Not yet out of beta, hundreds of developers around the world are already experimenting with bitcoin’s newest technology – the Lightning Network – donating time and resources to help lay the groundwork for a more scalable version of the oldest and largest cryptocurrency yet created.
So great has been the effort that there are now more than 1,000 lightning nodes estimated to be running the software on live computers, largely at a loss, but motivated by the greater gain of making the bitcoin network more accessible and affordable. Still, with the network entering its bootstrapping phase, some are beginning to question when the economics of scale may begin to bring new pressures.
As the bitcoin community saw with the rise of cryptocurrency mining, in which at-home mining via PCs was quickly outpaced by industrial operations, profits attract corporate interests. And experts admit, it’s entirely possible that companies could make money by offering easy access to quick cryptocurrency payments.
“If an entity is going to put a lot of value into payment channels and operate the node for generating profit,” former BitGo engineer Jameson Lopp said. “Then it’s probably going to be similar to mining.”
Lopp’s argument is that all networks, no matter how grassroots at the start, eventually give way to specialists who are simply better at offering a more reliable services at a more affordable cost. In the case of Lightning, almost anyone with the technical skills and a little cryptocurrency can run Lightning channels, but offering a service in the future might be different.
For example, users of the network might not always be able to rely on the availability of others they’re sending money to, meaning intermediaries could emerge that offer services with better liquidity and payment routing.
“The [Lightning Network] will effectively centralize bitcoin with ‘channels’ and ‘hubs’ on the sidechains. These hubs will essentially function as banks,” a Twitter user going under the handle @marcotweetss said.
In many critics’ minds, institutions might offer so many of the biggest payment channels that they would essentially coalesce into “hubs.” That’s what Forbes and CoinDesk contributor Frances Coppola pointed out when she tweeted: “Lightning nodes are full-reserve banks, and the network is essentially a correspondent banking scheme.”
Beyond rogue volunteers, there’s also the involvement of companies such as Blockstream, ACINQ, and Lightning Labs, which have done a lot of the heavy-lifting related to the open-source Lightning Network software, and who, in the minds of critics, might be apt to play these roles.
These companies currently offer their services for free, even though they are venture-backed – Lightning Labs recently secured $2.5 million and Blockstream has raised $80 million so far – and as such, it’s believed they’ll eventually need to find a way to generate profits.
This business opportunity worries some cryptocurrency enthusiasts. After all, Silicon Valley startups from Facebook to Twitter have long perfected the model of getting users hooked on a free service, only to later embrace practices at scale that may not have the best interests of users in mind.
Yet, there are several reasons that, for the time being, there’s little need to worry.
For one, cheap access is emerging as a crucial difference between bitcoin’s blockchain and the Lightning Network.
In this way, MIT researcher Thaddeus Dryja, co-author of the original Lightning Network white paper and the former CTO of Lightning Labs, believes the network will avoid corporate centralization overall because of its design, which doesn’t require expensive or specialized hardware.
According to Dryja, users will be able to freely abandon institutional players that try to exert too much influence over individuals.
“Let’s say everyone is using Amazon, for example, and Amazon says we’ll also route payments between users,” Dryja said. “If that node starts doing things people don’t like, it’s very cheap to close it. They never have your money.”
Along those lines, Lightning app developer Elaine Ou, argues that the barrier to entry for providing the default software is low, meaning should one company embrace poor practices, alternatives could quickly arise.
“There are two other Lightning implementations in use already, so I’m not too worried about centralization. The specs are open and updated through an open process,” she said.
None of this is to say the Lightning Network is infallibly egalitarian. The system still favors players with technical and financial resources, since channels need to have money in order to facilitate transactions. Parties with a large amount of capital could offer network nodes with more liquidity.
Dryja told CoinDesk that institutional players will probably factor into this growing network, saying:
“Having more large nodes is more efficient. I think it will be exchanges becoming the dominant players, at least in the first few years, and that’s not great. It would be great if people were running nodes off of Raspberry Pis in their houses.”
That’s why Lightning Labs CEO Elizabeth Stark told CoinDesk that her team strives to make the technology collaborative yet distinct from any company, including her namesake startup, adding: “The Lightning Network specification is open and anyone can build a compatible implementation.”
Lightning developer Jack Mallers, who created the free Zap Lightning wallet on top of Lightning Labs’ lnd software, will soon release consumer applications for both mobile and desktop. Those interfaces will make it even easier for average people to use Lightning without relying on corporate channels.
Low barrier to entry
It’s entirely possible that inherent fees could make Lightning too expensive for average users to constantly open and close channels. But so far, this isn’t the case.
Unlike bitcoin mining, which requires a great deal of expensive electricity, it usually costs just a few cents to open a Lightning channel. A channel hosting over 100,000 transactions still costs less than $20 to operate.
“Competition is really high on the network and the barrier to entry is low,” Mallers said, pointing to the fact he’s already gotten 19 volunteer developers to help him build Zap.
“Similar to the way people have bitcoin wallets on their phone today, eventually what you’ll be able to do is you’ll have a Lightning node on an iPhone or desktop, and it will be contacting other full nodes on the network, totally separate from your machine, pinging it for information.”
In fact, the upcoming Zap interface is just one of several Lightning projects allowing users to run a Lightning node without piggybacking on more complex bitcoin or litecoin nodes. Amazon might someday be able to offer the most efficient nodes, but any tech-savvy person with a laptop or mobile device will be able to tap into its stream.
Thanks to something called a light client, those independent Lightning nodes can talk to other nodes to stay up to date on what is happening in the broader bitcoin network. There are already roughly 500 people participating in Zap group chats through platforms like Slack.
There are certainly tradeoffs. People with light clients won’t have all the blockchain data at their fingertips.
Regardless, this beginner-friendly option makes the lightning network remarkably different than cryptocurrency mining. As for companies like Lightning Labs and Blockstream, they have an economic incentive to avoid becoming legacy middlemen providers.
Reputations at stake
As for the allegations that one of these companies could become another Facebook, there are reasons that this isn’t exactly likely, either.
Lightning Labs, for instance, benefits from cooperation with developers like Mallers and Ou, who aren’t on Stark’s payroll. For blockchain startups working on this open-source technology, their professional reputation relies on their perceived efforts to keep the bitcoin network mostly decentralized.
Corporate interests generally consolidate power and access, but the bitcoin community has proven it will combat such efforts, such as when a small group of people forked the bitcoin network to create bitcoin gold in an effort to curb industrial miners. Of course, the Lighting Network is much younger than bitcoin, and a split like that could have wider implications for the Lighting community.
If entrepreneurs want to continue spearheading Lightning development, they will have to avoid aligning themselves with any party seeking disproportionate influence.
“We don’t currently operate any Lightning nodes and that’s not part of our plan. We build infrastructure for other people to operate nodes and for the network as a whole,” Stark told CoinDesk.
Lightning Labs investor and BitGo CTO Ben Davenport echoed her sentiment, saying, “They are not going to monetize the protocol directly. But there are always opportunities for smart teams, who are early in an important space, to develop business models.”
Dryja told CoinDesk it’s still too early to say how this young technology will impact decentralization at large.
However, Mallers is optimistic because channel operators never take custody of user funds. Plus, anyone with the technical skills can actually choose the path their payments take. It will be easy for cypherpunks to avoid corporate channels.
“You’re never reliant on any third party. You can even do configuration and choose which path you want to take,” Mallers said. “You can route around certain participants in the network if needed.”
Blockstream developer Rusty Russell believes Lightning’s community pendulum will swing back towards greater decentralization in the long run, and that the barrier to entry is the chief reason.
“It’s easier to accept Lightning payments than it is to accept on-chain [bitcoin] payments. So we’re seeing more people controlling their own payment infrastructure,” he said, adding:
“I think that will increase as we make the entire stack more usable, and it’s an excellent trend for the health of the ecosystem.”
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