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How is lightning even Bitcoin if it's off-chain and has to be swapped back into on-chain to be useable as native BTC? These are legitimate questions. Is it just pegged to BTC or something?

[ARCHIVED] Jay 1y ago

A lightning channel is an on-chain utxo that you and I both control.

Off chain, we keep track of how much Bitcoin each of us owns in that channel, and if either of us want to take our side back on chain, we can close the channel into two separate utxos that have the final balance each of us had.

The lightning network forms by many people having channels in a chain, where I have a channel with you, and you have a channel with someone else. I can send Bitcoin to that someone else with you as an intermediary, and you can collect a fee for doing so.

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Discussion

LibertyImp 1y ago

This makes sense kinda but I still feel like going off-chain seem dangerous and like it opens the door for weird stuff.

[ARCHIVED] Jay 1y ago

Going off chain is dangerous. Bitcoin's security and decentralization guarantees do not scale beyond the base layer, so you're always giving up one or the other, or both, when you want to extend bitcoin's functionality. Even though the lightning white paper came out in 2016, it took years of development and experimentation to get it to work, and work securely.

In fact, lightning channels were purposely kept small because no one knew when something would break and funds would be lost.

The white paper also goes through in detail many of the risks and drawbacks that people are bringing up as FUD today, and have for years, including technical and social risks.

https://lightning.network/lightning-network-paper.pdf