Tether: What part of this balance sheet do we not believe?

ph1l · Feb 7, 2024

johnarb said:
Sheesh, you're listening to a very salty nocoiner on how big ticket transactions happen using bitcoin

First of all, there's a transfer of title during sale, for vehicles, land, sea, air registration, plus all kinds of sales contracts, not to mention, most big ticket merchants will not take the btc price volatility risk and will utilize a bitcoin payment processor

Try to do a check out process on the LV website using bitcoin and you'll see it's a payment processor (Bitpay last time I checked) and payment processors do refund in crypto, less tx onchain fees
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Thank you for finally confirming bitcoin is no good for commerce without a trusted central authority!

johnarb · Feb 7, 2024

ph1l said:
Thank you for finally confirming bitcoin is no good for commerce without a trusted central authority!
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Stop being a moron, I said big ticket purchase using bitcoin is not very good, you need trusted legal processes for protection of both parties

For small ticket items such as coffee, up to a couple of hundred $, Lightning Bitcoin works very well

But hey, if it makes you happy that bitcoin is not a good currency for medium of exchange, have fun (staying poor), there's stablecoins that are being used a million times more than btc or any other crypto

Bitcoin has moved on to being hard money and unit of account, will demonetize all other forms of monies, real estate, bonds, stocks, arts, collectibles...

I promised not to hype big number price targets so if you want to look up on another thread the breakdown of Ark, feel free to do so, but a word of warning, you will be an even saltier nocoiner in the future

orbit23 · Feb 7, 2024

ph1l said:

With bitcoin:

Code:

You:        I'd like that yacht -- the big one.
Salseman:   Yes, sir.  How would you like to pay for it?
You:        Bitcoin.
Salesman:   Very well sir.  Send them to adresss 16ftSEQ4ctQFDtVZiUBusQUjRrGhM3JYwe
You:        Done.
Salesman:   It will be ready for you next Tuesday, sir.

Tuesday...
You:        I've come to pick up my yacht.
Salesman:   I'm sorry sir, that yacht is no longer available.
You:        Then give me my bitcoin back!
Salesman:   No, sir.
You:        But, but, its on the blockchain.
Salesman:   Yes it is sir.  Have a nice day.

Without bitcoin:

Code:

You:        I'd like that yacht -- the big one.
Salesman:   Yes, sir.  How would you like to pay for it?
You:        Put it on my credit card.
Salesman:   Very well sir.  Insert your card, wait for the approval, and press OK.
You:        Done.
Salesman:   It will be ready for you next Tuesday, sir.

Tuesday...
You:        I've come to pick up my yacht.
Salesman:   I'm sorry sir, that yacht is no longer available.
You:        Then give me a refund.
Salesman:   No, sir.
You:        But, but, I have a receipt.
Salesman:   Yes you do sir.  Have a nice day.

You:        Hello Credit Card company.  I want to dispute my recent yacht purchase.
            Sneaky Satoshi Yacht Sales didn't deliver and won't give me a refund.
CC rep:     We'll reverse the charges right away sir.

Do you see the difference?

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The whole point of Bitcoin is to eliminate trusted third parties. Do you understand? It's about cutting out the middle men.

But for that to work, the party you are sending coins to has to be trusted because it's irreversible.

There are pros and there are cons...

ph1l · Feb 7, 2024

johnarb said:
For small ticket items such as coffee, up to a couple of hundred $, Lightning Bitcoin works very well
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Lightning seems to only work well when few are using it, but you already knew that!
https://unboundedcapital.com/blog/why-lightning-doesnt-work

WHY THE LIGHTNING NETWORK DOESN’T WORK
By Joshua Henslee & Zach Resnick
August 29, 2022
Introduction
The Lightning Network (LN) is a 2nd layer payment protocol for Bitcoin’s perceived scaling problem. The intent of the LN is to create a network of connections between users that grows over time as more users join the network. Despite the intent, the LN remains unsuitable for commercial use, as payment attempts regularly fail. The challenge of sending money via the LN is captured by the decades-old Traveling Salesman Problem, where no solution is known, and many computer scientists believe to be unsolvable. Additionally, requirements for merchants to be online to receive payment are a non-starter in terms of risk tolerance of any revenue-generating business. Payment processors on the LN are also subject to stringent KYC and AML regulations and must obtain licenses to operate, in addition to other payment regulations they are already complying with. Furthermore, as part of these regulations, they may have to preserve accounting records of transactions that pass through their systems, not just their own sends and receipts. The scalability and legal issues will inevitably push users of the LN towards big, centralized solutions, where they will be subject to a payments experience far worse than Visa and Mastercard provide today. Nowhere is this grim future for the LN clearer than in El Salvador, the one place in the world where LN has been forced upon a population.

In this article we will outline the technical issues with scaling this network, legal reasons why widespread adoption is incredibly unlikely, and how the proposed solutions end up implemented as centralized solutions relying on trusted 3rd parties, the very entity Bitcoin was created with intent to remove from peer-to-peer transactions.

Technical Reasons
TRAVELING SALESMAN PROBLEM
Use of the LN often results in payment failures with messages literally stating “Could not find a route” or “No path found”. Various factors could affect this, but the fundamental reasons are that a payment cannot find a valid path through the network to reach its recipient.

The Traveling Salesman Problem (TSP) is a long-time unsolved computer science problem. Given a set of routes of varying lengths and destinations, how does one calculate the shortest and most efficient path to a destination? The problem is unsolved because there is no predictable way to compute a solution in a reasonable amount of time, making it impractical to implement in real-world use. Moreover, as more destinations (users) are added, the number of possible routes increases exponentially, as does the difficulty of calculating the optimal route. Also, since balances (length of routes) are constantly changing the difficulty of calculating the optimal route rises even more. If a reasonable solution happens to be found at a given time, the state of the network can change, rendering that solution invalid.

The Lightning Network is a proposed Layer 2 solution for routing payments atop the BTC version of Bitcoin. To transact, two parties establish a two-way payment channel between themselves for a fee paid in BTC. The channel contains a fixed amount of BTC which corresponds to the length between destinations in the TSP. If one party would like to transact with someone whom they have not yet opened a two-way channel with, payments can be routed through multiple channels until they reach the destination party.

The reason for taking this approach is to avoid paying the on-chain initial transaction fee with BTC which is cost prohibitive. To scale this network, the idea is that all participants would open a channel to establish connectivity, and receive routed payments as opposed to opening a separate channel each time they would like to transact. Such an approach continuously increases the number of recipients (destinations), as well as channels (routes) with varying BTC amounts (length). Two parties may open a channel with as little as 0.01 or 10 BTC depending on the nature of the transaction. Scaling the LN has been such a challenge due to needing to deal with this difficult computer science problem.

REQUIREMENT TO BE ONLINE TO RECEIVE PAYMENT
To receive payment in BTC on the LN securely, nodes must be online and connected to the Internet 24/7. If one party is not online, a risk exists that the other party can close the payment channel and settle a transaction that is not necessarily approved (ex. theft of funds). This stringent requirement is a great burden in terms of engaging in actual commerce. Many physical storefronts accept cash only or may have intermittent Internet connections. Not being able to accept payment with a customer physically in front of them because of arbitrary internet connectivity issues is unacceptable for most merchants, as this would significantly negatively impact their potential revenue.

The requirement of being online and connected is too great of a burden to reasonably scale as a standard global payment solution. Conversely, the Bitcoin protocol supports the construction and verification of offline transactions, leveraging the Simplified Payment Verification technique from Section 8 of the whitepaper. These techniques described in 2009 require no additional, custom solutions or Layer 2 networks to implement and execute.

To work around the requirement for recipients to be online 24/7 to prevent being double spent, a service named “watchtowers” is proposed that would constantly monitor the state of payment channels and balances as a potential compromise. Another solution is the emergence of Lightning Service Providers (LSPs) which would help merchants integrate, route, and provide liquidity for LN payments. However, both trade-offs are prime examples of trusted third parties required to prevent double-spending which is exactly what Satoshi Nakamoto solved with the creation of Bitcoin.

“The main benefits are lost if a trusted third party is still required to prevent double-spending.” (Nakamoto, 2008, p. 1)

Legal Reasons
FinCen defines a Money Services Business as“any person doing business, whether or not on a regular basis or as an organized business concern, in one or more of the following capacities:”

Currency dealer or exchanger.

Check casher.

Issuer of traveler's checks, money orders or stored value.

Seller or redeemer of traveler's checks, money orders or stored value.

Money transmitter.

U.S. Postal Service.

FinCen defines a Money Transmitter as either:

(A) [a]ny person, whether or not licensed or required to be licensed, who engages as a business in accepting currency, or funds denominated in currency, and transmits the currency or funds, or the value of the currency or funds, by any means through a financial agency or institution, a Federal Reserve Bank or other facility of one or more Federal Reserve Banks, the Board of Governors of the Federal Reserve System, or both, or an electronic funds transfer network; or

(B) [a]ny other person engaged as a business in the transfer of funds.

FinCEN has even issued a guidance that specifically outlines how decentralized applications (DApps), defined by FinCEN as “software programs that operate on a P2P network of computers running on a blockchain platform,” may qualify as a money transmitter especially if they “accept and transmit value, regardless of whether they operate for profit. Accordingly, when DApps perform money transmission, the definition of money transmitter will apply to the DApp, the owners/operators of the DApp, or both”. This means Layer 2 services and DApp services will have to secure a license in the state or states they are currently operating in, as well as federal anti-money laundering and Know-Your-Customer procedures.

In the Lightning Network, nodes route payments to others by updating their balances with those who they are connected to. To transact with someone whom they do not have a direct connection to, one must route funds through another LN node to reach the destination. This financial activity is likely subject to the definitions and regulations described here. Failure to comply could result in fines, civil and/or criminal charges.

Intellectual Property lawyer Peter Van Valkenburgh opines in his Podcast Interview with “What Bitcoin Did” that running the lightning network will likely require compliance with FinCen rules. Further, Jimmy Nguyen, the founding president of Bitcoin Association and a former lawyer in the United States focused on technology with over 21 years of experience, believes that the FinCEN guidance will likely halt Lightning Network on Bitcoin Core (BTC) and make it challenging for the Lightning Network on BTC to grow. Jimmy Nguyen explains Lightning Network nodes are likely to fall within FinCEN’s broad interpretation of money transmitters, which means they would be required to register as MSBs and comply with AML regulations.

Speaking to CoinGeek, Nguyen said, “FinCEN reinforces the definition of ‘money transmission services’ is very broad, and means the transmission of virtual currency from one person to another triggers MSB requirements. FinCEN also confirms that virtual currency payment processors (intermediaries between traditional merchants and customers who want to pay for goods and services with virtual currency) fall within the definition of money transmitters. Given how broad these definitions are, I expect FinCEN’s guidance will further inhibit growth of the Lightning Network beyond traditional payment processors who already hold MSB licenses.”

Even old-school Bitcoin Core (BTC) Enthusiast Andreas Antonopolous acknowledges that the Lightning Network is incompatible with know your customer (KYC) and anti-money-laundering (AML) laws and regulations. Antonopolous himself has said that, "I don’t think Coinbase will run Lightning, and I think there are many reasons why we're not going to see regulated exchanges run Lightning Hubs".

These requirements are too much of a burden for two parties engaged in trade relative to other payment processing solutions. Merchants implement payment processing technology (i.e., credit card processing systems) where the burden of financial regulation is deferred to banks. Asking merchants to suddenly comply with more regulations than they already must deal with is a huge ask.

Merchants already face inherent risks with the widely adopted credit card payment method such as chargebacks and processing fees. Implementing a new, custom solution (LN) atop a digital currency (BTC) that has virtually no adoption in terms of payments has little potential benefit with extremely high risk.

Centralization
Despite the issues highlighted in the first two sections, the LN had an opportunity to show if it was ready for mainstream adoption with the implementation of the Chivo Wallet, after President Nayib Bukele signed into law that Bitcoin is legal tender in El Salvador.

On September 7, 2021, the Chivo wallet debuted, allowing citizens to sign up and claim $30 of BTC, and forcing all merchants to have to support payments via the Chivo wallet. Many issues were reported on social media where the payments simply did not work. Users could not pay merchants with their standard BTC wallets or LN wallets.

YouTuber Marc Falzon in his documentary titled the ‘The Darkside of Bitcoin in El Salvador’ demonstrates how the Chivo wallet had undocumented restrictions such as a" style="color: rgb(56, 66, 199); overflow-wrap: break-word;"> minimum payment of $5 in BTC or" style="color: rgb(56, 66, 199); overflow-wrap: break-word;"> inability to send any of the initially gifted $30 of BTC out of the wallet. Implementing a 2nd layer solution atop BTC (LN) and use of a centralized service (Chivo) allows the implementation of arbitrary controls of users’ funds, which is antithetical to the justifications for usage of Bitcoin in the first place.

Furthermore, centralized solutions that preserve valuable data are targets for hacks. Credit cards are widely adopted globally as a payment mechanism and have many issues with fraud due to the necessarily linking of customer information (Name, Billing address, etc.) to authorize payments. Use of the native Bitcoin protocol alludes to identity being firewalled:

“The public can see that someone is sending an amount to someone else, but without information linking the transaction to anyone.” (Nakamoto, 2008, p. 6)

In the launch of Chivo, many citizens reported unauthorized transactions from linked bank accounts in the application. Merchants are averse to preserving customer data to process payments which is why they are deferred to secure, licensed services such as a bank or financial institution. Use of centralized services for LN payments creates a honeypot and incentivizes fraud. Conceptually, the efforts are absurd given Nakamoto’s whitepaper primarily addressed these very issues in the Introduction on page 1.

Bitcoin Base Layer Transaction Capability
This section will contain examples of dynamic payments possible without the LN, demonstrating how its development was not necessary at all and its unlikely chance of gaining meaningful adoption.

Bitcoin SV (Satoshi’s Vision) is an implementation of the original Bitcoin protocol as released by Satoshi Nakamoto in 2009. At the base, BSV supports some of the same transaction types as BTC, yet the fee rate has decreased by 20 times on BSV since November 2018. This is due to increasing demand for block space, which BTC has self-limited to a maximum of 1MB (every 10 minutes). BTC’s self imposed block size limitation was then leveraged as justification to develop the LN.

As we have outlined in page 96 of our e-book How a Scalable Blockchain Will Win, “The largest block on the BTC network to date is 2.26MB. This is about 2000x smaller than the record on BSV, 4GB. BSV fees today (July 2022) fluctuate, but are typically tens of thousands of times cheaper than on BTC. BSV has significantly higher daily transaction volume than does BTC, with a price that is 530 times lower”. BSV simply has uncapped the block size, leaving the maximum size to be determined by miners and market forces.

As further described in page 95 of the e-book, “miners are now free to scale to meet demand on BSV, something not possible on any other PoW chain. Not only are miners free to scale transaction throughput, they are doing it. Since these constraints were removed, BSV has generated the majority of transactions on public proof of work blockchains by a large margin. BTC, which hovers around 200k transactions processed per day, has been left in the dust as BSV regularly does millions, with some days over 10M transactions (as of July 2022)”.

With uncapping the block size, businesses have experimented with novel ways to use the Bitcoin blockchain, only possible because the fees have dropped dramatically, encouraging experimentation and more usage.

Take, for example, a recent BSV transaction that paid for coffee beans for only a 46 satoshi fee, which is 3/1000ths of a penny.

The Bitcoin protocol goes even further in terms of capacity. For example, using the HandCash wallet, 2500 satoshis each can be sent to 577 different recipients at the same fee rate for only 989 satoshis which is 1/20 of a penny. This type of payment is possible at the base layer of the Bitcoin, without any routing or 2nd layer network required.

And in the Haste Arcade, 10 cents can be spent to play an arcade game (think depositing a dime into a physical arcade machine) where the dime is split up in real-time to pay 101 different recipients based on their scoring position on the leaderboard. This payment only cost 194 satoshis (6/1000ths of a penny).

The above example transactions were possible with Bitcoin’s software in 2009, without protocol modification or any 2nd layer solutions necessary. Why is the LN necessary when simple, dynamic, cheap payments were always possible on Bitcoin as originally designed?

Conclusion
The Lightning Network has been a failure of a solution to scale for payments globally. Despite the long development time and significant capital going to Lightning startups, the 2nd layer payment solution had a chance to prove itself to the world in 2021 resulting from legislation in a country where many people live on less than $5 a day. If BTC and the LN had any chance to show off its progress after years of development, this was the time.

Not only did the LN fail, the LN failed miserably. Users could not spend BTC at merchants, nor could they transfer to another wallet for use. In fact, many users reported funds stolen from their linked bank accounts due to the centralized application implementation. The El Salvadorean government took advantage of the 2nd layer application to implement arbitrary, centralized controls such as treating the “free” $30 of BTC differently than BTC deposited into the wallet. Furthermore, they limited the minimum spend to be $5, which is ridiculous in a country where many citizens need to spend less than that over the course of a day.

On the global stage when BTC and its asserted scaling solution had a chance to prove itself, it could not. This failure is due to fundamental technical, legal and centralization issues with the proposed 2nd layer scaling solution. If LN could not work for a single country with limited adoption, how can the LN scale to work for the entire world? The Lighting Network does not work.
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johnarb said:
I promised not to hype big number price targets
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You are always level-headed about bitcoin.

johnarb said:
Honestly, though, there is a growing belief that $1M/btc soon (before end of year 2024). I'm also a believer, because why the fuck not
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orbit23 · Feb 20, 2024

what i find odd is how comes Tether almost always prints in batches of $1B.

Naturally you would expect the amount of deposits to vary, but they almost always print 1B$.

Not suspicious at all!

RedDuke · Feb 20, 2024

orbit23 said:
what i find odd is how comes Tether almost always prints in batches of $1B.

Naturally you would expect the amount of deposits to vary, but they almost always print 1B$.

Not suspicious at all!
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just a matter of time they will begin 2 billion per clip

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Tether: What part of this balance sheet do we not believe?

ph1l

johnarb

orbit23

ph1l

orbit23

RedDuke