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TheDesertLynx / Joël Valenzuela

npub1lva…fuw6

2023-10-23 19:18:19

Another critical Lightning Network exploit was just discovered. It was so bad that the dev who discovered it quit Lightning altogether! 😵‍💫 Here's how this affects Bitcoin and changes the future of how it'll scale.

The first link in the comments has a good thread on the exploit. Basically, it allows you to steal funds by exploiting a timelock contract timeout. You can partially mitigate this, but there's no way to completely avoid the risk of an exploit!

It's starting to feel like the end of the road for the Lighting Network as Bitcoin's general-purpose scaling solution. Increasingly, it can only work well with trusted parties, closed-loop ecosystems, and (sadly) fully-custodial bank-like apps. I predict a talent flight.

Does this mean Lightning is now useless? No. It works well for closed-loop ecosystems like a social network, and for settlement between large trusted parties like exchanges. But to replace regular small payments, it probably won't last.

What does this mean for Bitcoin? Well, it put all its social and financial capital eggs in the Lightning basket. It'll be really hard to pivot to something like drivechains now. We're in an existential crisis moment for Bitcoin, whether its supporters admit it or not.

How then will Bitcoin scale? The way it always has: through other chains acting as L2s. Read the second thread on using Dash as a "checking account to Bitcoin's savings". With cross-chain DEX networks like the Maya Protocol and THORChain, it's trivial.

We're already seeing Litecoin used like this. Since 2017, Litecoin transactions have been steadily climbing, and it's taking over payment processors as an increasingly popular spending choice. Largely today, Litecoin is Bitcoin's L2.

I think we'll also see people use Bitcoin-denominated payments on other chains. We're already seeing this, with much more Bitcoin wrapped on other protocols than in the Lightning Network. People are using other chains for payments or cool DeFi stuff.

Ultimately, I think people will continue to save in Bitcoin for a while still, and use other chains for payments and other things. This will work fine for a while.... until Bitcoin's scalability ticking time bomb goes off 🧨

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2023-10-23 19:18:19

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