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.
