4 part series on Lightning Network Part 2: Eeyore says nice theory, shame about the traction

https://dailyfintech.com/2021/07/13/4-part-series-on-lightning-network-part-2-eeyore-says-nice-theory-shame-about-the-traction/
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Eeyore usually gets negative audience reaction at the Pooh Corner Tech Debates as his pessimistic worldview contrasts with the optimistic enthusiasm of most tech conference attendees. He started by – uncharacteristically –  pandering to his audience by telling people that Lightning Network was a centralised solution; this got a heckle “why does that bother a legacy finance guy like you?”

After that weak start Eeyore went on to ask who is actually using Lightning Network today and to point out two major weaknesses:

  • weak economic incentives to operate a node. Even enthusiastic early adopters need economic incentives. Lightning Network only works if people operate nodes that provide sufficient liquidity to ensure that payment transactions are done.  The incentive is routing fees. You can read the details here but the bottom line is a return of about 1% per year, which too close to ultra low risk/simple US Treasury Bonds.
  • Other consensus mechanisms do not have the same Bitcoin Proof Of Work on-chain settlement flaws. Alternatives include Proof Of Stake on Ethereum and various forms of Directed Acyclic Graph .

Eeyore ended his talk by pointing out that during the last Bitcoin bear market in 2019, you could have seen Lightning Network as cool science project, but two years later after another big bull market, we are no closer to mainstream adoption.

Enough glass half empty pessimism. Next week Tigger gives a more bullish view in “be patient it is happening and will change everything”

Some subjects are too complex for our short attention spans, so we do 4 posts one week apart (see here for 1,3, 4 some may not be published yet), each one short enough not to lose your attention but in aggregate doing justice to the complexity of the subject. Stay tuned by subscribing.

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https://dailyfintech.com/2021/07/13/4-part-series-on-lightning-network-part-2-eeyore-says-nice-theory-shame-about-the-traction/