You Can Now Pay Others to Open a Channel For You in the Lightning Network

Lightning Network (LN) channels might be too complicated. You might have to be online all the time. LN hotwallets might be hacked. Which, considering they are connected to the internet, is probably only a matter of time.

But there is a solution. You can send your coins to someone else who can open the channels and manage it all, leaving you free to deal with other matters.

How this would work exactly is unclear, but Alex Bosworth, a developer seemingly working on Lightning Apps, says:

“LN services won’t need to support on-chain sends… On-chain users can make channels or use swap services that bridge to off-chain payments.”

That’s basically suggesting merchants, exchanges, etc, could just limit their services to LN users. Although presumably they could if they wish service on-chain users as well, but they might need to create and maintain two different systems to do so.

All this is already known, just as is the fact you can just open a channel, with LN wallets – once they come out – doing it all automatically.

But it is the first time we hear that you can “use swap services that bridge to off-chain payments.” Elaborating on it, Bosworth says:

“You just arrange with someone to pay an off-chain invoice for you when you send them an on-chain payment.”

Channels are more powerful, he says, while these bridges are a one-time use, but might be easier for end users as  “all you have to do with a successful swap is to send to a normal address with a normal wallet,” Bosworth says.

Clarifying further, he confirms this is basically paying someone who has a channel opened or who is willing to open it for you and manage it all on your behalf.

That could potentially make them a custodian, but it’s unclear at this stage how this would technically work. Whether they would act as an interface of sorts or scripts are used to somehow make it require a lower level of trust than simply handing over the money.

But from a business perspective we can see why being a channel manager, or an LN bank, might be quite lucrative as you in effect act similar to a middleman and take a cut.

That’s on top of the cut miners would take to open the channel, or for you to send the funds to the LN bank so that you don’t have to deal with hotwallet security. Just as it is on top of the cut LN nodes would take to route your payment.

With all of these intermediary fees potentially explaining why there are three LN implementations and why they seem to be in some sort of rivalry.

First, there’s the Lightning Lab led by Elizabeth Stark. Ben Davenport, Co-founder & CTO at BitGo, has invested in the Lightning Lab an unknown amount.

Davenport is a very vocal small block supporter, with his investment either due to a prior belief, or his support for small blocks due to his investment.

Bram Cohen, another very vocal small block supporter, is listed as an advisor of Lightning Labs which has raised an unknown amount from VCs.

Another LN implementation is by Blockstream, a for-profit corporation that hires a number of Bitcoin Core developers who loudly argued against increasing the blocksize.

With a somewhat newer entrant, Chaincode Labs, being another for-profit that hires a number of Bitcoin Core developers, including one with commit access. They too have an LN implementation.

The three are in a rivalry of sorts, shown no better than by a tweet from Peter Todd, a Bitcoin Core developer somewhat instrumental in keeping bitcoin limited to one megabyte.

In that tweet, Todd effectively criticizes all lightning implementations, except the one by Chaincode Labs, written in Rust.

He does so without revealing in that conversation Chaincode recently gave him a grant for an unknown amount with “no-strings-attached.”

Which led us at the time to wonder why they seem to be caring so much to put down other implementations, and in effect big up their own one, considering all three implementations “communicate” with each other and are compatible.

This recent suggestion that you could have intermediaries which in effect manage your LN bitcoin for you might go some way towards explaining the tension as what might be at stake could be LN bank customers of sorts.

The more such customers the better of course, and presumably the more profit, which for the end user translates into fees, as well as potentially lack of control.

Because the system does sound similar to you depositing your money into a bank. The banks then use LN as a Swift of sorts, the blockchain acting as a clearing house for it, with intermediaries in each step.

A system where you can’t quite have smart contracts, except to a very limited extent on-chain, where fees are projected to rise to $1,000 or more if this all works.

Without smart contracts, which Bitcoin Cash is adding to a limited extent by re-instating op codes, a big innovation would be lost.

That loss can’t be underestimated. Ethereum grabs imagination because the code rules themselves, the smart contract itself, is the private key. You can therefore tie this smart contract to a machine, or to a fridge, and give them a bank account, which means give them a way to act.

You can not do so with fiat because you need a pin, nor really with the current stage of bitcoin development because you need to sign the transaction. But you can with ethereum because you need no input. The code rules are the input.

As LN doesn’t have a public blockchain, you can’t have a similar system there through scripts or otherwise, even at a far more limited level. What you’d have instead is a fairly centralized payment system on a somewhat decentralized minting system.

You’ll therefore be fairly sure coins are not printed out of thin air or outside of the rules, but beyond that there probably won’t be much competitive advantage as all these intermediaries will probably make it fairly expensive.

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