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Monopoly Without a Monopolist: An Economic Analysis of the Bitcoin System [pdf]

columbia.edu

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Re: Monopoly Without a Monopolist: An Economic Analysis of the Bitcoin System [pdf]

#21

Post by DINKDINK »

rj123 wrote: post #15
nosuchthing wrote: post #14

Earlier quoted context omitted.

Why not use the fabled "lightning network" layer as layer 1 if it functions as it should? Is it not just a blockchain slapped on top of the slower blockchain?

The lightning network has no security (protection against double spend) on it's own. It relies on the underlying blockchain for that.

>The lightning network has no security (protection against double spend)

That's not true. By locking funds into a Lightning Network payment channel you solve the double spend problem _in the channel_ (the person receiving your payment knows that in order for you to double spend the channel, the payment recipient would need to approve the double spend). The risk of being double spent still exists on the underlying blockchain though, which is solved with a smart-contract structure that allows the counter party to the perpetrator of fraud to revoke a fraudulent double spend.

Re: Monopoly Without a Monopolist: An Economic Analysis of the Bitcoin System [pdf]

#22

Post by nosuchthing »

DINKDINK wrote: post #21
rj123 wrote: post #15

Earlier quoted context omitted.

The lightning network has no security (protection against double spend) on it's own. It relies on the underlying blockchain for that.

>The lightning network has no security (protection against double spend) That's not true. By locking funds into a Lightning Network payment channel you solve the double spend problem _in the channel_ (the person receiving your payment knows that in order for you to double spend the channel, the payment recipient would need to approve the double spend). The risk of being double spent still exists on the underlying blo…

What's a practical use case? It sounds like you have to deposit a balance into a lightning channel, meanwhile wait for the block to be accepted, and once the funds are in the channel any activity still needs to be verified by another block being processed and accepted into the main chain..

This process effectively doubles the required amount of transactions and time spent for the 'lightning' transaction to take place?

Re: Monopoly Without a Monopolist: An Economic Analysis of the Bitcoin System [pdf]

#23

Post by rj123 »

DINKDINK wrote: post #21
rj123 wrote: post #15

Earlier quoted context omitted.

The lightning network has no security (protection against double spend) on it's own. It relies on the underlying blockchain for that.

>The lightning network has no security (protection against double spend) That's not true. By locking funds into a Lightning Network payment channel you solve the double spend problem _in the channel_ (the person receiving your payment knows that in order for you to double spend the channel, the payment recipient would need to approve the double spend). The risk of being double spent still exists on the underlying blo…

I think you misread my response, or maybe I wasn't clear, since I agree with you. I said the lightning network has no security on it's own. It requires an underlying blockchain on which to lock funds. Those underlying locked funds are what effectively secure the payments made on the lightning network channel.

Re: Monopoly Without a Monopolist: An Economic Analysis of the Bitcoin System [pdf]

#24

Post by SapphireSun »

bobbygoodlatte wrote: post #7
rb808 wrote: post #5

That is a very 2015 view - now days people don't buy bitcoin for its use in transactions, they buy bitcoin because it keeps going up. The more it goes up the less people are likely to spend it. We don't need many miners if people never spend it. Here is one high profile example http://avc.com/2017/08/store-of-value-vs-payment-system/ (of course when it starts to go back to zero people will all try to sell and the inf…

I think this is mostly correct, but I see it a bit differently. This initial wave of speculation is slowly building up network utility. Use cases like micro-transactions or Web payments become more and more viable as the network size grows. Eventually enough people own Bitcoin that it makes sense for it to be baked into a browser for micropayments, and for it to be used in lieu of Venmo/PayPal. Speculation is the boo…

Sorry.... I had to.

"I think this is mostly correct, but I see it a bit differently. This bubble is slowly building up real housing for hard working poor and middle class people. Use cases like pay-day loans and sub-prime mortgages become more and more viable as the network size grows. Eventually enough people own mortgages that it makes sense for it to be baked into a CDO, and for it to be used in lieu of liquid assets. Bubbles are the boot loader of real utility."

Re: Monopoly Without a Monopolist: An Economic Analysis of the Bitcoin System [pdf]

#25

Post by rj123 »

nosuchthing wrote: post #22
DINKDINK wrote: post #21

Earlier quoted context omitted.

>The lightning network has no security (protection against double spend) That's not true. By locking funds into a Lightning Network payment channel you solve the double spend problem _in the channel_ (the person receiving your payment knows that in order for you to double spend the channel, the payment recipient would need to approve the double spend). The risk of being double spent still exists on the underlying blo…

What's a practical use case? It sounds like you have to deposit a balance into a lightning channel, meanwhile wait for the block to be accepted, and once the funds are in the channel any activity still needs to be verified by another block being processed and accepted into the main chain.. This process effectively doubles the required amount of transactions and time spent for the 'lightning' transaction to take place…

The main use case is small payments. You open a channel locking X amount of funds, and then can send or receive small payments to/from other parties on the network without broadcasting those transactions to the blockchain or paying fees. The only thing that is required is a route connecting payment channels from sender to recipient. For example, if A has a channel with B, B has one with C, and C with D, then A can transact with B, C or D.

Re: Monopoly Without a Monopolist: An Economic Analysis of the Bitcoin System [pdf]

#26

Post by hossbeast »

AgentME wrote: post #20
nosuchthing wrote: post #14

Earlier quoted context omitted.

Why not use the fabled "lightning network" layer as layer 1 if it functions as it should? Is it not just a blockchain slapped on top of the slower blockchain?

Transactions are encoded into the blockchain to set up a "lightning channel" that incentivize the participants of off-chain transactions to correctly settle the net payments of the channel on the chain later. Only once it's set up on the blockchain can users use it for off-chain payments (which can be instantly confirmed and have much lower fees). Once the channel is set up on the blockchain between two users and has…

Importantly, the maximum net amount that can flow from A to B over the channel is capped at the amount which A contributes to the funding transaction.

Re: Monopoly Without a Monopolist: An Economic Analysis of the Bitcoin System [pdf]

#27

Post by rj123 »

pmorici wrote: post #19
virtuexru wrote: post #6

Earlier quoted context omitted.

> people don't buy bitcoin for its use in transactions I'd beg to differ.. sure there is definitely a percentage of HODL'ers but to say people don't use it in transactions is straight up lunacy. https://blockchain.info/charts/n-transactions?timespan=all https://blockchain.info/charts/trade-volume?timespan=all

The high transaction fees recently are pushing out a lot of the traditional use cases for Bitcoin. Bitcoin Cash appears to be in a position to inherit those use cases.

That's unlikely. Bitcoin cash isn't accepted anywhere yet, and unlike Bitcoin it does not have Segwit, and thus no layer2/lightning network support. It's 8MB blocks only up the on-chain scaling from like 3 tx/sec to ~20tx/sec. That's a negligible difference when compared to credit cards, paypal, etc. Bitcoin will only ever reach that kind of capacity with 2nd layer lightning network, or something like it.

Re: Monopoly Without a Monopolist: An Economic Analysis of the Bitcoin System [pdf]

#28

Post by quickthrower2 »

rothbardrand wrote: post #16

This paper is a reasonable attempt to model bitcoin by people who only see the surface of what bitcoin is. Bitcoin is like an Onion- it has layers, and makes you cry. As I have come to understand it there are many layers- both in technology and economics- at work here. Most obvious is layer 2 tech like lightening network, side chains, and segwit. (which is a second layer inside the blockchain.) But as you come to und…

I can buy a coffee with a CC immediately but Bitcoin I need to wait 3 hrs?

Re: Monopoly Without a Monopolist: An Economic Analysis of the Bitcoin System [pdf]

#29

Post by clarkmoody »

soneca wrote: post #8
virtuexru wrote: post #6

Earlier quoted context omitted.

> people don't buy bitcoin for its use in transactions I'd beg to differ.. sure there is definitely a percentage of HODL'ers but to say people don't use it in transactions is straight up lunacy. https://blockchain.info/charts/n-transactions?timespan=all https://blockchain.info/charts/trade-volume?timespan=all

Well, don't these charts only reflect new people buying Bitcoin (as an investment)? https://blockchain.info/pt/charts/n-unique-addresses?timespa...

You could probably look at the distribution of transaction sizes to try and determine how much is investment vs commerce. A bunch of $1-10 transactions are less likely to be speculators getting into a position.

Re: Monopoly Without a Monopolist: An Economic Analysis of the Bitcoin System [pdf]

#30

Post by AgentME »

nosuchthing wrote: post #22
DINKDINK wrote: post #21

Earlier quoted context omitted.

>The lightning network has no security (protection against double spend) That's not true. By locking funds into a Lightning Network payment channel you solve the double spend problem _in the channel_ (the person receiving your payment knows that in order for you to double spend the channel, the payment recipient would need to approve the double spend). The risk of being double spent still exists on the underlying blo…

What's a practical use case? It sounds like you have to deposit a balance into a lightning channel, meanwhile wait for the block to be accepted, and once the funds are in the channel any activity still needs to be verified by another block being processed and accepted into the main chain.. This process effectively doubles the required amount of transactions and time spent for the 'lightning' transaction to take place…

No, once the channel is open, any number of transactions can happen within it as long as the net transfer from a party is less than the amount they committed to the channel. (I've made another post in this thread with a fuller explanation.)
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