Wright warns that the Lightning Network is like a Strangler Fig, which would turn tokens into ‘dead and hollow ghosts of their former state.’
A system of promissory notes
Last week’s SEC decision ruling cryptocurrencies like BTC and ETH as not securities was a big relief for the cryptocurrency community. However, nChain chief scientist Dr. Craig S. Wright says that while Bitcoin, as cash, is an “excluded security,” payment channels such as those of the Lightning Network act as “paid money forwarders.”
Wright and nChain are part of the main development teams working on Bitcoin Cash (BCH), which forked last year in an effort to escape Bitcoin Core’s decisions and to preserve the main principles and functionalities of Bitcoin.
In his Medium post titled, “Lightning is malleable… Steel is not,” Wright explains that malleability is a non-issue. He adds that Lightning Network hubs on the legacy chain (BTC) change the dynamics altogether, turning transactions into an “exchange system of promissory notes,” and can therefore be considered a security.
“The fee for Lightning payments is paid by the sender. It is a requirement that the sender creates a transaction that contains adequate funds above the intended base transaction to pay fees to all lightning nodes along the route. Each hub in a channel acts as a paid money forwarder. It is interesting to note that Lightning is a form of security itself. The use of a promissory note has long been held to be a security, and a long history of judicial review covers this topic,” he explains.
“It is interesting to note that Lightning is a form of security itself. The use of a promissory note has long been held to be a security, and a long history of judicial review covers this topic.”
The hollow ghost of what Bitcoin used to be
Wright goes on with an analogy, comparing the Lightning Network to a strangler fig that can, at first, be confused with its host tree (Bitcoin). But then it would, as its name suggests, strangle the life out of its host in order to further itself, preventing the host tree from expanding and then benefiting from its nutrients when it dies.
“The Lightning system itself becomes the token, leaving Bitcoin, Litecoin and all Blockchains as dead and hollow ghosts of their former state,” Wright warns. “In time, if Lightning was to become a trusted medium of exchange, it leads to the perverse scenario where it no longer requires a commodity base (Bitcoin’s legacy chain) to make it work.”
It has been pointed out by several Bitcoin Cash proponents that payment channels and Lightning Network hubs are a way to squeeze intermediaries back in—financial institutions that want to take a piece of the Bitcoin economy. While making money is not an “evil thing,” it degrades the original principles and the very purpose of Bitcoin by giving control back to institutions.
“Some will get rich from this, but the system will not be Bitcoin, it will be a form of government exchanges and banks that swap account balances,” Wright said.