Crypto 101: Lightning Network



hey guys welcome back today's video is going to be a crypto 101 video it's a segment in which I cover stuff that I think is important as just like an overall knowledge base if you're involved in the crypto community or a crypto currency in general a little housekeeping first I'd like to start by reminding you guys to check out the crypto basic pod if you haven't obviously they are a friend of mine I've been on their show they may eventually do a cameo on the channel good informative guys great useful information I listen to them when I commute to work it makes my life a lot easier so I wanted to shout that out also I wanted to remind everyone if you want to support my channel my patreon is up and running so you guys can pledge there if you want all of my videos are turned into podcasts and they are posted there and also I finally after so much effort got my webstore up and it's available on my normal website so you can buy merch I've got t-shirts and a bunch of other silly stuff up there including stickers if you're interested the topic of today is Krypton 101 video is going to be about the Lightning Network we've all heard about it we you know it was a big thing that was discussed people talk about it constantly I knew very little about it and also on my last poll on Twitter where Cisco coin one I got a very high response rate for the Lightning Network as well and a couple people had mentioned hey you know if you want to do this after the Syst coin video I think everybody would appreciate it so here we are the most important question obviously is what is the Lightning Network so lightning Network is an overlay network that is built on top of a pre-existing a blockchain protocol very similar to how the Internet is built in layers lightning creates an entirely new layer that offers instant high volume payments and those are denominated in the block chains native currency how does it work you ask well the Lightning Network are the concept behind the Lightning Network is that not all transactions need to be recorded directly on the blockchain so that helps to speed up the transactions that are recorded directly on the blockchain a byproduct of that is that it's going to also decrease the traffic which in theory should decrease the fees on the blockchain the first step in using the Lightning Network is funding so let's say there's two parties Jack and Jill and they plan to conduct a lot of trades with each other rather than making numerous possibly costly trades back and forth to one another or payments back and forth to one another they opt to open up what's called a payment channel in this video we're gonna use Bitcoin as the currency for examples sake so traditionally when someone sends or receives Bitcoin on the blockchain each individual transaction needs to be recorded on the blockchain with the introduction of the lightning Network this allows parties to open up a bi-directional or a two-way payment channel let's get back to step one of funding and back to Jack and Joe so they decide to open a payment channel and they opt to put in one Bitcoin into the payment channel to fund it what this means is is that they are an agreement that they think the transactions between each other are not going to exceed one Bitcoin so both people are going to send 0.5 or half of a Bitcoin over the blockchain to a multi signature wallet this Bitcoin address is controlled collectively by two or more people and funds can only be released from this wallet when the agreed number of signatures has been reached so in this situation for Jack and Jill if either of them tried to transact anything within this payment channel both signatures would be required in order for the payment to be processed at this point one Bitcoin is now locked up in the multi signature wallet and it is funded and ready to go step two is transactions so now Jack and Jill because they've opened this payment channel can send back and forth thousands of transactions with very little cost without a single transaction being put on the blockchain I would like to mention that of course the speed of transactions is dictated a little bit more by how fast both parties can approve those transactions from the wallet now these thousands of transactions that are going back and forth between Jack and Jill are not being put on a blockchain but they are however being recorded on a micro ledger that is keeping track of everything between Jack and Jill for as long as the channel is open all the transaction should in theory be instant between Jack and Joe because they do not have to wait for any confirmations on the blockchain however creating a payment channel just for one payment to one other individual if you don't plan on transacting a lot could be just as costly and wasteful as trying to do a ton of transactions between just two people so this is the part in which the Lightning network gets the network part of its name payment channels are linked together which means that payments can use pre-existing channels to send transactions back and forth to people instead of needing to create a new channel every time so at this point you've probably already figured out on your own that that means that Jack and Jill have a payment channel but not only Jack and Jill's payments are moving to that channel other people's are also utilizing their pre-existing channel to get to somebody else however this isn't going to be a free service it is going to incur a small fee they expect that it's not going to be a lot but that payment or that fee will end up going to the people that have opened the channel so they make something on it the end result is a very large network that could potentially process huge amounts of transactions without needing to settle everything on the blockchain meaning transaction speed and cost should be significantly decreased they estimate that once the light a network is fully implemented and working that many if not most of all transactions on the Bitcoin blockchain will be utilized through the Lightning Network step three is the consensual closing of a channel so one individual who is utilizing the channel can request that both parties agree to close the channel once they agree they create a final payout transaction and this allows the release of all the funds and all of the funds are allowed to be immediately used after the channel is closed many transactions at this point could have taken place between Jack and Joe but the blockchain doesn't know that because of lightning Network the only two transactions that will be processed on the blockchain formally will be the opening of the channel and the closing of the channel let's say Jack is closing his channel with Jill but he realizes that he needs to open one with Alice if he has a remaining balance from the pre-existing channel with Jill he can use that to fund a new channel with Alice very quickly and very painlessly some trade-offs the first one is that you can't receive a transaction that is larger than the total sum of your payment channel another point to mention is that because your transactions between these individuals and the payment channel is on this micro ledger it doesn't get stored on the blockchain for all of eternity this allows you more privacy but in the same light you continue to use the same Bitcoin address within the Lightning Network so that means that in theory people could track your balances and figure out how much you received from some of you had a payment channel with you get instant transactions within the payment channel but that means that your money is locked up in that payment channel and it won't be released until there is a consensual closing with all parties involved in the channel due to the high cost of creating payment channels with that you transact with regularly centralized settlement hubs are inevitable and there is a theory that this is going to possibly recreate the bank model there's even a little bit of conspiracy theory the block stream didn't want to resolve Bitcoin scaling issues because they wanted there to be a need for the Lightning Network this way they could create hubs and collect fees for a profit next question is can we use it and the answer is not quite so on October 15th 2018 they released their 0.4 version of their beta so it's the first version of their beta that's out I would like to note that this release is really only for developers of future lightning Network applications and also technical users there is the option to run a wallet on the test net get free test net coins and kind of just mess around with transaction speed so you can get a feel for what it's like to use the Lightning Network my overall view on the topic is that I think it's a really ingenious way to solve issues that have been plaguing Bitcoin and have really decreased bitcoins usability overall I mean I've mentioned this before to people that I have you know I had wallets with small amounts of Bitcoin in them and I never moved them because I wanted to consolidate everything but the cost of moving it was the wallet balance you know so it was a little ridiculous it's nice to see that there's an option it's definitely a great idea it's a great concept I'm gonna probably at some point do more research on the theory behind the block stream conspiracy to see if maybe there's actually anything backing it up because I'm curious about it but again it is a resolution and you know who knows maybe there won't be an issue with payment hubs in the future I guess only time will tell but you know as I said it's going to make Bitcoin usable and it's gonna make Bitcoin easy to transact with and I think that's one of the huge hurdles it has right now so it's very important that it is implemented I am interested to see what the future holds how it works how people take to it what the actual transaction fees on the blockchain end up being after the Lightning network is implemented but again only time will tell as I stated so I guess we will see what the future holds for the Lightning Network and Bitcoin in general I hope this answered some of your questions about the Lightning Network I know I actually really enjoyed making this video because it was again something heard about it's one of those things you're like I'm gonna keep me I'm gonna look it up you keep telling yourself you're gonna do research and you never do but I'm glad I did because it's important especially because it's coming around to possibly being more used so hopefully I answer some questions and you guys enjoy the video if you did enjoy the video please subscribe there's a button somewhere in this region and I hope you guys come watch some my other stuff and I will see you all soon

38 thoughts on “Crypto 101: Lightning Network

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  2. Solid breakdown.
    The fact it can be used with TOR and will also have atomic swaps introduced into the GUI I think you might be incorrect regarding the lack of privacy when if comes "back on chain" (as it is a side chain as you stated).

    Or in other words from what I understand of it (I could be wrong though). You can enter and exit the network without even having to open anything on the Bitcoin blockchain because there are "nodes" to facilitate this option within blockstream for the atomic swap and privacy purpose.

  3. Checkout FLIXXO it runs on the Ethereum network, it's a decentralized YouTube that combines blockchain and Bittorrent

  4. Your channel is so good! It has become my favorite Since Boxmining went crazy and Doug Polk went missing… Your videos are thorough, well edited, and very understandable. And it also makes your videos extra enjoyable to watch because you are really pretty too! I tell everyone about your channel and I tipped you some Bitcoin; it's only fair. 🙂

  5. But lightening still doesn't solve scalability. Everyone will want to confirm their money. Why would you keep a payment channel open after a transaction?

    Elizabeth Stark and Elizabeth Holmes could be sisters.

  6. It would be great if you could do a comparison of the lightning network to the plasma solutions coming out for ethereum too – what's different, what's similar, timelines etc.

    much appreciated

  7. brutal as it may be, to me the lightning network seems a bandaid solution, polishing a turd so to speak: bitcoin doesn't need a bandaid to compete with the technological potential of other cryptos, it needs a transplant – it doesn't need a layering solution, it needs to be completely redesigned – the addition of the lightning network seems to add more clutter to the process, when the problem actually lies at the root of bitcoin's design – at least when compared to other cryptos – this is just my impression mind you. much thanks for another great video

  8. The Lightning Network is just an initiative to take $$$ and influence from mining pools. That is unless the BitCoin suggestion box is overflowing with requests to tie-up capital pre-funding channels and having to be online to receive your funds. 😉
    If ur a Crypto Lover and FAST/FREE transactions are what u want…use Nano.
    And for non-crypto Joe & Jane… They'll be sticking with cashback Credit Cards and free services like Google Pay.

  9. There are 3 different versions of lighting network 1. Elements Project (Blockstream (c-lightning, depending on Bitcoin Core/bitcoind), 2. Lightning Labs Elizabeth Stark and er group just raised $2.5 mm (lnd, depending on btcsuite/btcd or Bitcoin Core/bitcoind), and 3. ACINQ (eclair).

  10. I think you are awesome. Subscribed instantly after seeing you on the livestream with K-Dub yesterday. Keep up the good work!!! Love from the Netherlands.

  11. Thanks for tackling the lightning network from what seems like a pretty unbiased perspective! A few things: The transactions that occur on the lightning network don't really happen on their own "micro-ledger". What's happening is that when a "payment" is "sent" to the other side of the channel, what's actually happening is one side of the channel is signing a transaction that says that, when the channel closes, the other person can walk away with more of the funds in the channel than they could before. (The majority of the Lightning Network whitepaper dealt with how to react when someone tries to broadcast an "old state" of the channel, e.g. one from before a payment was made in an attempt to steal that payment back. That's why you have to always be online to use the lightning network: you need to be there to accept their newly signed transactions crediting you with more of the balance, and you need watch out for someone broadcasting an old state and stealing funds that they already credited to you. If you catch them doing this and can prove it using your more recent state of the channel, they get penalized and lose everything they had in the channel.)

    Also, I recommend looking into the decentralized routing problem that still needs to be solved for the lightning network to scale to anywhere close to worldwide usage. Right now, the sender specifies the route, which requires each node to be aware of the state of every other node's channels, and keep up in real time. This method, ironically, scales very badly. To do routing in a decentralized way without requiring every node to know the state of the entire network is, given my understanding, an unsolved problem in computer science, so it's kind of crazy that they're selling the lightning network as something that will allow for worldwide scaling when the central part that allows it to scale hasn't been solved.

    Also, have you looked into what's required to actually run a lightning node? I'm skeptical of whether or not it really is going to make Bitcoin easy to use again, given what's required. (You need to run a full node, which must always be online. If there's any chance of you going offline, you'll need to employ a watchtower service to watch for old states for you, which is yet another layer of cost and complexity.)

    If you want to take a look, here's a post titled "The Great Bitcoin Scaling Debate" which touches on Blockstreams involvement in refusing to scale Bitcoin by keeping the blocksize limit at 1MB: https://hackernoon.com/the-great-bitcoin-scaling-debate-a-timeline-6108081dbada

  12. @cryptocandor
    5:16 – the word is spelled "Consensual" (sorry, i am a spelling nazi lol)
    I really liked how you explained a pretty confusing concept for some and explained it using apples and oranges pretty much. Great video, keep up the great work.

  13. I think you forgot an important part, that is that every end of the channel can at any moment close the channel even if the other party won't cooperate. And the time lock system to prevent a party of submitting an older state to the blockchain

  14. Great details.. All the way to your nails matching the reflection in your glasses. Not going to see that level of detail with The Crypto Lark, Boxmining, or Ivan on tech. 🙂

  15. Is it politically incorrect to mention the color of your nail polish? Great color that I found following and had to rewind many times to get listen to the information again. Keep up the great work.

  16. Saw you on Crypto Zombie's channel. I am here to check your videos. Hopefully, I will subscribe. Thanks for providing great contents

  17. Now I'm wondering if the Lightning Network will outperform Nano/RaiBlocks, and whether or not I should sell my Nano. I know that Nano transaction fees are supposed to be free and you don't have to be online right then to receive your coins, so those are some pluses for Nano, but BTC is so established already that Lightning Network might end up killing Nano regardless. I don't know. I guess we'll see. 🙂

  18. So basically the lightning network concept is about putting multiple transactions into one, so that you pay the fee only once. Am I correct?

  19. Another great video, thanks!!! So in summary I believe it's not replacing nano or dash evolution technology, both are easier to use as a coin in my humble opinion.

  20. Wait, so if you want send someone 1 bitcoin, for the initial transaction, you would have to lock up 0.5 bitcoin each, costing each party 1.5 bitcoin to do the transaction? I don’t think I understand it because that sounds really bad

  21. Good vid! Please take a look at Nano. Has this built in instead of on top. Much better and faster. And the best part: Nano doesn't has fees! Please do a vid on Nano

  22. Came across your channel from watching your stream with KDubb. You’re very well spoken and provide great content, glad to watch your videos now. Thanks for sharing this info with us. Very pretty by the way 🙂

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