Lightning Network: Scalable, Instant Bitcoin/Blockchain Transactions

It's not possible to do extremely small micropayments on bitcoin directly as people use it today. Bitcoin's made a lot of promises around micropayments, but doing it in an economical way has tradeoffs, especially if you're talking about millions to billions of transactions per second. In fact it's not possible to extremely small micropayments on ANY platform. Try sending $0.001 to someone once. It's not possible. The closest you're probably going to get is sending someone an item on Steam (and there's no easy way to price the items). The reason for this is underwriting costs, it's too expensive for Visa to process it since they're assuming some liability. Even Paypal, who ostensibly should be doing this, charges $0.30 for payments for goods and services.

Lightning allows for micropayments to actually happen because custody is still pushed to the edges, so you don't have the same kinds of underwriting risk.

This means that something as simple as paying someone $0.001 over the internet one time will become viable this year. The amount of possible business models and use cases could dramatically shift. Users may not know they're using Bitcoin (your application could hide it and abstract it away), but people are getting paid in a way they could not before (even centralized systems did not exist, let alone decentralized ones). Pay-per-click webpages, massive decentralized CDNs, creating API services without a username/password to make onboarding seamless (you paid? you're done!).

We're working on code here: http://github.com/lightningnetwork/lnd It's MIT licenced and will soon have some pretty simple APIs to use. Of course, since this stuff will be in testing for a little while, make sure you only use small amounts/micropayments initially when it's released.

Say I want to pay Bob $0.001. That's too small for a bitcoin transaction since the fee is higher than that. So from what I understand I would "load" say $10 into the lightning network then create a transaction over the network to Bob for $0.001. Say tons of other people do this and now Bob is sitting on $10. How does he turn that into actual Bitcoin? Like get it out of the lightning network. Doesn't he have to close off all those thousands of channels?

Basically, they can scare people into thinking that there is going to be two separate, competing chains. This would cause prices to crash , and crash hard.

Because of this threat to burn the whole thing to the ground, they prevent the community from acting in the first place, even though it has the support to do so.

At any time either party can close out the channel unilaterally by broadcasting the most recent state. The person that broadcasted it gets refunded after a delay (assuming the uncooperative case where the other party in the channel goes off the Antarctica or something -- in a cooperative case, both parties close out immediately with the current balance).

Leaving coins in LN is fully backed on-chain, of course, since these are real bitcoin transactions passed around. The added benefit is you can transact instantly in high volume, so coins in LN will probably have more use than coins off LN when it comes to payments.