this post was submitted on 03 Feb 2024
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All that energy for bitcoin only supports 7 tx/s. Digital dollar payments do tens if not hundres of thousands per second.
On main chain. Via lightning you can support all the capacity of Visa/Mastercard/banks and then some. Main chain provides the security for lightning, lightning provides the transaction storage space and infrastructure.
The lightning infrastructure, if you graph it, looks very similar to existing global payment networks. The difference is that transactions settle instantly because they are protected by the underlying blockchain and they are automated with no middlemen to delay things. No complicated currency conversions, no banks negotiating liquidity in blocks manually and having to buy/sell other assets to stay in balance, no bank holidays, less fees. Which means you can take your money from person-to-person faster, which reduces friction in the economy. Which is exactly what a good currency should be.
Are you paid to post that nonsense?
For those in blissful ignorance: This uses so-called channels between participants. Opening a lightning channel means, basically, putting bitcoin in "escrow" on the blockchain. This requires multiple transactions on the blockchain. Bitcoin doesn't even have enough capacity to open a channel for each baby being born.
The amount that both sides put in "escrow" is the max payment imbalance that a channel can accept. Say, you want to use a channel to buy a car for $20k, then you need a channel that both you and the other guy have put in $20k in bitcoin.
If some calamity happens, these funds are lost in nirvana.
It literally requires one to open and one to close, so like $1 most of the time in fees. If you have a custodial wallet, it requires zero. You can keep a channel open forever. Within that channel, you can have essentially infinite transactions between you and any other party and you can use the channel to route payments to anybody on lightning network. All those transactions settle within a second and have fees measured in pennies. A channel doesn't need to be opened for every baby being born, babies don't use money. Seriously though, there are additional improvements coming down the pipe (like channel factories) which enable you to use one on-chain tx to make hundreds of channels. People do not understand the scale lightning works at.
All of this is abstracted away for you as a user, you don't have to worry about it, especially for custodial wallets. Most people earn and spend roughly the same amount each month, so liquidity isn't anything they ever need to think about. There are also automated ways to rent inbound liquidity which are incredibly cheap, that can be done with self-custody wallets.
Wrong. If you want to buy a car for $20k, you have to put $20k into lightning. The other guy doesn't have to put in anything aside from the $1 in on-chain tx fees to be on the lightning network in the first place, which he doesn't even pay if he has a custodial wallet. Then you send that 20k to the guy with the car. Now you can receive up to 20k in payments in that channel. Not that you would spend $20k via lightning, if you are buying a car and moving that much money, use main chain.
Calamity doesn't happen, funds don't get lost. Custodial wallets literally never encounter this, it's all handled by your custodian. Non-custodial wallets also rarely encounter this, all the incentives are lined up to make "force closes" (which is what I assume you are referring to) rare. And of those force closes, the only risk is that your counterparty publishes an old version of the channel. You have like five days to correct and publish your more recent version to claim your funds. And if they tried to cheat you out of your funds, you get your funds and they pay a penalty. Given that watchtowers are basically automated, this never happens. Your funds from one of your channels might be stuck on-chain for a few days at worst, this is not a nightmare scenario. Banks and traditional payment processors have random holds all the time, especially when dealing with anything international. The difference is, the funds in lightning are always yours because you have the key. There is no scenario where when properly used, you lose funds in lightning.
I can see that you don't know how this works. That's ok. It's nonsense. No one needs to know about that.
Custodial wallets work just like checking accounts, without the regulation. Crypto victims like to say: Not your keys, not your coins. The custodian owes you the crypto that you have in your account/custodial wallet. You own a debt payable in crypto. If the custodian goes bankrupt and can't pay the debts, you are screwed (as so many crypto victims have found out to their shock). The money in a normal checking account is covered by a mandatory deposit insurance scheme, so you don't have to worry about that.
Because custodial accounts replicate checking accounts, they can be just as fast and efficient, in themselves. Having to pay the upkeep of the blockchain in the background means, that they can't be as cheap as actual checking accounts. If a custodial wallet offers you better conditions than a checking account, they must be gambling with the crypto (that you loaned them) in some way, that a normal bank is prohibited from doing with customer funds.
For the sake of completeness: Exchanges in more regulated jurisdictions work like stock brokerages. They must hold the assets. In case of bankruptcy, they are special assets that belong to the customer and are not used to pay creditors in general.