/SorryForYourLoss is a place to showcase the top minds of bitcoin (and cryptocurrencies) failing to secure their precious internet money properly. It's a memorial for the countless incidents of thefts, scams, hacks, goxxes, .. etc.
Nautiluscoin is the digital currency powering the Drachmae Platform.
I will here for purposes of making no exaggeration present an especially drawn out scenario dealing with game theoretical factors rather than code and that would be impossible to time or predict perfectly. As such it could take possibly a decade or even generations to complete, or it might just never happen. Other scenarios might be equally possible, but would instead depend on unknown factors and perhaps happen in a much shorter time. These will not be dealt with in this post. The example provided is only meant to get you thinking about the limitations and systematic risks themselves in the network, that indeed can not rule out and will compared to the network design provided by Satoshi instead actually tend to help efforts such as introducing inflation if this is popular with key players in the network. It is not to conclude that somehow I have thought of every way in which the system could suffer, or that I am Nostradamus making a prediction of absolute and certain disaster. Instead it focuses on the game theoretical problems of irreconcilability. This also isn't a post against the Lightning Network as such, because if well implemented it could still turn out to have great use cases and there's then nothing preventing different chains from adopting it for those use case in particular. Now on to the post. Some refer to the Lightning Network trading of bitcoins as in a sense "trading unforgeable certificates of gold, that can't ever have their redeemability taken away". submitted by
This certainly seems to be the case from a coding and cryptology perspective. It becomes an especially
convincing perspective of course, when the remaining Bitcoin Core developers argue in favor of and actually do choose to effectively eliminate various cash attributes for the "coin" (now even unable to do secure 0-conf transactions and instead having to wait on average 10 minutes per transaction) that trades under the BTC ticker and it still seemingly getting along happily in the markets. But as soon as we take economics and system security into account we notice that it's actually not quite so simple. Bitcoin alone
will always be susceptible to some attacks of course (this is not really possible to avoid with any system) and in a worst case scenario a majority of the community would actually be convinced to abandon the fundamental principles described in the systems design paper for an inferior replacement.
This would radically reduce both the actual economy and the perceived utility of the old network, most likely leading to a rapid drop in the global market price for the coins held by those community members still wanting to transact by the old means. Simultaneously, it could still potentially generate a handsome profit for those wanting nothing to do with the old system and hence selling their coins on the global market before the older coin had a chance to grind its way back into recovery. As long as Proof-of-Work is kept
, the users of the Lightning Network will always suffer the same risk in this regard as the users trading bitcoins directly on the Bitcoin Network. If they switch to a non-PoW model, they will immediately face other issues. But they will also have to deal with any other potential risks introduced by the system design of the Lightning Network itself
. It is true
that all coins or "certificates" on the Lightning Network piggy back of the Bitcoin Networks security provided by hashing nodes and are economically speaking also "backed" by real bitcoins. The only reason taking away the peg in fact at some point in fact might work
, is that the LN transactions are not themselves
actual Bitcoin transactions in the process of being settled on the chain. They are not 0-conf transactions held in the many mempools of nodes on the Bitcoin Network, subject to the "first seen" rule or and currently waiting to be timestamped by inclusion in block. As soon as they are, this is less of a problem. But the plan
with regard to the Lightning Network is to popularize these "second layer" transactions as regular transactions
in order to reduce the total number of transactions made on the Bitcoin blockchain and reduce the recourse requirements of running nodes, potentially letting them happen very rarely, take a very long time or even to actually have users never perceive a need to settle them. Considering the practical topology
of how the more high profile "nodes", "hubs" or "more popular users" with greater than average connectivity and liquidity in the otherwise generally "decentralized" network have so far, and indeed must be expected to organically accumulate -- by merit of those choosing the routes and connections they themselves perceive to be the best, given their particular taste in all of the other individual users or businesses on the LN network and the relative liquidity that they provide for making a particular sought after transaction --, we can conclude that they have per these traits a greater economic influence
then the rest that have chosen to depend on their reliability. We are not here concerned with making any sort of typical ethical condemnation of size or of having money, so we would not be interested in this if it weren't for the fact that introduces the same local potential failure points
that are the key to centralization. The economy will therefore be susceptible to many of the same pitfalls as the old
old economy that had preceded Bitcoin as it had been properly known per Satoshis design in the first place.
Because of the users flocking to the previous mentioned "hubs" that provide greater liquidity, lower fees or help connect them better to the rest of the network, the precise routing
of the system becomes a source of constraint. Users can no longer connect to just any
node in the network and there is no way other than preferring the already largest hubs to as objectively as possible judge the incentives and the reliability of the nodes involved. Such measurement also never gives any guarantee
whatsoever that the node you prefer and depend on will always remain available all the minutes of the day, every day, -- nor could
the operator ever guarantee such a thing -- how likely it is to disappear in the event of financial turmoil or what happens if a government takes action against the operator for any number of reasons that need not have anything
to do with the individual operator himself or his company in question.
Because of this remaining element of risk
, a certain need for trust spreads throughout the system. An algorithm that instead determines the route used by the individual user in a very careful way, can make a trade-off between such risk and benefit, which would help mitigate some of the risk and maximize benefit per a certain formula. But the fundamental problem doesn't change or disappear.
Because of their importance in the ecosystem, hubs can now use it as leverage
in upcoming board meetings about how Bitcoin should grow as a payment-/settlement system and what changes or other perceived improvements are necessary to make. Their combined influence, if they are many and diverse, may be significantly mitigated and will especially meet initial resistance from node operators (solo-miners and pools) in the Bitcoin Network itself on key topics. But as long as the miners are happy
, the Lightning Network or any other second layer can operate as they wish
. This can be the case with or without the changed incentives that some specific code changes along the way might bring. There is also no guarantee that there will not be significant overlap between these two groups over time.
As we have seen throughout history
, gold backed currencies rarely
survive for long before a central entity controls and manipulates them. Not even gold trade itself is entirely without its scammers and where no alternative is allowed, manipulation still takes place from the top. It would be easy for the greater beneficiaries of the Lightning Network to honestly but mistakenly conclude that it is the best possible system and that making transactions on the Bitcoin Network is actually unnecessary
for anyone but the miners. Striking a deal with the miners, that let miners keep their transaction fees or even increase them by making transactions possible on a less regular basis, they can safeguard the survival of their own system, increase their own influence and more aggressively at this point push almost any agenda that they'd like as long as miners do not interfere.
Users that dissent with the policies of the Lightning Network can't merely take their money out of the system. They will have to trust
that settlement is still possible or that a greater fool, that's so far using a different cryptocurrency, willingly takes their place.
If transactions on the Bitcoin network are still somewhat reliable, economic activity can happen there instead of the Lightning Network. But it will only
do so if there are actually bitcoins left un-pegged
and held by enough users that are doing business on it.
In our case The Lightning Network itself
might already have become considered the primary
space where exchange of bitcoin and as such "bitcoin transactions" takes place -- even though what trade hands are actually the certificates -- making certificates the default means of exchange
within the community economy. Interest in regular Bitcoin transactions might be low due to impracticality alone or also ignorance and standing alone is not so easy.
As long as there then is still some monetary value to the "bitcoin backed" notes being produced by the Lightning Network, it is not a long shot that those disagreeing will largely have left and that economic policy can be more fundamentally change through political persuasion
, not to mention propaganda. It would not matter much if the devalued "bitcoins" were produced as real bitcoins would by the miners, whom would have the power to lift the 21 million limit, or in the form of fractional reserve fiat
on the Lightning Network itself which could be implemented by developers working for the most popular hubs. The currency could be equally distributed throughout the entire network, but in either case the bulk of the money would be most likely to end up with the hubs themselves, who could then mercifully distribute it "fairly" to the rest of the ecosystem.
Miners would eventually want their share of course, but no other party
would have any practical way of stopping inflation and even if the miners decided to reduce congestion it is not clear that it would be possible for neither them or users to resurrect the network without great struggles.
It would of course not ever be entirely unfeasible to see an economic exodus through open source means similar to how Bitcoin and other cryptocurrencies are being used today, early on or much later, such as through establishing a copy of the blockchain. But even if
this happens, the event here described would, again, already have significantly
damaged the economy and the market value of the new competing currency would initially likely be nowhere near the currency by this time still widely known
by the Lightning Network participants and also many outsiders as "bitcoins"
. Finally; If you are trading cryptocurrency to make a short term profit, none of this might interest you that much. You are looking at current sentiment and expectations, not necessarily the technology behind it. But if you truly are in this for the long run and have other motivations, such as saving, continuous spending or, more than anything, if you want to support the bootstrapping of a revolutionary global financial network that potentially could bring freedom and a raised standard of living to millions by preventing systematic exploitation, then you should care about system design, long term viability and therefore also any potential pitfalls even of the most popular and supposedly "decentralized" networks.
I imagine some metal coins something similar with casascius ones, but without a private key, that can be used for people where there is no internet coverage. to get your bitcoin in your wallet, you will have to visit some exchanges that will buy them and provide you local currency or just transfer bitcoin to your wallet. submitted by
Asking just out of curiosity of course. I am sure the founding father knows what he's doing. submitted by
Wondering what bitcoin is backed by? The answer is nothing at all, but that’s actually not a bad thing. Like most modern currencies bitcoin is not backed by gold or other precious commodities. In a sense, bitcoin’s value is derived from our common belief that bitcoin has value. The same is true of the American dollar, the British pound, and the European Union’s euro, as well as nearly ... Fiat money are backed up with nothing except for being recognized as a means of payment and political constituent of national and international economic processes. What is Behind Bitcoin? Like any fiat currency Bitcoin is not backed up with tangible assets. But it does not imply that Bitcoin is a dummy, which has nothing behind it. The principal basis supporting Bitcoin is its being recognized ... Bitcoin is not a (good) means of exchange. (At best its way worse than ‘fiat’ money.) Reality: Bitcoin is an excellent means of exchange. You can’t reverse a bitcoin payment like a payment ... Money On Chain DeFi for Bitcoin Money on Chain provides a Bitcoin-Collateralized Stablecoin. This solves the biggest problem for Bitcoin mainstream adoption: the volatility problem. The Dollar On Chain, a Bitcoin-Backed Stablecoin, uses a trust minimized, decentralized system. Although it doesn't have intrinsic value, the value of fiat money is set by changes in supply and demand, as well as the strength of the government behind it. Since governments only accept payment of taxes in fiat currency, and tax evasion is illegal, their value is also partially maintained by the need to pay taxes. So while fiat currencies are not formally backed by anything, we tend to buy ...
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