Bitcoin’s Lightning Network has become one of the most popular topics in the cryptocurrency space. Lightning Network is a second-layer mechanism used for transmitting off-chain payments by utilizing the security of the Bitcoin blockchain. The channel enables two participants to create a channel for the purpose of transferring Bitcoin, without the need for recording it on a blockchain.
The hype for the Lightning Network gained momentum after the Lightning Torch campaign on Twitter. Influencers such as Jack Dorsey, Samson Mow, WhalePanda, CZ, and Riccardo Spagni, have all participated in passing the torch around the Twitterverse.
However, the second-layer network has been questioned by many despite its rising popularity. Peter R. Rizun, Chief Scientist at Bitcoin Unlimited, is one of the critics who remarked that the Lightning Network “is a semi-custodial banking.”
He further stated that “the degree of custodianship is proportional to the fee required to escape from a non-cooperative channel.” Rizun added that if the fee required to escape from a non-cooperative channel was in the “same order of magnitude” as a user’s channel balance, then the Lightning Network is “effectively full-custodial banking.”
Rizun views were backed by Emin Gun Sirer, a Cornell Professor, known to give his views on cryptocurrencies and the financial system on a regular basis. He said,
“Peter nails it. If channel creation is expensive, LN turns into a re-creation of the banking system.”
Rizun further explained his pointers on a Reddit thread. He said,
“Imagine that fees averaged $100 per transactions. You’ve been using a channel for a while and now your remaining channel balance is near $100. When I say “your remaining channel balance,” I mean the amount you actually have available in that channel, already net of the $100 fee to close the channel to the blockchain.”
He further added,
“$100 fees are a low estimate in a future where most transactions are done on LN. But $100 is a lot of money to most people in the world. This means that for most people, LN will not bring them financial freedom and the ability to be their own bank and send payments to anyone they choose. For most people, LN will look like banking looks today.”
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