When that article was written the transaction fees were around $1.50-$2.00 USD which is already a lot for meals and snacks. Now that the average transaction fees are anywhere from $7 - $60 I doubt people are buying much with bitcoin's dialup throughput.
Strike is using lightning where the fees are barely a few satoshis (much smaller than cents) most of the time. This isn't the Bitcoin of 2015, there has been lots of new development, lightning is here and is being used with growing adoption (1ml.com), there are other changes coming to improve the base layer itself (taproot, eltoo, etc).
My understanding is that you start by doing an actual BTC transaction of, say X USD, for which you pay the fee, and then you can "spend" up to X-fee USD in the lightning network. People who receive payment from you can opt for getting a BTC transaction from your stash or use it to do other payments.
The base idea is that it uses the BTC network as a dispute settlement fallback. "It works but is expensive, let's just exchange through the lightning network".
You can see Lightning as being a network that exchanges "BTC IOU". If the network decides for some reasons to be hostile to you and refuses to broadcast the transactions where you receive money, you still have a signed token that proves you have the BTC IOU and that are acceptable by the BTC network (for the cost of a fee)
So it's like withdrawing money from the bank as cash to use. I get that, but after I promise the money to bunch of people how does the system prevent me from double spending or just redepositing my money to my account?
Its like a giant bar tab. You have this liquidity pool with the network participants do all their transactions and go back to the chain when when they decide to settle.
To open a LN channel you need an on-chain transaction. Same for closing a channel. Currently a Bitcoin transaction is around 7 USD. So you need 14 USD to participate, assuming the transaction cost does not change. 14 USD is more than a daily income for the average citizen, most will be below 10 USD.
The thing is, Strike doesn't open LN channels for people. In fact, they only use LN to move money between custodial accounts they themselves are beneficial owners of. I can't for the life of me figure out why they'd use LN - or crypto at all - for this and not just an entry in the centralized database they already have tracking balances. Avoid regulation, maybe? But like why?
I've listened to an hour long Maller podcast and I simply don't get it.
Generally the answer is regulation. So I suspect that is quite likely the answer here. Although since they are an MSB in at least the US they answer could just as easily be crypto fever.
For a centralized entity settlement and clearing aren’t hard. You have a money pile and a debt facility in both countries, then you wire money to net settle once in a while.
Channel factories will be able to open and close many channels at once, so if you open 100 channels in a single transaction, well then you can divide the onchain cost by 100.
Channel factories only work as long as all participants of the factory want their Bitcoin inside the LN. As soon as any party wants their Bitcoin in their Bitcoin wallet, the factory needs to close all channels. This makes is unusable in the real world as people can and will not commit their whole networth into static channels that need settlement of 100 or so unknown parties until they can send it anywhere else.
All of this also completely ignores the LN routing problem which is conveniently left out of the LN whitepaper as it is actually unsolvable at large scale unless you have very few supernodes coordinating everything. In the real world those are commonly known as "banks".
You can splice out bitcoin from a channel without closing the channel. The channel balance can go almost all outwards (some is kept to be able to pay transaction fees). In the channel factory scenario, one participant can receive bitcoin on chain without closing the whole factory. However, they will have to pay the transaction fee which could be prohibitively expensive.
I agree, because I used bitcoin in 2015 and it actually worked well instead of being crippled to a few transactions per second for the whole network.
How are they getting their balance on to the bitcoin chain? How much does that cost? Once they are in control of their money and actually have it on the real chain and not some wallet app maker's sub-chain they still have to eat more giant transaction fees.
This approach will only work for people using this app, which defeats the whole purpose.
No, CyberDildonics is right - and asking the pertinent question. Strike doesn't denominate customer deposits in any kind of crypto. They're a traditional custodial wallet for fiat deposits, and a registered money services business. They appear to be using the lightning network to move money between Strike's own accounts.
They seem to use their own lightning nodes - that they don't allow third parties onto - to move money between their own accounts, rather than amending the centralized database of who owns how many dollars directly. However, it's all closed and internal, and I simply do not get why they would do this.
Doesn’t the Lightning Network scale to millions of transactions per second, which is what El Salvador will be using? Fees are miniscule on LN, as well.
You think the average person does less than one financial transaction per day? O_o
I mean, sure, not everyone is out getting a coffee every morning, but that strikes me as roughly an order of magnitude below reality.
Let’s say, shopping three times a week, with 5 transactions per shopping trip; that’s already an average of 2 transactions a day, but worse, since it’s clustered in small time intervals.
How do possibly get 0-1 transactions per day per person?
That’s.. a society where people don’t use money. It’s not a thing.
Over the last three months, I've made on average slightly more than two transactions per week, most of which is due to buying food every 3 or 4 days. Everything else is a rounding error.
Now I won't claim my consumption pattern is typical, but it certainly shows that 0-1 transaction per day is possible. (What are the five shops you visit three times a week?)
Working from home during the pandemic, I’ve been making 4.3 transactions per week.
If I was still commuting, I’d add at least 5 a week for lunches, might add another 5 a week for train station Brötchen and cookie. If the restaurants were back to normal, might add two more per week for evening meals.
I think I prefer my new normal of the bulk shopping being a once a week collection, so that probably won’t go back to my old habit of whatever/wherever, but even then the local doesn’t have everything I want, so there will be a few additional transactions with grocery stores.
(My commute costs will likely be a once-per-year expense, so a rounding error for transactions per week).
That would mean people aren't actually using bitcoin, they are using this wallet's centralized lightning network balance.
If they want to actually send money to someone using bitcoin, they will have to get their balance on to the main chain, which means that they will have to take it off this wallet and then incur the transaction fees for getting to
the bitcoin chain.
Then they will have to take the hit of the transaction fees again to get their actual bitcoin balance somewhere else. This is what happens when you use a purposely crippled cryptocurrency like bitcoin.
They could use litecoin, monero or bitcoin cash directly and not have any 'wallet app' that keeps their balance. Then they would be in control of their own money.
> If they want to actually send money to someone using bitcoin, they will have to get their balance on to the main chain
Strike payment recipients can withdraw their USD balance as BTC to any Lightning-enabled wallet (or any other wallet, for that matter) [1]:
How to purchase bitcoin with Strike
1. Open a Lightning wallet or Bitcoin wallet of your choice. (If
you do not already have one, see our recommendations below)
2. Generate a receive address or invoice for the amount of btc you
wish to purchase.
3. Scan with Strike and hit send. Done! You have just converted USD
from Strike to btc in your wallet.
I don't think so, if I have inbound capacity on my lightning node (hooked to my full node, so not centralized), they can just send money to me as long as the routes through the network have enough capacity.
The fees do fluctuate, thus layer 2 solutions. A few days ago I moved some bitcoin and two transaction fees were equivalent of USD 0.78 and 0.72. For finality in a few minutes, I thought it was reasonable.
It depends on what country you live in. A few transactions like these every day would amount to $20-30 per month. Whereas you could use cash and pay no fees.
That's why I said a few transactions every day on average, as in 2 or 3, which seems a conservative estimate.
> Somebody still has to spend time and money managing all that cash.
I don't know how you manage your cash, I manage it myself, and I certainly don't know anyone who pays $20 a month to have their cash "managed". Especially in a third-world country, it seems unimaginable.
> That's why I said a few transactions every day on average, as in 2 or 3, which seems a conservative estimate.
Lightning network has virtually no fees. You were replying to someone who managed to get a "real" Bitcoin blockchain transaction through for less than a dollar.
> I certainly don't know anyone who pays $20 a month to have their cash "managed"
I was thinking of the people managing cash registers.
If fees are less than 1/10th of a cent, it means they make less than $1 for every 1000 transactions. So how many transactions are they processing? In 2019, ~5000 transactions per month [1], so the entire lightning network was generating less than $5 per month in revenue. Something doesn't add up.
It's up to the nodes how much they want to charge, which is a competitive thing. They might as well charge 1000x more, that's just the figure the market arrived at.
So, why do they charge so little? Running Lightning could be done for other reasons than just collecting fees, similar to why you might run a full Bitcoin node, even though it only costs you money: You are invested in the network as a whole.
It's also worth noting that Lightning is not actually that well-adopted yet, it's more of a solution "in principle". Just because some place accepts Bitcoin doesn't mean you can use Lightning. In that case, you can usually just use Dash, Bitcoin Cash or Litecoin, which all have very low fees. Hence, the pressure to actually adopt Lightning isn't that high - yet.
Yes, it's probably heavily subsidised so I expect fees to grow substantially if it becomes more popular. And the thing is the small fee is not the only fee that there is to pay. Apparently in order to open a "channel" the user needs to pay one BTC confirmation fee and another one to close it, but bitcoin enthusiasts somehow never mention this detail.
> Yes, it's probably heavily subsidised so I expect fees to grow substantially if it becomes more popular.
Transactions on the lightning network aren't scarce like space on a new block, so there's no reason for increased demand to substantially increase prices.
> Apparently in order to open a "channel" the user needs to pay one BTC confirmation fee and another one to close it, but bitcoin enthusiasts somehow never mention this detail.
That isn't true. You can open channels larger or smaller than 1BTC and the Bitcoin aren't really "paid", but rather "staked".
Transaction fees are 5 cents in the last couple days. The mempool is empty (see https://mempool.space/). If you are paying more, then that's an issue with the exchange or wallet that you are using.
No they aren't, you are misunderstanding that link. It gives an 'estimate' of 1 satoshi per byte. The actual current block is 12 satoshis per byte. Transactions are not a single byte of course. This is why the average transaction fee is $7 right now and was $60 a few weeks ago.
Maybe you should actually check the blocks. If your transaction pays fee 5 cents it would easily get included in the mined blocks. Often immediately.
As I mentioned, if people are using wallets or exchanges that set the fee higher, that's their fault. They are stupidly overpaying and that's why average is high.
Since mempool is currently empty, the blocks include transactions with 1 sat/vB. For average transaction with 140vB that would be 140 sats, which is currently ~0.05 USD.
https://bitinfocharts.com/comparison/bitcoin-transactionfees...