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What Lightning Network Means for Bitcoin Scalability

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  • David Dinkins
    ⭐ Features

    Bitcoin’s developers are pinning their scalability hopes on an off-chain solution called Lightning Network.

What Lightning Network Means for Bitcoin Scalability
Cover image via u.today

Bitcoin’s developers have been investigating scaling solutions for several years, and when they finally settled on a combination of SegWit and Lightning Network, the community was bitterly divided. With the fork of Bitcoin Cash and the death of the potential SegWit2x fork, it seems like the majority of “big blockers” have left the community, leaving the path open to implementing Lightning Network (LN).

Payment channels

LN uses a concept called “payment channels” which enable transactions to be made outside of the Bitcoin Blockchain. All these “off-chain” transactions are eventually aggregated, and the net changes are posted to the Blockchain. To make this easier to understand, consider what happens if you are trading on an exchange.

Let’s say you start with 10 BTC, then you earn 2 BTC by trading, then you earn 4 more BTC from another profitable trade, and finally you lose 1 BTC in a bad trade. The exchange doesn’t actually make three Blockchain entries; instead, the exchange waits until you decide to withdraw your funds and then creates only one transaction on the Blockchain. Instead of making three entries on the Blockchain for +4 BTC, +3 BTC and -1 BTC, the exchange would send you +6 BTC in a single transaction.

This is also similar to what happens when you use your credit card. Banks don’t actually send each other millions of small transactions each day. Rather, at the end of the day, banks aggregate the total debits and credits and settle their accounts with each other in a single transaction.

Criticisms

Lightning Network has its critics, though. Some have argued that the use of LN defeats the purpose of the Blockchain. By taking most transactions off-chain, you no longer have a universal, auditable ledger. Supporters argue that LN is an optional feature, so nobody will ever be required to use it. People who want to send Bitcoin to each other in the same way as before, directly on the Blockchain, can still do it.

Other critics think the idea won’t really allow Bitcoin to scale that much, because payment channels won’t save that much space on the Blockchain. They contend that most people don’t regularly transfer value back and forth between the same parties multiple times. If Bob sends Alice 1 BTC, and the two parties never transact with each other again, then the use of LN would not have saved any space on the Blockchain. LN only really shines when two or more parties transact with each other repeatedly.

About the author

David Dinkins is a freelance writer who holds a Master of Arts in history from Louisiana Tech University and has extensive teaching experience both at LSU – Shreveport and University of Phoenix. He got involved with cryptocurrency in early 2014 working as part of the Dash Core Team and have served in the role of writer/editor (mostly editor) during that time. He has edited a huge number of documents for the Core Team, including the Evolution whitepaper, the PrivateSend whitepaper, and many of Evan Duffield’s communications with the Dash Community.

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Bitcoin Price Can Be Easily Pushed Down by Whales: Professor John Griffin

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  • Alex Dovbnya
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    John Griffin says that rapid price swings are possible because it can be manipulated by deep-pocketed whales who are not stronger than ever

Bitcoin Price Can Be Easily Pushed Down by Whales: Professor John Griffin
Cover image via u.today

Economics professor John Griffin recently rang alarm bells over the impact of Bitcoin whales on the Bitcoin market. 

Griffin told Bloomberg that a few large players could easily push the BTC price down at a whim. 

"The problem with a few large players holding crypto is that when they sell they can easily push the price down, which makes the market susceptible to rapid swings."  

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Whales are getting more powerful 

According to data released by CoinMetrics, the number of orange coins controlled by deep-pocketed Bitcoin investors reached its highest point in four years in 2019. As of December, a whopping 42.1 percent of Bitcoin's total circulating supply is stored in wallets that hold between 1,000 and 1 mln BTC. 

While crypto exchanges are known to be the owners of the richest Bitcoin addresses, investor Aaron Brown warms some of the new whales on the block are family offices and affluent individuals who are not exactly keen Bitcoin believers who might be tempted to jump ship if things turn south. 

“I doubt they have infinite patience, and without significant growth in actual use, I would expect them to quietly withdraw to chase other promising technologies,” Brown said.

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Becrying Tether's impact on Bitcoin 

Speaking of those who don't believe in Bitcoin, Griffin probably takes the cake as one of the most prominent naysayers. Back in June 2018, together with his colleague Amin Shams, he published a paper that explores how Tether was allegedly responsible for propelling Bitcoin to new highs during the peak of the previous bull market in December 2018. 

At the beginning of November, the two academics came up with an even more shooking claim -- the historic ascent of Bitcoin to its current all-time high of $20,000 was the deed of a single whale on Bitfinex, the affiliated exchange of Tether.

Tether dismissed the updated study as a puff piece that was meant to back up a $1.4 trln lawsuit against the flagship stablecoin issuer. 

About the author

Alex Dovbnya (aka AlexMorris) is a cryptocurrency expert, trader and journalist with an extensive experience of covering everything related to the burgeoning industry — from price analysis to Blockchain disruption. Alex authored more than 1,000 stories for U.Today, CryptoComes and other fintech media outlets. He’s particularly interested in regulatory trends around the globe that are shaping the future of digital assets.

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