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What about the Lightning Network?

The Bitcoin BTC community frequently presents the Lightning Network as a panacea solution to their high on-chain fees and poor payments reliability. It is generally explained as a bulletproof universal solution and mutually exclusive with scaling via blocksize increases. Neither is true. This can be particularly confusing for Bitcoin BTC adopters who are diving into the Bitcoin Cash community for the first time.

There are a number of important points to consider about Lightning Network.

  • BCH compatible: Bitcoin Cash advocates don't have any ideological objection to the Lightning Network. If the Bitcoin BTC community can demonstrate it as a viable scaling solution, Bitcoin Cash will absorb the benefit of all of that work & open-source code developed on Bitcoin BTC by porting the software to BCH. Unlike the rigid Bitcoin BTC community, the Bitcoin Cash community proactively adopts and adapts provably valuable ideas from other cryptocurrencies. A perfect example is the integration of the Ethereum/EVM ecosystem with SmartBCH. Ironically, the Lightning Network would actually function far more effectively on Bitcoin Cash than on Bitcoin BTC because lower on-chain fees ameliorate many of the problems explained below. That said, the Bitcoin Cash community has not diverted resources from on-chain scaling efforts towards replicating Lightning Network to date because it isn't necessary yet due to BCH's low on-chain fees and the Bitcoin BTC community are already doing extensive development work which can be copied later if necessary.
  • Requires larger blocks: For the Lightning Network to function effectively, it requires at least 133 MB blocks. This point was made in the original Lightning Network white paper. Note that this assumes no usage of the chain for anything other than opening channels (no closing channels, no channel disputes, no regular on-chain payments, no other sidechain solutions) so in reality blocksizes would need to be even larger.
If all transactions using Bitcoin were conducted inside a network ofmicropayment channels, to enable 7 billion people to make two channelsper year with unlimited transactions inside the channel, it would require133 MB blocks
  • History: During the Blocksize War, Lightning Network was presented as the solution allowing Bitcoin to be used for payments. The point of Bitcoin itself was to be a peer-to-peer cash payments system so the idea that a perfectly working system already in use should be crippled in favour of a separate solution years away from maturity was clearly nonsensical. The options of a blocksize increase or Lightning Network were presented as mutually exclusive, which deliberately fractured the debate and explains why many Bitcoin BTC supporters today assume Bitcoin Cash supporters are against the Lightning Network.
  • Custodial / complex: Although Bitcoin BTC supporters will say that Lightning Network is non-custodial, that is heavily asterisked at best and deliberately misleading at worst. Many popular Lightning Network wallets are partially or completely custodial, and those that aren't have other limitations such as requiring a self-hosted node, technical capability beyond simply storing seed phrases for recovering funds, reliance on cloud backups and other similar "gotchas". It is obvious that the vast majority of end users will not know or understand all these nuances, and default to using the UX of the simpler custodial solutions. The gap between non-custodial in theory and non-custodial in practice is very wide for the Lightning Network, but seeing it as a "catch all solution" abrogates a culture of teaching community members how on-chain payments and custody of private keys works.
  • Centralisation: Channel routing on Lightning Network is not a solved problem, and the most efficient (and easiest to implement) solution is consistently routing through large central liquidity hubs (or in other words, what is known in the fiat system as "banks"). The best response is to only use Lightning Network for cases it is best adapted (ultra high volume payments between semi-trusted parties, with cheap on-chain fees to easily dispute on-chain if necessary) - which would work fantastically on Bitcoin Cash. However this approach is not feasible on Bitcoin BTC, since competition for on-chain blockspace will instead promote the centralised hub configuration of liquidity on Lightning Network (increasing systemic fragility and vulnerability to regulation or other attacks).
  • Fee Extraction: Routing fees on Lightning Network are funds that otherwise would have been paid as on-chain fees to Bitcoin miners. In this way, the Lightning Network can potentially siphon away enough money to prevent Bitcoin miners earning enough from transaction fees to maintain chain security hashing power. It's possible eventually there will be enough activity to sustain both, but that is far from established (particularly with the low-volume, high-fees on-chain model of Bitcoin BTC). In this way, pre-emptive implementation of Lightning Network may parasitically destroy the long term security of the underlying chain - another reason BCH is not focussed on Lightning Network at this stage.

A good breakdown of lots of these problems (as well as the history of its creation and financial backers) can be found in the Who Killed Bitcoin documentary: