In the late 18th century and early 19th century, American and many European countries introduced the bimetallism monetary system, which introduced silver as well as gold as the nation’s monetary unit. These systems usually had a fixed exchange rate and allowed interchangeable use of the two monies.

The US introduced the bimetallic standard in 1792 and as you can imagine, this is inflationary as it greatly expands the total monetary base. It doesn’t matter whether you, as a particular individual, accepted it because it is still part of the same pool of funds used in trade, chasing the same number of goods in the economy. This inflation got worse over time as new silver mines in the West caused a flood of silver in the economy. This lead to the coinage act of 1873, demonetizing silver as legal tender beyond small coins and brought back the gold standard until Nixon formally ended it (it was already effectively dead as it wasn’t a full reserve but that is another story).

In addition to inflation, there were other issues with bimetallism. It required frozing the exchange rate between the two metals to allow consistent exchange rates (this will be important later), Gresham’s law also led to the greatly reduced circulation of gold, and the flexibility in the use of gold or silver lead to instability when the relative price of these metal changed compared to their fixed exchange rate and due to exchange rate differences between countries.

How does this tie into the lightning network?

I encourage you to read this thread and Samson Mow’s comments:

In particular, this section:

I think Charlie may have slept, so let me try to answer this question. Litecoin achieves higher throughput with faster block time - this should be enough. The fate of Litecoin and Bitcoin is intertwined, which is a good thing. No matter what Bitcoin will have in the future, such as lightning networks, side chains or smart contracts, etc., Liteco will also have it. In fact, once SegWit is activated on Litecoin, some developers will upgrade the lightning network so that the transaction can be sent immediately. Bitcoin and Litecoin are the first layer of top-level technology, all of which are guaranteed by reliable mining work.

Keep in mind that Bitcoin can never serve everyone in the world right away, Gold is needed but Silver is also needed. Some people are worried that Layer 2 solutions like Sidechains and Lightning will reduce mining revenue but that's just not going to happen. I recall a calculation someone did where they figured out it would take around 80 years for everyone in the world to open up a Lightning payment channel - that's just people doing transactions on Layer 1 to open a channel on Layer 2 and nothing else. That's why Litecoin is So important, because it really is the silver to Bitcoin's gold; just as in the past people used gold to buy lives things and silver to buy cheaper things, we will see the same utility for Litecoin as digital currencies gain traction around the world.

Remember, Bitcoin will never serve everyone in the world right away. Gold is a must, but silver is also indispensable. Some people worry that a two-tier solution such as sidechain and lightning network will reduce mining revenue, but this will not happen. I remember someone doing such a calculation. The result is that they found that it takes 80 years for everyone in the world to open a lightning network payment channel - this is just a channel for people who trade on the first floor to open a channel on the second floor. nothing else. This is why the Litecoin is so important. If Bitcoin is gold, Litecoin is silver. Just as people used to buy expensive items in gold and buy cheap things in silver, as digital currencies are attracting attention around the world, Litecoin will have the same effect.

There is a lot of interesting commentary in there, particularly the admission that not everyone can open channels on Bitcoin, however, I want to focus on his view of Litecoin as silver and incorporating it into the lightning network.

If you haven’t read my previous article on issues with lightning routing here: https://www.yours.org/content/getting-over-the-final-lightning-network-hurtle-e694b335c937

Now imagine the lightning network also needing to constantly manage an exchange rate between the two currencies? Routing would be much more difficult and given the liquidity problems I foresee, it is extremely likely the lightning network would have to introduce a fixed exchange rate to make routing easier and allow for interchangeable liquidity of both currencies via atomic swaps, probably based on total supply. This would effectively lift the 21 million cap on Bitcoin as well as push Bitcoin out of general circulation (i.e. Why open a Bitcoin channel for $100 when you can open a Litecoin channel for $1?), this would resign Bitcoin to a position of an unmoving reserve pool of liquidity.

In addition, this will create greater instability, as lightning network also has to compete with exchange of Litecoin and Bitcoin outside of the network, such as on exchanges like Binance. This can lead to “bank runs” as people rush to close their channels when the price of Litecoin and Bitcoin within the lightning network was trading at lower value than on exchanges as people try to arbitrage the difference.

To conclude, I predict that the lightning network will experience a repeat of the same issues under Bimetallism and this is a policy that blockstream is pursuing intentionally.