With the halving looming and transaction capacity maxed out, some are predicting a doomsday scenario. Much, therefore, depends on the Lightning Network. A “decentralized network using smart contract functionality in the blockchain to enable instant payments” which is capable of an amazing “millions to billions of transactions per second” according to the Lightning Network’s website.

The Lightning Network is a fairly old — in bitcoin terms — idea which makes use of bitcoin’s inbuilt script system allowing for trustless payments through intermediaries, but enforceable on the blockchain. In responding to a number of our questions, Eric Lombrozo, who has recently come to prominence as one of the main developers of Segregated Witnesses (Segwit), stated:

“Without 2nd layer networks like Lightning, the Bitcoin network must burden every single full node with every single transaction every single person makes. It’s sort of like if every time you pointed your browser at some page every other computer on the Internet would have to process that same page. The Lightning Network allows routing of messages between machines so that it is not necessary to flood the entire network with every transaction.”

The Bitcoin network is designed in such a way that every full node has a copy of the entire blockchain which currently stands at 60GB, according to blockchain.info, increasing by 5GB a month or 50GB a year at the current rate of 1MB per approximately 10 minutes. However, some of this space is taken by low-value transactions. After conducting some analysis, Rusty Russel, one of the main developers of the Lightning Network, shared a graph which suggests that 25% of current bitcoin transactions are for less than $1 with around 70,000 daily transactions for less than $5.

Many suggest that these transactions are better performed on the Lightning Network which further opens the opportunity for micro-transactions. Such as paying newspapers by the article, a timely and needed solution considering the increase in Adblock usage.

Although concerns have been raised that lightning is a centralized solution as most transactions would occur on the richest, or most secure, or in other ways the best performing “hub” with further concerns raised in regards to a potential lack of privacy, few are against the Lightning Network itself. Gavin Andresen, the Chief Scientist at the Bitcoin Foundation and the main developer of Bitcoin Classic, stated in a forum post in December 2015 that he thinks “Lightning is a fantastic idea and it should happen”. He further echoed the opinion of most, if not all, in the so-called big-blockers camp, in stating that we need both the Lightning Network and onchain scaling.

After a year of heated debate, there is wide consensus that Bitcoin’s onchain transaction capacity is to increase. The current position is that the increase is to be deployed through Segwit, a solution architected by Pieter Wuille, one of the five core developers of bitcoin with commit access. It has two main purposes. To solve transaction malleability to make Lightning possible and to increase transaction capacity up to a maximum of 4MB in theory, but around 1.7 to 1.8MB in practice. The question is, however, will it be ready in time and when?

Segwit and Lightning by August?

Joseph Poon, one of the main developers of the Lightning Network stated recently that: “A basic, functional version of Lightning Network should be ready when the Segregated Witness soft-fork goes live on Bitcoin, presuming it gets merged and activated this Summer.”

The Lightning Network, therefore, is likely to be ready as soon as Segwit is ready. As such, much depends on Segwit, which is currently in its last stages of testing with a block of 1.5mb recently created on the testnet. We asked Eric Lombrozo, one of the main developers of Segwit, the following:

A soft-fork has currently been deployed in version 0.12.1, which cannot activate before the first of May. Segwit will then follow in version 0.12.2 with presumably two or three months for uptake. So is Segwit to go live around August?

“Yes, 0.12.1 contains the soft fork activation code for CSV (CheckSequenceVerify). Everything you say is correct. The last part is still a bit uncertain as our last soft-fork (CheckLockTimeVerify) took less than that to activate, so it’s possible it might go live before although I don’t want to say for sure. It’s not entirely up to us how quickly miners adopt it.”

Bitcoin’s mining reward is to drop by 50% on or around the 12th of July 2016. Some have suggested that, due to the current ceiling in transaction capacity, price may be unable to compensate. Thus, perhaps, leading to the more inefficient miners dropping off the network and higher mining centralization. Moreover, in the roundtable agreement signed by many miners and bitcoin developers, on February the 21st 2016, it states “SegWit is expected to be released in April 2016”. However, as a soft fork is in the process of activation in May, we wondered whether Segwit had been delayed.

“[T]he segwit team is very much focused on delivering it ASAP and everything so far is going smoothly. No delays.” – said Lombrozo

Segwit, like the Lightning Network, has wide support with many suggesting that both an increase of the max blocksize and Segwit is the best solution. Indeed, according to the agreement, a hard-fork max-blocksize increase is to activate around July 2017. However, questions have been raised in regards to Segwit’s fee discount and suggestions that it will make onchain scaling more difficult moving forward. Addressing the above, Lombrozo stated:

I believe quite the opposite is true! Segwit will, for instance, allow us to add support for much more efficient signature schemes such as Schnorr which might reduce transaction sizes 30% to 50%, thus giving us another onchain capacity boost.

We’re also looking into other ideas enabled by segwit such as MASTs (merkelized abstract syntax trees) which allow us to significantly compress long scripts, enabling much more efficient smart contracts onchain.

As with most things, timing is of the essence. In a recent post, Peter Todd, one of the Bitcoin developers, stated that if Segwit was delayed he would “personally support doing a hard fork that was expected to activate within two or three months” under certain conditions. He further states that:

“[I]f major industry players were willing to make a clear and credible commitment to layer 2 solutions like Lightning that have genuine scaling, without compromising on decentralization, I think it’d be reasonable for developers like myself to be willing to support a higher risk approach to hard-forks, with shorter timelines, as an interim measure to give the industry some breathing room.”

We asked a few questions to clarify his statement. Specifically, whether he has any reason to suspect “industry players” are not committed to “layer 2 solutions” and whether it would not be far too easy to game “coin voting” by simply endlessly moving your ten btc around, but he has not yet responded to our request for comments.

However, Todd’s statements seem to express a general feeling that there is widespread consensus on onchain scaling and, from past statements of Bitcoin Classic developers and supporters there is a general feeling that there is widespread consensus on supporting the Lightning Network. The question is, which goes first, and that very much seems to depend on the very tight timeline of segwit.

In closing the short interview and in seemingly extending an olive branch Lombrozo stated:

“These are exciting times! Lots of amazing new developments in the technology. I’m hopeful we can finally put behind us the misunderstandings of last year and work together as a community on building the future.”

Those feelings are shared by most. We, as a community, face both threats and opportunities. As blockchain tech is hailed as the solution to everything, Ethereum rises and falls, we stand stronger as one. From a wide gulf in early 2015, wide consensus has now been achieved, with the only remaining question whether maxblocksize is raised first, or segwit. A tiny, immaterial, detail mostly dependent on Segwit’s activation date, which, according to the agreement, is to be released sometime this month.

It may well be the case, therefore, that bitcoin once more has overcome a great challenge and in the process has become much stronger.

Featured image from Wikimedia.