallet solutions, including SPV and Neutrino
00:52:06: Peter’s Fundamental flaw #1: Lightning scales transactions, not users
00:56:13: Peter’s Fundamental flaw #2: friction from layer one leaks into layer two
00:58:47: Delving into the possibility and challenges of a two tier Bitcoin in the future
01:02:08: Explaining why Lightning payments aren’t trustless for small payments
01:04:29: Peter’s Fundamental flaw #3: routing failures are inevitable
01:07:55: Exploring the theory behind how Lightning payments work
01:12:17: Peter’s Fundamental flaw #4: liquidity is trapped in the Lightning network, which causes issues
01:15:57: Summary of Peter’s fundamental flaws of the Lightning network
01:18:40: What does Peter like about Lightning and what would he do to improve the network?
01:21:40: Final comments

 

SUPPORT THE SHOW

If you enjoy The What Bitcoin Did Bitcoin Podcast you can help support the show my doing the following:

If you are interested in sponsoring the show, you can read more about that here or please feel free to drop me an email to discuss options.

THANKS

A big thanks to my WBD Maximalist Patrons for helping support the show: JP Petit, Logan Shultz, Seb Walhain, Steve Foster, Tony, Gordon Gould, David Burlington, Jesse Powell and Wiel Menger.

TRANSCRIPTION

Peter McCormack: What a storm we've caused with this interview!

Peter Rizun: Oh yes, definitely!

Peter McCormack: So this is one of the problems with being essentially new round here and also not being technical. You've followed me for quite some time on Twitter, but I don't know your background and I just sometimes don't know the background to some people, or everything! So let me tell you what happened.

I'm planning this Lightning month and whilst I am a Bitcoin fan, I don't hold any Bitcoin Cash, I wouldn't say I'm binary 100% opposed to Bitcoin Cash. I thought that if I'm going to do a Lightning month, I want to have a couple of critics and I want somebody who's going to be from the Bitcoin Cash side because I think that'll be useful. Then what a storm!

Peter Rizun: Yeah. It really surprised me all of the reaction we got, to the idea that I would be on your podcast!

Peter McCormack: Well it was a bigger storm than say when I had Roger Ver on. It was a bigger storm than when I had Craig Wright on. It got quite intense. Let's be honest, in hindsight, it's probably the wrong interview for me and I tell you why it's the wrong interview. It's because I'm not technical enough to be able to debate you on the technical side of things and that's a problem.

But the worst thing is actually cancelling an interview. That was the wrong thing and I shouldn't have done that. So I'm glad we're still doing it. But I've got loads I want to talk to you about, actually. I tell you one thing that's interesting, because I was kind of like, "well look, it doesn't matter. It's just an interview. What's the harm?" Somebody came back to me and said, "well, if Rizun speaks a load of bullshit, then we've got to spend this disproportionate amount of time defending it and arguing it", and I was like, "really?”

Then do you know what happened this week? Some fucking dude on Twitter, he photoshopped a conversation between us, to change it to say I wanted his child dead. So I had to disprove that, but I've spent two days disproving it! So then I was like, "oh, maybe they've got a point and maybe the point is not that you shouldn't speak, is that probably I'm the wrong person to interview you."

Peter Rizun: Well, I don't know if that's true. I mean, you interviewed Christian Decker who was technical and he promoted the positive side of Lightning. So I don't see the harm in having an equally technical interview discussing the con side of Lightning. Peter, before we get more into it, are you recording right now? Is this for the interview?

Peter McCormack: I am.

Peter Rizun: My Bitcoin Unlimited people, they want me to record at my end too, if that's okay with you?

Peter McCormack: Okay. Because they're worried I'm going to edit it and fuck with you?

Peter Rizun: Yeah, like you were saying, the people from your side were saying this kind of stuff, people on my side are worried that you're going to doctor this interview. I don't think you are, because I've seen your show, I think it's top notch and I think you're very objective. But just so I can tell them that I did it, they would like me to record on my end. So I think you have to give me permission?

Peter McCormack: I will definitely give you permission. I will doctor it. What I'll do is when I go through and do my edits, I will go through when I've asked questions and I removed when I "uh" and "um" so it makes myself sound a lot more eloquent. I won't do that for you because you'll be doing most of the talking and it takes too long. But God, nobody fucking trusts anyone!

Peter Rizun: It's pretty terrible what's happening in the Bitcoin community right now.

Peter McCormack: Nobody trusts anyone, like I'm right in the middle of the storm anyway.

Peter Rizun: Okay. So I am now recording. So let's get started.

Peter McCormack: So this is the Bitcoin Unlimited people, did you say?

Peter Rizun: Yeah. So, like you said, all the controversy broke out. People were upset when they thought that you were going to cancel the interview and then they were really happy when you changed your mind. But then everyone's head goes into all these crazy places. So they just said, "I think you should record the interview your end as well. So that's what we're doing, but I have full faith in your journalistic integrity Peter.

Peter McCormack: Well, I managed to do that thing where I made everyone fucking hate me. So I had that day where small blockers hated me interviewing you and big blockers hated me for not interviewing you! So I tell you what happened was, I was traveling around, I got on a flight in Boston to go to New York to then connect to Hong Kong. On the flight in Boston, we were delayed for four hours and then I was delayed on the plane for two hours. All this shit came through and I was so stressed and tired, I was like, "fuck it. I don't want to do it. I'm not doing the interview, cancel it.

Then I think, I can't remember if it was there or after I got to Hong Kong, maybe it was after I got to Hong Kong after a 15 hour flight with no Wi-Fi, I open my phone and the phone almost melted with these alerts and the stuff on Reddit. I was like, "Oh fuck. No, let's definitely do the interview because there's no harm in doing it." I'm going to get hated for saying this, but I have certain sympathies with the big block side and there are things I definitely want to go through with you. But there's a lot to cover! So firstly, who the hell are Bitcoin Unlimited? I mean, I've heard of it?

Peter Rizun: Maybe I'll give you some background on me to begin with. I have been an investor in Bitcoin for a long time. but I was happy to cheer on from the sidelines. I decided to become more active when the block size limit debate broke out in 2015 and that debate inspired me to write my first academic paper on the topic of Bitcoin. It was called "A Transaction Fee Market Exists Without a Block Size Limit". This kind of spiraled into the creation of Bitcoin Unlimited and a group of us doing whatever we could, to identify and remove the bottlenecks to scaling Bitcoin to global adoption levels. That's still what I'm doing today.

Peter McCormack: So Bitcoin Unlimited is an implementation of Bitcoin?

Peter Rizun: Bitcoin Unlimited is a nonprofit organization with a mandate to promote and further Bitcoin, as peer to peer electronic cash. So we have developers and they maintain implementation to Bitcoin protocol called BU. So the BU node will run on the BTC Blockchain, the BCH Blockchain, or even the BSV Blockchain. It is kind of a contentious time in BU, so right now we're having to vote for dropping support for the BSV and the BTC Blockchain, but we'll see how that turns out in a couple of weeks.

Peter McCormack: Oh right, so you might just go BCH only?

Peter Rizun: It could happen. I'm going to vote to drop support for BSV, but keep support for both BTC and BCH.

Peter McCormack: So it sounds to me like you're a holder of Bitcoin and Bitcoin Cash and you see merits in both?

Peter Rizun: Yeah, I mean, I would say I'm a big proponent of Bitcoin. So when the split happened on August 1st 2017, because I held Bitcoin prior to the Blockchain split, I have BTC and BCH tokens. BTC has the stronger network effect right now, more hash power, so it has some advantages. But I see BCH as having more advantages in terms of its scaling roadmap. So yes, I hold both BTC and BCH. I have more dollar value in BTC, but I have more coins in BCH because I see more upside potential there.

Peter McCormack: So you see more upside potential in BCH and your BTC is probably a bit of a hedge? I mean you wouldn't want to put all your eggs or coins in one basket. I guess someone even like Roger will still hold Bitcoin? Whatever he says?

Peter Rizun: I think most BCH enthusiasts still hold lots of BTC because maybe BTC gets their act together, realizes that we have to increase the block size limit and I think that would really re-unite the community and we can all move forward together. So yeah, I hold both to prepare for that risk.

Peter McCormack: Okay. So then going back to the fork. So that's kind of interesting because I do have some questions about that. Firstly, it was a contentious fork.

Peter Rizun: Oh definitely!

Peter McCormack: Why would you say that's an acceptable thing to do?

Peter Rizun: You mean the fork was an acceptable thing to do?

Peter McCormack: Yeah, because it's a contentious fork. It's kind of like, "oh, we didn't get our way, so we're just going to do our own thing." It's a bit like Brexit at the moment, "oh, we lost the vote. So we're going to campaign to have another vote."

Peter Rizun: Yeah, I guess you could look at it like that. I don't, I think most people from BCH really wanted everybody to stay together and the BCH split happened on August 1st 2017, but it really didn't get the momentum it has now, until SegWit2x fell threw in November. So I remember driving with Roger in his car and I guess it was around San Francisco, a couple of weeks before SegWit2x fell through and we were both, "yeah, SegWit2x is going to happen. We're going to stay united. BCH will become irrelevant then." But it didn't happen and I think that that's what really lost the big block support from BTC and we all decided to move forward to BCH.

Peter McCormack: A couple of things on that from me, as somebody coming in. SegWit2x seemed dumb. It just seemed dumb and kind of was proven to be dumb, when after it fell through, again, I'm not technical, but Garzik's implementation crashed?

Peter Rizun: You'd have to ask him. I mean it's so hard to discern what the truth is because...

Peter McCormack: Oh come on, I think we all know what happened there.

Peter Rizun: The trolls will say certain things. Has Garzik admitted there was actually an issue? I'm not sure.

Peter McCormack: I would say it was technically proven there was an issue and everyone knows there was an issue. I think if we whitewash something like that and pretend it didn't, it's whitewashing an important part of history that proved that a hard fork is risky, moving the dev away from the core into Garzik and his team seemed like a very risky thing to do for a network that was worth billions.

Peter Rizun: But that wasn't what the idea was. The idea was that everybody would move forward in good faith. So core would also write a patch to increase the block size limit. Bitcoin Unlimited was doing the same thing, nodes could have run through BU, we would have followed that work. So no, I disagree.

I think if people were moving forward in good faith with SegWit2x, it would've gone forward smoothly. People say that hardforking is this huge risky thing, but lots of coins do it on a regular basis. Right now, BCH hard forks every six months. I mean I think that's too much, but it shows that successful hard forks can and do happen on a regular basis.

Peter McCormack: But it can lead to a coin split and certain miners staying with the old chain and therefore you just have a coin split. Then what is a real Bitcoin? That is a genuine risk.

Peter Rizun: But that's exactly what happened. The chain did split, so yeah SegWit2x was called off, but all that did is empowered the previous split of BCH. So this idea, we can avoid chain splits, is false because the Blockchain split on August 1st, 2017 and now there's two versions of Bitcoin, there's BTC with a small block, high fee agenda and there's BCH with the low fee original design of Bitcoin scaling plan.

Peter McCormack: Hold on. Now you're dropping in propaganda. Come on man! You can't get that past me.

Peter Rizun: I'm sorry. What do you think is propaganda?

Peter McCormack: Well you're dropping in the high fee and the low fees... Look, I won't be washed with propaganda. I'm fair about this but they're two different things. So there is a fork where you choose to fork off and create a new coin or there is an agreed hard fork for an upgrade, but during that process, a bunch of miners choose to stick with the old coin and then you suddenly have two coins without planning it. They're the two separate things.

Peter Rizun: I don't really see it like that. I mean to me, if the Blockchain splits, the Blockchain splits! It doesn't really matter how it splits and the fact is that the Blockchain split on August 1st 2017.

Peter McCormack: Well I see it different, because I see, for example, just say at some point they wanted to go to 2mb and there was an upgrade on Bitcoin and some people weren't happy about it. We then would have another split and another coin and I don't see a use in having all these coins. But I'll tell you what I think. I actually don't have a fundamental problem with a big block version of the chain existing. I don't have a fundamental problem with that at all. I think actually it's a useful exercise.

What I think I had a problem with is, why not just do it, give it its own name, don't call it Bitcoin, call it something else so there's no confusion, why not just do that? I think the big problem I have personally as somebody coming in, learning and not being technical, having it having the same name is confusing. I know for a fact it confuses people and I know for a fact people have sent coins to the wrong chain. I think anyone who denies that is a liar. Also, we have the confusion over Bitcoin.com and we have the confusion over @Bitcoin Twitter handle and we do have people like Roger constantly attacking.

I know it happens both sides, but I think how much better would it have been, just say this fork had happened, it had been called something else, I don't know, say BCash, which by the way I don't use as an insult, but say it was called BCash. It went off, did its own thing, its own website, its own handle, blah blah, blah. Don't you think that would have been a better scenario?

Peter Rizun: I think the best scenario would have been to have stuck together as a single chain. But no, once the split happened, I think both sides are claiming that they're more Bitcoin, than the other side. So like you said that Roger is attacking Bitcoin, but I see Roger as defending Bitcoin. Roger is fighting to bring forward this dream of fixing money, bringing Bitcoin, a peer to peer electronic cash system, to the world. So I totally disagree with the narrative that you're creating here.

Peter McCormack: I'm not creating it. I'm telling you my experience.

Peter Rizun: Sure. From my experience, BCH is more Bitcoin-like than BTC.

Peter McCormack: But that's subjective, because if it's a contentious fork, you haven't got consensus for what you want to happen. Therefore you've kind of said, "okay, we're going to do our own thing." So you're fighting for it with a minority support. So it's subjective.

Peter Rizun: Yeah it is subjective, because there's no authoritative body that can say this is the real Bitcoin or Bitcoin is defined as X, Y, Z. So basically people are arguing that, "okay, no, I think BCH is more Bitcoin-like because it follows the original design, where I see BTC is less Bitcoin-like because it's going with smaller blocks and pushing users onto second layer solutions." It totally is subjective. It's basically two ideologies fighting for what they perceive as the better future for Bitcoin.

So I don't know if it's very valuable to spend our interview time, talking about which is the real Bitcoin. I think just recognize that there's controversy around what a future for Bitcoin looks like and the split is allowing these two simultaneous ideas to play out simultaneously. We have the BTC experiment with Lightning on the one side and then we have the BCH experiment with bigger blocks on the other side. I'm not sure which is going to win.

Peter McCormack: Well I'll tell you why I think it's relevant because if we're talking about Lightning, the reason it's relevant is that I think it affects how you will approach your work. By the way, I've been through some of your work and one of your explanations of how Lightning works actually it was one of the most helpful ones that I'd use, when you explained about, essentially you have the bead counters on each side that moves back and forth. It was a very useful explanation so that was cool.

But it's useful because what is kind of obvious to me, is that you're going to approach Lightning network as a technical person, as a critic who wants to find flaws in it because it doesn't suit the ideology of the Bitcoin fork that you follow. So therefore you're going to find problems with it and use them as criticisms, rather than find problems with it and use them as essentially things that need to be fixed and improved.

As you will approach Bitcoin Cash and finding problems and look for ways to improve them, whereas other people may be from the small block side, will find problems as a place to criticize them. There doesn't actually appear to be anyone who's looking at either of them just impartially. So there's no impartiality with your work.

Peter Rizun: I would disagree. I stick to the facts. But thank you for saying you appreciated my document describing how HLTCs work. I really enjoy trying to take complicated technical matters and break them down into simple ways, using animations that people can understand.

Peter McCormack: Why do you think it is then that people have such a problem with me interviewing you? What are the main criticisms that people have of you? What are fair? What are not fair? Help me understand.

Peter Rizun: I think people had a problem with you interviewing me, because they knew that I would stick to the facts and I would make a compelling case, highlighting the negatives of Lightning network.

Peter McCormack: But there are other people, that people said would make for good interviews. Dan Robinson, which I've done, which was very interesting. I'm also going to talk to Peter Todd. But when it happened, people threw some things around that you're intellectually dishonest or that you've plagiarized work or things like that. I can't go through that history and verify it because I'm not technical enough. But there was something with Gregory Maxwell and things like that. Are any of these criticisms fair?

Peter Rizun: No, I don't think they are fair at all. I've never plagiarized any work. Plagiarism is extremely easy to demonstrate, you just take the paper of author A and you show that he copied this work from author B. And Intellectually dishonest... I mean this is just the way the Bitcoin community is, because if you're from my tribe let's say, there's all this talk about how so and so is intellectually dishonest or he lied or he is copying this person's work.

To me there's just this tribal infighting, which I think is really counter productive. But the thing is, most of the community is not like that. There's this vocal minority on social media, on Twitter, that promote this toxicity. I get along really well with people from all different coins including Bitcoin core. So I guess the picture you see on social media is different than the reality.

For the most part, people are friendly, they're interested in science or interested in cryptocurrency, they're interested with getting to the truth. The stuff that you're talking about now, it really is just an artifact of Twitter, I think.

Peter McCormack: Let me tell you something really interesting as well. So when I agreed to do the interview again, obviously I had probably 5 or 6 people on Twitter go mad at me. Some small accounts and then I think a couple of other accounts that weren't too happy. I reckon I got 40 or 50 DMs or emails from people who are Bitcoiners who said they are glad I'm doing the interview and said they want to hear from you.

They said they think it's important and also from well known Bitcoiners. But also one OG Bitcoiner, I'm not going to name them, embarrass them, got in touch and said, "I'm really glad you're now doing this. I sent you a Bitcoin." So they essentially sent me $4,000 to say thank you for changing your mind and doing it. Now I know someone's going to hear this and they're going to go, "oh no, you've been paid to do it." It was after the fact. They just said, "look, it was really good that you stuck to your guns and done this," and I do stand by it.

I do, as someone who tries to be impartial at times, I do recognize there's probably validity and arguments on both sides. Another thing I think about with Bitcoin Cash is that if you can use it, if you can go on the Blockchain and create a payment and send it to somebody, then it works. Whether or not the technical arguments of scaling are true or not, it's kind of irrelevant to me right now. If I want to send a payment to you and I can buy the Bitcoin Cash and you can go to you, wherever you are in the world. It's Canada right? I can send it to you, if it gets there and then you can cash out, it works.

If it doesn't scale in 10 years time for whatever reason or it loses decentralization, that means the technology only had a certain shelf life, but some technologies only have a certain shelf life. There are certain technologies... Like I don't have a house phone anymore because I have a mobile phone. So I'm kind of okay with that. I don't think anyone can say 100% right now, in 20 years time will Bitcoin and Lightning network have scaled exactly how people want and work? Will Bitcoin cash of scaled? I don't think anyone can honestly say they know. They are hedging a bet based on what they think is best.

Peter Rizun: Yeah, I think that's exactly true. I totally agree. Let me first make a comment, about what you said earlier about people reaching out to you over email and stuff about the interview, because I had the same thing. So there was a lot of nastiness on Twitter, but my email inbox, my DM was filled up with support from all over the Bitcoin community, including from BTC, including several leaders of large Bitcoin businesses, basically saying, "Peter do the show. We want to hear what you say. I love your work. I think you're a great man and honest critic."

People that I'd never even talked to before and like you, probably can't say who some of these names are. I can say that either because these people are worried about being attacked by that vocal minority on Twitter, that just goes after people. So this is what I mean. There's the seen and the unseen. I think the unseen, most people are reasonable, most people are friendly. Most people just want to help fix money, bring cryptocurrency to the world.

Peter McCormack: So before we get into it, a couple of things first. The first point I want to make is that, I am not technical. So when we discuss these things, I want you to explain them in a way that I will understand because people say, "don't trust, verify." How the fuck do I verify something I don't understand. So is my verification saying, "okay, I agree with a bunch of people shouting me on Twitter.”

That's not proper verification and I know there's a lot of people like me. I get a lot of emails from people saying, "I really love your show because you asked the questions I want to ask, because I don't get this shit." Some of this is way technical. So when we go through it, let's keep it as high touch as possible so I can ask questions back. Secondly, can I just ask you about Craig Wright?

Peter Rizun: Yeah.

Peter McCormack: What is BSV like? I've not looked into it, but "Satoshi's original vision". Essentially they've rolled Bitcoin back to a very old version because that's Satoshi's vision. What?

Peter Rizun: I'm not really paying attention to that person anymore. I think what we're seeing right now is the death thralls from a person who is about to fade into obscurity. I think he wants people to pay attention and that's why he's doing these lawsuits. But I think the best strategy is just to ignore him and he'll eventually go away.

Peter McCormack: Well I've done opposite then.

Peter Rizun: I know!

Peter McCormack: But obviously your node can run on BSV. Is there any technical merit to the work that's being done there?

Peter Rizun: Really, they believe in the big block vision as well. To me like the split between the BSV and BCH, it wasn't really over technicals, it was over leadership really. People felt that that group was trying to take control of BCH, thus the split.

Peter McCormack: All right, well listen, we're here to talk about Lightning. Let me talk to you about my experience so far and the conclusion I've got to. My experience so far has been bumpy and the reason why my experience has been bumpy, is I had high expectations and I treated it like a finished product. Then the more time I spent with it and the more I've used it, I've realized I set my expectations too high. This is a network which is new, it's being bootstrapped, it needs time to get users onboard, capacity, all those things, etc.

But also I think the biggest conclusion I came to is that a lot of people, pin a lot of hopes on Lightning. I've decided to stop doing that and treat Lightning like a tool. I still have Bitcoin, which I use and I use it regularly. I pay for things in Bitcoin and get paid, but they're only high value items that I... So for example, say if I had to invoice you for something. I would be like, "can we just do it in Bitcoin because you know you're in Canada and I'm here." It's really useful for me like that and I regularly use it.

I have no use for it, for paying for regular items because it's much easier to pay with my credit or debit card. So I'm now looking at Lightning and going, "I mean do I really need it? No." I think it's something I might stick a hundred bucks on and occasionally use. But, for example, I might prefer to buy something, say if I was buying a t-shirt from Canada or America, it might be better to use Lightning. But actually I don't have a use for Lightning right now. So I've lowered my expectations and seen it as a tool rather than a saver of Bitcoin and I'm still perfectly happy with Bitcoin.

But I have noticed some faults and I have got some questions of my own. I think I'm slightly comfortable with having a small amount of Bitcoin kept in the custodial wallets on Lightning, because I think the custodial experience right now, is better than non-custodial, which I know is heresy, but that's my experience so far. So where do you want to start?

Peter Rizun: Well, you asked all your other guests, "what is Lightning," so maybe we should start there?

Peter McCormack: Yeah. What is Lightning?

Peter Rizun: Well to answer, what is Lightning, I first need to answer what is Bitcoin? Bitcoin is a peer to peer electronic cash system and the main design goal is to allow me to send money to you, without going through any intermediaries. The reason is because intermediaries may block that payment or charge ridiculously high fees for the privilege. So Bitcoin was going really great up to around 2015, when blocks became to fill up and fees began to rise.

So I would say Lightning is one of the two solutions proposed to allow Bitcoin to continue to grow, that didn't involve raising the block size. Raising the block size was was the other solution. So Lightning was proposed as this idea, that would allow Bitcoin to continue growing in spite of high fees on the Blockchain. I have so many criticisms of Lightning as a scaling solution, that it would take me a whole podcast series to get through them.

I broke them down into what I call the five fundamental flaws of the Lightning network that can discuss in detail later. But my 30 second elevator pitch is that Lightning was proposed as a solution for high fees that doesn't actually work in a high fee environment. So its reason for existence is invalid.

Peter McCormack: Okay, so you're sticking to the white paper, where the white paper says a peer to peer electronic cash system. Which was the white paper that was designed years and years and years ago. That was one of the sympathies that I originally had, actually Peter. When I read that, I was like, "well I understand that" and a bunch of people have built websites that allow you to buy with Bitcoin in the early days and then that became a problem.

But I think perhaps it's okay for that to change and I'll tell you why. Is that I don't think the most high value proposition for Bitcoin is a peer to peer cash system, I think it's censorship resistance. I tell you why, is that one of the main reasons I came into Bitcoin, which is known, is when my mum was dying, I was able to buy her a drug, illegal in the UK, with Bitcoin. That was a real, wow! Fuck, that's an amazing moment. So I kind of agree with you.

Peter Rizun: I think you fully agree with me because I said the key design goal is to allow me to send money to you without going through any intermediaries who might block the payment or charge ridiculously high fees. So I totally agree. The ability to send payments peer to peer without intermediaries is what's important about Bitcoin. My problem with Lightning is basically we're reintroducing intermediaries into the equation.

Peter McCormack: Yeah. But then it's like, what's the other option? Is it to scale on-chain, which obviously you're a fan of, but Hal Finney was the one who originally said that it doesn't scale without severe consequences of the value proposition of Bitcoin and damaging to censorship resistance and decentralization. So it's that kind of spectrum of decentralization argument.

If the blocks are bigger, it's harder for those to sync and you're not going to have less nodes and it's going to be more centralized. Something obviously highly evident on something like say Ethereum and I don't see it as binary. I just see decentralization as a spectrum. The smaller the blocks, the more decentralized you'll be, but if you went bigger blocks and you're less decentralized, does that mean you're not censorship resistant? I don't think it does.

Peter Rizun: I disagree that bigger blocks mean less decentralization. I see the trade off as a bit more nuanced than that. Lightning will indeed create smaller blocks and in the Lightning future, it will be easier to run a full validating node that miners and exchanges need to run. But Lightning makes it more difficult to just be a user, to run a non-custodial Lightning node.

It's much harder to manage your own keys as a Lightning user than a traditional Bitcoin user with an SPV wallet. For me, it's more important to have users all across the world being able to easily run non-custodial wallets and use Bitcoin directly, then the smaller subset of people being able to cheaply run, full validating nodes. Even in a future where we have 50,000 transactions per second on the Bitcoin Blockchain, if you do the math, it's still not that expensive or that hard to imagine computers in people's homes keeping up with that.

So I definitely disagree that scaling is impossible and I would disagree that it's even really that technically challenging. There is no scientific or technological breakthroughs required to scale Bitcoin on chain to global adoption levels. It just requires continued state of the art software and hardware engineering.

Peter McCormack: There is also an economics argument. One of the economic arguments is that when the subsidy goes, the Blockchain requires higher fees because to reward the miners and to protect the security and the network. Your argument would be that you can have more transactions with lower fees that does the same job? I'm not going to get into that debate now. One thing I will agree with you, is that there's essentially two user experiences now.

So I have a Ledger or a Trezor and it's so easy. I plug it into my computer. I want to send you some money. I put in your address, I type the amount and it goes to you. It's very easy. If I'm want to transact with Lightning, I first have to have a Lightning wallet and move funds into that. Then if I want to be non-custodial, I have to set up a node. I've got mine here, still not set up. Then I have to use these different addresses. It's two different experiences. It's almost like having cash and a credit card or credit card and a cheque and they've got two different processes to get my head around.

I actually agree that the user experience from one to the other is a bit shit and I had some criticism for that, but I don't mind saying that, because it is a bit shit. But that's not to say the user experience won't be better in two, three, five years. That I don't know. Ideally what I want, I want to be able to plug my edger in. I have my wallet and my Lightning wallet. I can move funds easy between and I can send easy. That's the UX I'm looking for without setting up a node and still be a non-custodial.

Peter Rizun: That's a user experience I want as well. But it's very difficult to achieve that ,with the design of Lightning. So this is my fundamental flaw number five, I said I had five fundamental flaws.

Peter McCormack: Okay, let's go through it.

Peter Rizun: It's number five; running non-custodial wallets suck.

Peter McCormack: Yeah, it does. I agree. But maybe that's the price of having managing your own sovereignty.

Peter Rizun: But you can manage your own funds directly with a Bitcoin SPV Wallet. There's orders of magnitude less costly and less expensive. So many of your guests on Lightning month have spoken to the significant usability problems of Lightning network. But they broadly said that there's going to be ways to abstract this away from the user. It just requires a better user experience that we can get to in time.

I don't think that's true because the problems are fundamental in layer two, they can easily be fixed with software. For example, you need to be online to receive a payment on Lightning. On an SPV wallet... Let's say your phone was dead, Peter and I sent you a Bitcoin payment to your SPV wallet, when you power your phone back up, you will still have that payment because you don't need to be online to receive it. With Lightning, your wallet does. There's this complicated dance my wallet needs to do with your wallet.

Basically your wallet has to sign to accept that payment and it means your keys need to be online at the moment I made the payment, otherwise the payment fails. So idea that we can abstract that away from user, doesn't make sense because if you're not online, the only way you can accept the payment is if your key is online, which means that someone else might be holding the key on your behalf, which is a custodial situation. So that's just 1 of 4 little points here.

Peter McCormack: Well let's deal with that one first. What is an SPV wallet? Explain to people who don't know what it is, what it is.

Peter Rizun: So an SPV wallet is the method Satoshi proposed in the white paper for Bitcoin users to interact trustlessly with Bitcoin, without requiring a full node wallet. So an SPV wallet allows a user to be their own bank, so it's noncustodial. It allows them to verify that the payments they received were confirmed in the Blockchain trustlessly and it still allows them to send payments to anyone else without going through any intermediaries.

It does that all with technology that's already available to one half of the world 8 billion inhabitants, which is basically just a $5 feature phone and a third world SMS text message plan. So the hardware and bandwidth requirements to interact trustlessly in a non-custodial matter with the Bitcoin Blockchain, is extremely low. Most of the world can already do that. Compare that to non-custodial Lightning wallets and its orders of magnitude more complex in the Lightning case.

Peter McCormack: So are there SPV wallets available now?

Peter Rizun: Yes, there has been SPV wallets available for a while. My favorite one to recommend is Bread, I think they're called BRD now. It's available for Android and IOS. If I'm onboarding someone that's the wallet I recommend that they use.

Peter McCormack: Again there is one thing I will agree with you there. I kind of don't like this thing where I have to be online to receive a payment. I do find that kind of annoying, which is why I like the custodial solution because it takes the pain away from me.

Peter Rizun: Yeah, that's exactly it. Because Lightning is more complicated to use non-custodially, I think most regular users will end up opting for custodial solutions, which to me is antithetical to Bitcoin. We talked about how you need to be online to receive a payment, but another problem with a non-custodial Lightning wallet is you can't recover your funds necessarily from your 12-word seed. So like I said, if I'm onboarding a user, I'll get them to download Bread wallet and then write their 12-word seed.

As long as you have those 12 words in some secure spot, even if you lose your phone or it gets run over by a car, none of your money is at risk. With Lightning that's no longer the case. You can't necessarily recover all your funds from your 12-word seed because the channel states are dynamic and they might be lost. So another example where Lightning is a worse user experience. So people are proposing watchtowers to help solve this problem. But again, now you're adding more trust and complexity into the user experience.

Peter McCormack: I mean this is something I can't technically verify, so anyone listening to this will have to go out and check themselves and obviously verify this, but I'm not actually bothered about... I was thinking about it and I was like, "do I care about a custodial solution?" I was thinking, "no, it doesn't really bother me", because I don't mind keeping $100 in a custodial solution. I just have to pick a custodial solution I trust. It was like before when people were like, "not your keys, not your Bitcoin, don't keep stuff on the exchange."

So If my dad was going to get into Bitcoin, I absolutely wouldn't mind him keeping his Bitcoin on Coinbase. I wouldn't mind it because I'd be like, "that's a much safer scenario for my dad, than having a wallet and managing his keys", because he can barely run a fucking computer! So I don't have personally a huge problem with certain custodial situations, but I know that's antithetical. I know that pisses some people off, blah, blah, blah. I just personally don't have that problem.

Peter Rizun: I think there will always be a use case for custodial wallets. But what I would like to do is make using non-custodial wallets as painless and safe as possible, so that people opt for them as opposed to custodial wallets whenever possible. Lightning makes that hard. Bitcoin SPV wallets make that a lot easier.

Peter McCormack: Are there any criticisms against SPV wallets?

Peter Rizun: To me, the biggest criticism is privacy based. Right now the SPV solutions leak a little bit of privacy into the network, like we use the BIP37 bloom filters, which have been shown to have some some issues with them. I think a lot of those issues can be resolved, but usability wise, like for user experience it's fantastic. But yeah, they leak a little bit more. It's maybe slightly easier to track someone's transactions through the network to IP address than with a full node. I think we can fix that though.

Peter McCormack: So as ever, it's trade offs.

Peter Rizun: That's always true.

Peter McCormack: There's a trade off between one and the other. You have a potential solution and people within the Lightning network will have a potential solution. So, for example, one of the solutions to setting up a full node is you can run a mobile wallet which will have Neutrino. Neutrino is seen as something that will simplify it, so you won't have to have a Casa Node set up, you can just run it on your phone and your phone is pretty much online all the time anyway. So that's a trade off.

Peter Rizun: Yeah. I really like the Neutrino idea. Neutrino is implemented on BCH. So Neutrino is a form of SPV. So yeah, I fully support Neutrino.

Peter McCormack: Exactly. So when we come to that point, "oh it's a UX nightmare having your own node, blah blah blah." I'm like, "well if Neutrino comes and you can download a wallet that has Neutrino and Neutrino has been implemented on core," then cool. Then that to me just isn't really a problem.

Peter Rizun: It doesn't change any of the user experience though. So you still need to be online to receive, you still can't recover your funds with your 12 words seed and your wallet still must check for double spend. So unlike in regular Bitcoin, where the miners are responsible for preventing double spends, in Lightning, your wallet is responsible for scanning the Blockchain to make sure none of your channel partners are trying to steal your funds.

That problem doesn't go away. There's still a lot more data that your non-custodial Neutrino wallet needs to download from network, than a Bitcoin SPV wallet. In order to route a payment, you need to download what's called the network graph. So right now the block size limit for the network graph is 15mb. As Lightning grows, that'll be even bigger. So I think it'll be very difficult for mobile wallets to even download that network graph on low bandwidth connections and figure out how to route their payments.

So I suspect, again, you'll see outsourcing of that service, just like with watchtowers to routing services. Or people just use custodial wallets. I just think that you're trading off a whole bunch of things to make the cost of running a full validating node, a little bit lower. So I see Lightning as worse in every way, except for the fact that it makes it a bit easier to run a full validating node, which really miners have lots of money so that doesn't matter to them. 

Exchanges have lots of money, doesn't matter to them. Hobbyists, I think it's okay if I'm spending $5,000 on hardware if I really want to be part of the backbone of the global financial system when 4 billion people are using Bitcoin. So yes, it's all about trade offs, but I think the trade offs are highly stacked against Lightning network.

Peter McCormack: Yeah, but I think what it comes down to is that, you found a problem there and it's a massive problem for you. You've identified the criticism with SPV wallets with potential privacy. If I was on the other side, remember I'm trying to be impartial. If I was on the other side, I'd go " that's fucking terrible because that can leak some privacy information.

Someone could find where you are and come and put a screwdriver through your head and steal your Bitcoin." All I'm saying is, I'm going to be impartial and say, "okay, I see trade offs on both. I see a Lightning trade off and I see an SPV trade off. Okay, but they both still have trade offs."

Peter Rizun: Well you just proposed using Neutrino, which is a form of SPV. So if you're using Neutrino anyways then you already have the same issues that I was talking about.

Peter McCormack: I can't answer if it has exactly the same issues or if it has exactly the same privacy issues. I can't answer that because I'm not technical enough. Anyone listening will have to do their own research. All I'm saying is there are trade offs and the people I've spoken to about Neutrino seem to be very excited about it actually. They seem to see as a big step forward in UX for somebody who wanted to get onto Lightning network.

Peter Rizun: Yeah, I know. What I'm saying is I agree and for example, BCH already has Neutrino implemented and we have SPV wallets that use Neutrino. Neutrino helps us solve the privacy issues. That was one of the ways , that I was saying SPV can be improved. So I agree. Neutrino, I think it was great. But what I'm saying is, you said, "oh, on-chain SPV wallets are bad." But then you are saying, "well, we're going to use Neutrino anyway", so I'm saying in both cases you can use Neutrino. So if you're happy with Neutrino for Lightning, why aren't you happy with Neutrino for regular Bitcoin?

Peter McCormack: Again, I'm not technical enough. This is my warning to the users and to Brian Trollz and Dieter Bob who will be listening to this and ready to jump at me. I think people should do their own research. All I'm saying is, the way you're explaining it to me, as somebody who's not technical, I see there are trade offs and there are broad and kind of neat trade offs. I bet if I spoke to somebody on the Bitcoin side and I said, "tell me about SPV wallets", they'll have a whole bunch of things that they'll say, "oh yeah, but it's this, that and the other", and I'm sure it does exist. Anyway, so what's number four?

Peter Rizun: Okay, well that was number five. So let me list my five fundamental flaws of the Lightning network. So number one is that Lightning scales transactions, not users. Number two is friction from layer one leaks into layer two, leaks into the Lightning network. Flaw number three is that routing failures are inevitable no matter what, because Lightning channels are like beads on a string. Number four is there's a bunch of trapped liquidity in the Lightning network system that causes issues. Number five is the one we already discussed; running a non-custodial wallet in the Lightning case is cumbersome, compared it to the pure Bitcoin case.

Peter McCormack: All right, so we've done number five. Let's do number four.

Peter Rizun: Well let's start from number one, because it's kind of easier that way. So Lightning scales, transactions, not users. Lightning enthusiasts might say that the Lightning network today already supports 50,000 transactions per second. That's impressive because that's the number that's thrown around for global adoption. But that's only part of the story. If you can do 50,000 transactions per second between a hundred people, that's a lot easier than 50,000 transactions per second when we have 4 billion people.

One half of the Earth's population participating in this network. So I can add some numbers to that. So onboarding a new user into the BTC Lightning ecosystem requires at least one on-chain transaction. Right now the Blockchain can confirm about a quarter million transactions per day. So if you do the math and imagine onboarding all 4 billion people that I just discussed onto Lightning, that would take 40 years and that's ignoring all the Bitcoin transactions for reasons beyond onboarding. So clearly there's something not quite right right there.

Peter McCormack: Yeah, but hold on. This is where I think as a technical person I can be useful, because that sounds like a fucking nonsense argument. I'll tell you why. We're not going to put 4 billion people on this. It's just not going to happen. So why calculate a scenario which isn't going to happen? They've done a calculation about how many Bitcoin wallets there are, like 50 million.

Multiple people have got multiple wallets and we've been here for 10 years. So why would we even bother calculating something for 4 billion people right now, when also as it grows, I'm sure people will come up with better scaling solutions. It's almost to me... Imagine saying when the first airplanes are in the sky and the first air traffic control system went in place, they said, " when we have 40 million people fly in every day, the system won't work."

But that doesn't matter, because what happens is air traffic control scales with demand. So why would we even worry about scaling something to 4 billion people when we've got less than probably 10 million people using it right now?

Peter Rizun: I would say because that's my goal. I want to bring Bitcoin to half the world's population. I want them to use Bitcoin in a non-custodial manner and that means they need to have Bitcoins on the Blockchain. So I don't see any way around that, unless you push people into custodial solutions.

Basically every user needs a few, what's called unspent transaction outputs in the UTXO database, and if you calculate the math for that, it means that the UTXO database, even in Lightning in the future, will be around one terabyte in size. So this is just an example of how Lightning scales transactions really well, but it scales users less well.

Peter McCormack: Look, I'm not going to argue the math, I'm just going to argue why it's just a pointless thing to discuss now, because I imagine if the Bitcoin cash network suddenly had to support 4 billion people tomorrow, it would also fail. It would also discover things that don't work. I think you scale as you go and as you get to 50 million people, then you scale and you look at new technologies or when there are 100 million people.

But imagining half the planet is going to be using Bitcoin, like that might take a century, that might take 50 years or it might never happen. Do you know what? It will probably never happen. I would be surprised. I would be willing to bet everything I own, right now in 25 years, that there aren't a billion people using Bitcoin. So why don't we stick to things that are sensible and practical now, because that seems to me a bit far fetched to look into.

Peter Rizun: Okay, well I disagree. I would love to see in 25 years, a billion people using Bitcoin and I think we can make that happen because I think Bitcoin is awesome. The more people are educated on it, the more they'll want to hold a bit of Bitcoin. Criticism number two, friction from level one leaks into layer two. So one of the big themes with Lightning, is that high fees on the Blockchain don't matter because fees on Lightning will always be low.

But what we're starting to see is that's not exactly true. because there's all these ways that friction from high Blockchain fees, leaks into the Lightning experience. So a good example is onboarding a new user. So if you imagine onboarding a user in a world where fees are $50, it requires paying at least three fiat payments. So $150 minimum to onboard a new user into Lightning. For one, we need to make a Bitcoin transaction to start the Lightning channel, so that requires a transaction fee.

Then the Lightning channel has to be funded with enough to close the Lightning channel in the future. So another $50 fee has to be reserved in the channel. Lastly, the smallest output that a user can own, the smallest balance a user can have, is the dust limit and in an environment with $50 fees, that's $50. So now you see that even though Lightning... Once you're onboarded, maybe you can still make some payments quite cheaply, the onboarding experience in itself, some of that friction from layer one leaked into layer two.

Peter McCormack: This is an area where I've struggled with as well actually. So I've tried to question this because there's a couple of things that clash for me here. So you talk about a future where on-chain fees are $50 and that's a perfectly viable scenario, because it's happened in the past. I think we're a long way off it now. I think we have a lot of block space available and a lot of options for optimizing block space, which is great.

So if somebody defends this and says, "no, we won't have $50 on-chain fees," or "it's not a scenario you need to worry about," blah, blah, blah. Well then I'm like, "well what happens when the subsidy goes? How are miners going to be able to earn enough to be able to secure the network." So that is the one thing I've really struggled with and I'm not saying I disagree with you. I've really struggled to find a sensible answer, because if the blocks subsidy goes, therefore it requires high fees for people to use it.

Peter Rizun: I totally agree. So you either need higher fee levels and a few transactions, or you can get by with really low fee levels and tons of transactions. So the future that BCH supports is one of 50,000 transactions per second, each paying a penny and that's ample security well into the future.

Peter McCormack: Do you know what I think people think the future will be and I picture it as this two tier Bitcoin. The base chain is for the Bitcoin rich, who can afford on-chain fees and that's fine, because that's who they are. Then other people will only use Lightning. They are people who will buy Lightning credit, have a Lightning wallet and open up Lightning and have Lightning Bitcoin. Then one of the questions I ask is, "is Bitcoin via Lightning as good as Bitcoin via base chain?"

I can't see a scenario where everyone would say, "well yeah it is", because then if it is, well keep everything on Lightning. So where I see, I think what people are imagining a scenario is, is there are base chain Bitcoin, which is like a global settlement layer for money. Then there are ways on top of that of holding Bitcoin for example, in Lightning, which is for everyone else. I'm not going to go and say that's wrong or what's right. I'm just saying that appears to be the reality of the situation.

Peter Rizun: Yeah, I agree and I don't like that reality. You mentioned this two tier system, people with less money are going to use Lightning, but there's still major challenges even after they're onboarded. We saw some hints of that, when fees spiked from basically a couple of pennies to $3 a few weeks ago.

So as fees go up, your channel balance goes down and the reason is because your channel needs to maintain enough money, in what I call the miner fee bucket, to close out the transaction in a timely manner if it's block dust, the Blockchain. So imagine a future where this user from a third world country sets up a non-custodial Lightning wallet, they have $50 in it, that's a lot of money. Then the fees spike from $50 to $90. Their balance drops from $50 to $10. 

Maybe that balance comes back, as fees drop again in the future, but maybe fees go up to a $100, their channel partner says, "okay, this guy is now bankrupt, so I'm going to close out that channel" and now he's lost all his money. I think that that's terrible. So it's not only high fee levels, it's about volatiles fees, leaking into the user experience too, because your channel balance can drop. To me, that's a deal breaker.

Peter McCormack: Yeah and again, it's something I've looked at and I haven't found an answer to yet. What I've promised myself is that after this, if there are things I don't understand, I'm going to have to go and ask people and figure out what it is, because I am the same. I'm like, "are we worrying about a situation therefore that's in the future where fees are high or is there a scenario where you can exist on Lightning where someone can't close your channel?" I think the only way to do it again is custodial.

Peter Rizun: The only way I see is Custodial. Again it's this problem I'm worried about, where it's pushing people into custodial wallets and I don't want to see that for Bitcoin.

Peter McCormack: Should we have Bitcoin as layer one, Bitcoin cash as layer two and use atomic swaps to go between the two?

Peter Rizun: I think we just need one main chain that most of the world uses and we're going to call that Bitcoin. Whether that's BCH, BTC or something else in the future, I don't know. But one dominant Blockchain and a large amount of transactions are happening on-chain, because fees are low and payments are reliable.

Peter McCormack: All right man, what's the next one?

Peter Rizun: So just on that topic of fundamental flaw number two, the last point I was going to say on that is, Lightning payments aren't actually trustless for small payments, so payments below the dust level. Peter van Valkenburgh was talking about that yesterday and he said, "well, it doesn't really matter because the dust level is like two pennies right now. So what?"

And I agree, it doesn't really matter right now, but if you imagine fees going up to $50 or God forbid, $500 in the future, well now the dust level goes up as well. So now Lightning payments aren't trustless for most payments that real people are making. So I see that as another issue and that concludes my flaw number two, friction from layer one into layer two.

Peter McCormack: Isn't that something that Tadge looked at though, isn't probabilistic payments a solution to that? It's an identified problem and it's not that you're wrong, it's just that it isn't a priority right now, because it is a couple of cents. But it is something that can be probably fixed. I mean, I don't give a fuck!

Peter Rizun: I mean, we'll see and they'll have to make a concrete proposal. It's really difficult to criticize ideas or just loose vague ideas... Maybe there are solutions for all the problems to the Lightning network that I'm going to talk about. I don't believe there are, but like you said at the beginning, I don't think anyone can predict the future.

Peter McCormack: I mean, I don't give a fuck that if I've got a couple of cents on Lightning that isn't trustless, I don't care. I just don't, it doesn't bother me.

Peter Rizun: For sure. But if $50 isn't trustless, you probably do care. Also I think FinCEN cares and then suddenly there's a question of whether Lightning hubs are going to be regulated, because Peter Van Valkenburgh was saying that basically banking regulations apply if the intermediary can lose or block access to your funds.

Right now that can happen in Lightning, unless you're talking about like these two penny dust payments. However, if that was $100, if Lightning hubs could lose $100 because the dust level is so much higher, well now I think FinCEN might start looking at regulating Lightning hubs because they look a lot more like banks. They can lose their customer's funds. So that's another reason why I want to keep fees low.

Peter McCormack: Okay.

Peter Rizun: On to fundamental flaw number three, is routing failures are inevitable because Lightning channels are like beads on a string and they're trapped on the string that they start on. So in your interview with Christian Decker, he was saying that...

Peter McCormack: Wow you've listened to all my interviews, you're a big fan!

Peter Rizun: I really like your show. What I like about your show, Peter, is you ask simple questions that I imagine most users will have and you don't abide by these bullshit technical answers. You want to understand things from a really hands on way and that's how I like to teach. So that's why I like your show! So Christian Decker said that, what's cool about the network part of Lightning is that you can send a payment to anyone else on the network, but that's not really true.

That's only true if there's a path between you and that person with sufficient liquidity. So I would recommend to your listeners if you haven't tried Lightning in a non-custodial way you, then you should because it's interesting to see all the problems that come up in terms of channel liquidity. So I did this experiment the last couple of days where I set up an LND wallet and I was trying to make some payments. So the process I went through is I basically, after several hours, I had LND running on my computer, I sent some Bitcoin to my LND wallet. 

Obviously I have to wait, 10 or 15 minutes for that transaction to confirm, but I can't yet make a payment. So I was trying to send a payment from my LND wallet to my custodial Lightning wallet. So what I had to do next was open a channel. So on this guide to Lightning I was using, they recommended these different nodes you open a channel to.

So I opened a channel to one of them and again, I had to wait for that to confirm. Then I tried to make a payment. Again, the payment failed because there was no route to my custodial wallet that has sufficient liquidity.

Peter McCormack: How much were you trying to transfer?

Peter Rizun: I was trying to transfer $1. So I loaded $50 into my Lightning wallet and then I would set up a bunch of channels. The channel size were about $10 that I was setting up myself. I tried to just to move $1 from LND to my custodial wallet and then back again. So the point is that I wasn't actually able to send that $1 until I had four channels set up, because it was only then that LND found a route with sufficient liquidity to make my payment.

But what's really interesting is just because I can send one way doesn't mean I can send the other way. So when I tried to send a payment back, it fails because although I have liquidity for outgoing payments, I don't have liquidity for incoming payments. So I couldn't receive until someone else had opened a channel to me, to add that liquidity. So unless you're well connected in the centre of the Lightning network, small payments are probably fairly reliable, but just that onboarding process really makes you understand how the Lightning network is very complicated, how all these channels work.

The fact that these channels exist is very front and center because payments simply fail, if you're not all connected. Do you understand how the Lightning payments work? Like the beads on the string analogy?

Peter McCormack: Yeah, because I read your article, that was the first time it came very clear to me. I didn't realize it was almost like beads either side. I just thought I had some, so I could pop some over, but you have got to have capacity on either side. I get that now and that was clear.

Peter Rizun: Right, and that creates the liquidity and running problems in Lightning. So if want to send a Lightning payment to you, and I'm going to route that through Alice and Bob, I think what people imagine is I would send one of these beads to Alice. Alice would then take that bead, give it to Bob. Bob would then get that bead and give it to you. But that's not what happens.

So the way your listeners should imagine is that, I have this string of beads with Alice and maybe it has 10 beads on my side, 10 beads on her side. To send a payment to you, the first thing I do is I push one of my beads over to Alice. Alice is up one bead, but she can't move that bead from the string.

Peter McCormack: No, because she's got to have it the other side.

Peter Rizun: Right, she needs a string between her and Bob. So what she does is, she moves a bead on her string with Bob, over to Bob's side. Finally Bob, on his string to you, he's going to move one of his beads over to your side. But if that string between you and Bob has no beads on Bob's side, the payment fails because there's not sufficient liquidity. So everybody on the path for me to you, has to have beads on their strings and those beads need to be on the right side of the strings, to facilitate the payment.

Peter McCormack: Right. But aren't we not talking about a network that's being bootstrapped here. These are the kinds of things, that are just going to take a bit of time, because the way I see it, is they're going to end up being these kind of larger hubs that we can all connect to and they are connected and that's just the way it's going to work. I'm not too worried about these larger network hubs. Is that not just going to be the solution?

Also isn't the solution going to be that again, we're very early, but once we have lots and lots and lots of people with lots of nodes set up and lots of these mega hubs, that routing will be a lot easier? But you're almost finding a problem with something that's just very, very early.

Peter Rizun: No, the routing problem gets worse as more users enter the system, provided the network is still fairly decentralized or distributed. But I do agree that, if we have these mega hubs and most people connect to hubs, then routing becomes easier. So yeah, I do think the routing problems will disappear, but they're going to disappear for a bad reason and that's because most people won't have Lightning channels with other users.

They're going to have Lightning channels with these hubs, who are in the business of routing payments. As soon as you have hubs in the business of running payments, well they look pretty close to banks? Especially if you factor in the high fees where they can lose your funds, they look even more like the banks. So yeah, I think routing can work with a centralized network, but I think that's a bad thing for Bitcoin.

Peter McCormack: Again, I see it as a tool, but I'm not going to disagree with your point. But the way I've come to see it is that, we're just so early and we're not giving the Lightning network enough time to be proper stress tested. So I'm not disagreeing with you, but I've used Lightning and yeah, okay, I used a custodial solution. But I'm just imagining that it's now out there, it's being used, be reckless as it's been said, let people play with it. Then over time the devs are going to implement new technologies that are going to improve this.

Peter Rizun: Yeah, I mean they're going to improve it, but it doesn't change the fact that there's fundamental flaws. How do you hide from the user that their channel balance fell from $50 to $10 because fees spiked. How do you hide from the user, the fact that they need to be online to receive the payment?

Peter McCormack: I don't know. I'll have to ask Christian Decker!

Peter Rizun: So maybe some of these issues can be improved. I don't think so though. I think the user experience for Lightning is fundamentally worse. I think the answer is going to be, we increase the block size limit and Lightning network just becomes this niche scaling solution that's useful for only certain payments, where a lot of other payments are just made on the Blockchain and fees are low, a couple of pennies.

Peter McCormack: All right, what's the next thing on your list?

Peter Rizun: So number four is that there's all this liquidity trapped in the Lightning network and it can be trapped in bad, unuseful places. So a good way to see this problem, is to imagine that you are organizing a concert tonight and you're going to have a hundred attendees and each attendee is going to pay you $20. so you're going to sell $2,000 worth of tickets at the door. If you accepted the payment in Bitcoin, that's really easy.

They can all just pay a QR code or pay your wallet, there's no real issue here. But if they're going to pay you over Lightning, this becomes quite complicated because if you think about those beads on a string, you need this string connecting your wallet to some other hub that has $2,000 of incoming channel capacity to you. Pretty sure that you won't have that, very few people would have that. So in order for you to accept payment over Lightning for this concert, you're going to have to prepare ahead of time and purchase incoming liquidity from a liquidity provider. So these services already exist. You interviewed a guy a while ago, Sergej, from Bitrefill.

So if I was the concert organizer, what I would have to do, is I would open a channel with Bitrefill or rather pay them to open a channel with me with at least $2,000 of incoming liquidity and they charge me about 3% for that service. So 3% of $2,000 that's $60, so I'm paying $60 to borrow the liquidity in order to receive payments from the concert attendees. So it makes sense that they have to charge a fee, because their liquidity is locked in that channel. They can't use it for anything else.

But, this is kind of weird. There's this joke that you need to borrow money, you need to take out a loan in order to get paid with Lightning and it's not quite true, you're not really borrowing money, but you are borrowing liquidity and there is a real cost to borrowing liquidity because whoever you're borrowing it from, can't use it somewhere else. So that's, that's the fourth fundamental flaw of the Lightning network.

Peter McCormack: Yeah, but I would be like, "what fucking idiot is selling all their concert tickets on the Lightning network?" I mean we have perfectly good systems for debit and credit cards already available for that. So why would you do that anyway? I don't even see it for that.

Peter Rizun: Well I think it's important to encourage use of Bitcoin. When we have, I mean it's not a concert, but when we put on a conference...

Peter McCormack: I guess what I find difficult is these examples... They're not practical.

Peter Rizun: I think it's important to create use cases, so people are actually using Bitcoin in the real world. If I was putting on a Bitcoin conference, and Bitcoin Unlimited does put on conferences, we always accept payment by Bitcoin even if it's a little bit harder, because that's what we want to encourage, that's what we want to see grow.

So yeah, I think it'd be really cool if people put on concerts and they accepted a payment over Bitcoin and the Lightning network. I'm just pointing out how doing that is quite difficult in Lightning and it's for fundamental reasons. It's not for reasons that can easily be fixed.

Peter McCormack: Yeah, all right. I won't disagree with the point. Okay, so that's number four. Number five?

Peter Rizun: Number five, we've already discussed. That's just the fact that running a non-custodial wallet in Lightning is more expensive and more difficult than running a non-custodial regular Bitcoin wallet, an SPV wallet and we went through all the reasons for that.

Peter McCormack: I think these are all interesting points and as somebody who's not meant to trust, and meant to verify himself, every single one of your points I think is interesting and I would say at least three of them I'm already aware of and I haven't managed to find solid defenses for them yet. One of the weird things I find with this is that, fuck it, I'll just say it how it is. I find it very difficult sometimes to criticize the Lightning network or find criticisms.

I find most of the times when I do, the answers are... I've seen people get really beaten down having criticisms and I've also found that a lot of the answers are, "oh this will be solved in the future", which is fine if that's what your answer is. I still haven't found solid answers for all of the things that you've said yet. Sometimes what I worry about are a couple of things.

Firstly, sometimes I worry about even looking into some of these questions I have, because it's almost like if you look into it, you're a fucking idiot or if you look into it, you're wrong. Or if you look into it, I'm going to attack you just for having the curiosity of investigating it. I find that challenging, but I'll do it anyway because I don't give a fuck. So that's difficult. I also wonder sometimes... God, this is the kind of point now I'm going to make, that people are going to go mental at me for!

But I'd love to know what the... Almost to be able to chart, how much Bitcoin people have to how much of an influence they have or over what they believe Bitcoin is. So I don't really have much Bitcoin. I've got pretty much fuck all Bitcoin.

Peter Rizun: I thought you were a millionaire for a while Peter?

Peter McCormack: Yeah. I was for awhile, till I fucked that up and I've just got myself back on my feet and about to ruin it all again with Craig Wright! But because I don't have a lot of Bitcoin, it doesn't really matter to me what Bitcoin is. It just becomes what I use it for. But I do wonder, if there are people who have a very strong influence or very strong opinion of what Bitcoin should be, because they've got 10,000 Bitcoin or 15,000 Bitcoin.

I do wonder that sometimes and it's finding the truth in all of this, that is really difficult. So you know what it's like? I consider it like UK politics. Let's forget about the shitty little parties. We've got Labour and we've got Conservatives. They're arguing over fucking everything and actually if they all came and sat to the table, they could probably figure some stuff out together. But they fight and they fight and they fight, because they're so entrenched on their side, they can't give anything to the other side.

I feel like this is what happens with Bitcoin and Bitcoin Cash. Everyone's so entrenched and they just fight the fuck out of each other. When actually, there are probably some ways to work with each other and help with each other. Okay, let me ask you a different question. Lightning. Are there things you like about it and are there things that you think, that could be done to it, to improve it and to make it better and make it usable?

Peter Rizun: Yeah, I think Lightning has some cool uses. Firstly, I think the technology is pretty neat. Learning about Lightning over the past month and setting up LND, I had real respect for the developers. LND is beautiful software, the documentation is good and I had no problems with that. So good work, the guys over at Lightning Labs, I really liked it.

The other thing I thought was cool is, the Lightning community, they're really positive. I think they're a bit naive but it's cool, they're positive and they were helpful to me even though they knew I was being critical. For instance, I posted, "I have a million incoming liquidity" and someone opened a channel to my node, that's pretty cool. So yeah, I would just love to see the positivity in Lightning and the positivity of BCH with on-chain scaling.

If somehow that could come together in more harmonious way, like it used to be back in 2015, that would be great. So I'm not answering your question! Your question was, are there things about Lightning that I like. Yes, I think Lightning could be great, for example, to replace Blockstream's Liquid service. So there's huge demand for Bitcoin payments between exchanges, to balance accounts up. 

So we're talking large payments, but they don't really want to wait for the six confirmations. So Lightning is an awesome solution for that, because they get basically instant finality, low fees, they can send the payments back as much as they want and they don't have to rely on waiting for those six confirmations and paying to fees. It's kind of weird because I asked you see Lightning is more useful for large payments, where double spend risk is unacceptable, but you want them to be fast.

Peter McCormack: Okay. When I spoke to Dan Robinson, he said he thinks one of the... I'm going to try and have to go by memory, but he thinks the way that Lightning is designed has a flaw and he said it should be more like Internet traffic and payments should be in small packets. Do you know about this argument?

Peter Rizun: Yes I do and I'm completely in line with Dan on that. So he doesn't like the Hashed-Timelock Contracts and I don't like the Hashed-Timelock Contracts either. I didn't say that word in our interview so far. But the Hashed-Timelock Contracts, the fact that they can't be used for small payments below the dust threshold, is what makes Lightning payments require trust for small payments. 

So yeah, I think it'd be great to remove those and I love Dan's packetised payment idea. I think it's really cool and it's so powerful because you could actually send different assets that way or payments between chains that way as well. So I guess my answer is yes, I totally agree with Dan Robinson there.

Peter McCormack: All right man. Well listen, look, we've gone way over my normal length of time and I always have a hard limit when Liverpool are playing! Liverpool are playing in the Champions League tonight. So are there any final things you wanted to add before we close out?

Peter Rizun: No. I mean, we covered everything on my list except for the various Lightning attack factors. But I think I've already been critical enough of Lightning that maybe I'll leave that for another interview! There are some nasty attacks that I think we're going to see happening over the next couple of years.

Peter McCormack: But hey look, we can definitely do it. I'd be interested to talk to you about it. I've really enjoyed the interview. I don't think it was as scary as people made out it would be. I definitely need to obviously speak to people and just say... Like I do with most interviews, you've reviewed Peter van Valkenburgh and the Christian Decker one.

I'm going to be really intrigued to see what the defenses are against some of your points and see if they're valid, see if they're not. I'll be really intrigued to see what your opinion of them are. My full expectation is this is going to get torn to shreds. I'm a fucking idiot. You're a scammer. BCH is bullshit, blah, blah, blah. But I do think this is healthy and as a non-technical person, I think you've raised issues that I think do exist there.

I just hope I don't get hung from a cross for doing this because of whatever reason, but I appreciate your time. It's been great to talk to you. Anyone called Peter is worth a conversation with me!

Peter Rizun: Awesome. I had a great time, Peter, so thank you!

PodcastPeter McCormackPodcast, Interview, Bitcoin, Lightning Network, Peter Rizun, Bitcoin Unlimited, Bitcoin Cash2 Comments