[Cryptography] Electronic currency revived after 20-year hiatus

[Jehan Tremback]

Oh, I forgot to mention- there is nothing about payment channels that
requires a blockchain. They can be just as easily be run by a bank, and
payments can trustlessly go across multiple banks. This is the basis of
Interledger: https://interledger.org

On Wed, Aug 17, 2016 at 6:30 PM, Jehan Tremback <jehan.tremback at gmail.com>
wrote:

> I have to agree with Natanael. A payment channel allows two peers to send
> money to one another without any packets sent to anyone else. The record of
> the payment is stored only by the peers, with the channel closing mechanism
> making it unfeasible for either of them to cheat.
>
> Multi-hop payment channels allow money to be routed across completely
> trustless intermediaries. With a routing protocol, you can send money to
> anyone else, just like you can send data to anyone else over the internet.
>
> I wrote a post with some friendly diagrams: http://altheamesh.
> com/blog/universal-payment-channels/
>
> There are working implementations of multi-hop payment channels for
> Bitcoin (the Lightning network or Thunder network). Right now the Bitcoin
> stuff doesn't work on the main chain because Bitcoin has extremely
> primitive scriptability, and there needs to be a fork to update it
> (unfortunately, the Bitcoin community currently seems unable to agree on
> anything): https://www.blockchain.com/thunder/
>
> Ethereum does not suffer from this problem, so there is a multihop channel
> implementation in alpha now, called the Raiden network:
> http://raiden.network
>
> Z-Cash has published a paper about anonymous payment channels:
> https://z.cash/blog/bolt-private-payment-channels.html
>
> Digital Cash should be respected as a historical stepping stone, but I see
> no real benefit to the scheme. Maybe it is useful for some niche
> applications that benefit from its characteristics.
>
> -Jehan
>
> On Wed, Aug 17, 2016 at 1:56 AM, Natanael <natanael.l at gmail.com> wrote:
>
>> Den 17 aug. 2016 06:48 skrev "Ray Dillinger" <bear at sonic.net>:
>> >
>> >
>> >
>> > On 08/16/2016 04:49 PM, Allen wrote:
>> >
>> > > Blockchains that can handle 20 billion transaction a day will be here
>> > > within a year.
>> >
>> > That is an interesting assertion.  I do not believe it.
>> >
>> > 20G transactions.  Assume 100 bytes per, and that's terribly generous
>> > in terms of how small you think you can get them.  2T bytes per day.
>> > You have a data plan that will allow you to download 2T bytes daily?
>> > You think you'll have one by the end of a year? You have a hard drive
>> > that can store 700 Tbytes for even one year's worth of block chain
>> > history? You think you'll have one by the end of a year?
>> >
>> > The only parties with that kind of connection and storage will
>> > perforce act as Trusted Parties to all other users.  That means
>> > they'll either Gox the users over and over, or they'll become
>> > just as heavily regulated, insured, and monitored as any
>> > conventional bank.  A banker is a banker is a banker.
>> >
>> > The vast majority of people are already letting strangers hold
>> > their keys and trusting that they'll get their bitcoins back.
>> > That means the online-wallet people and the exchanges function
>> > as banks.  And these banks are Trusted. When they embezzle
>> > (or even if they just get robbed), it leaves people broke.
>> >
>> > Ending the existence of Trusted parties and their ability to Gox
>> > people, if you recall, was sort of the point of the block chain.
>> >
>> > It failed.
>>
>> Just like how Bitcoin solved the unsolvable Byzantine General's problem
>> by ignoring the original problem statement and going for a probabilistic
>> approximation, Bitcoin's got a solution here too.
>>
>> You know Bitcoin's smart contracts? And how it supports multisignature
>> transactions, and timeouts? And that it's got "payment channels", where two
>> people can merge all their transactions they performed during a timeperiod
>> into just two (a commitment transaction and a settlement transaction on the
>> blockchain, where the two parties simultaneously keeps a non-final
>> settlement transaction ready in memory until they're done?
>>
>> Now combine them.
>>
>> You create a "wallet" where you commit money to a payment channel against
>> a Lightning Network routing node (server) for a time period, where that
>> server can't steal from you (because you never signed a transaction that
>> leaves the server with all your money). The network of Lightning Network
>> nodes has payment channels as their backbone links too.
>>
>> So it kind of becomes an email for instant high volume transactions, with
>> a blockchain to settle on from time to time - you tell your server who on
>> what server to send X coins to, and sign the corresponding transaction to
>> enable it to transfer that sum. All the involved payment channels are
>> updated accordingly to reflect that transfer of money, updating the
>> non-final settlement transactions being held in memory.
>>
>> Even freezing funds would fail, because after a certain amount of time of
>> non-cooperation from the server it will be possible to just withdraw it
>> singlehandedly.
>>
>> You could question if they wouldn't just reverse a set of transactions
>> that pay out money and try to run with what's been committed to them. Of
>> course there's a number of reasons, based on game theory;
>>
>> The total sum that the server will be able to claim for itself at any
>> period in time will be relatively small compared to the sums involved (any
>> attempts at inflating it would trigger a large number of warning systems
>> that flag unusual behavior). Thus the reward and incentive is small.
>>
>> Any sign of reversing any transaction is provable thanks to settlement
>> transactions being signed and mutually updated (you just show the world the
>> signed transaction that the server reversed through sending a prior one to
>> the blockchain). Thus there's accountability, and high risk of getting
>> caught.
>>
>> Because malice can be detected so quickly, the timeframe for attacks
>> given the automated systems involved is limited to mere seconds before you
>> get flagged.
>>
>> The above points combined with that trust takes time to build, and that
>> fees for processing transactions is likely to be more profitable (analogous
>> to the Bitcoin mining situation), the incentive is to follow the protocol
>> and proceess transactions as told by the users.
>>
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