slides-01-workshop.md

Workshop: The Lightning Network

Oliver Gugger (@gugol, github.com/guggero)

Part of the Lightning Network team at
Puzzle ITC

The current state of Bitcoin (2018-01-30)

• SegWit is enabled from: segwit.party/charts/

The current state of Bitcoin (2018-01-30)

• Mempool is emptying from: blockchain.info/charts/mempool-count

The current state of Bitcoin (2018-01-30)

• Fees are dropping from: dedi.jochen-hoenicke.de/queue

Problem?

• When demand is high, the fees fluctuate even more than price
  from: dedi.jochen-hoenicke.de/queue

Problem?

• Even with SegWit the block size is limited (1'000 vkB, 4'000 kWU)
• Average transactions per block went up as far as 2'723 (~4.5 tx/s)
• How do we get to Visa which can process up to 24'000 tx/s at peak?

Solution?

Bigger blocks!

Sure, because downloading 5.3 GB every 10 minutes is no problem!

Better solution

• Scale off-chain
• Add a layer 2
• For example: The Lightning Network

The Lightning Network

• Smart Contracts create Payment Channels
• Funding transaction is in blockchain
• Payment Channel updates happen at "speed of light"

The Lightning Network

• Payments can be routed through multiple hops/channels, creating a network
• Protected by onion routing/multi layer encryption
• No trust required, cheating made impossible by cryptography

The Lightning Network

• Layer 2 on top of Bitcoin
• Routing payments like TCP/IP

Workshop: Task 1

• Install any Lightning Network wallet for Bitcoin testnet as described on https://gugger.guru/lightning-workshop/
• Send yourself some testnet Bitcoin
• Wait for the balance to be confirmed (usually 3 confirmations)

How it works

Technologies used:

• Multisignatures
• Timelocks
  • CheckLockTimeVerify (absolute)
  • CheckSequenceVerify (relative)
• Hashlocks

How it works

from: https://www.youtube.com/watch?v=7tHD9Gj9UNg

How it works

from: https://www.youtube.com/watch?v=7tHD9Gj9UNg

How it works

from: https://www.youtube.com/watch?v=7tHD9Gj9UNg

How it works

from: https://www.youtube.com/watch?v=7tHD9Gj9UNg

How it works

from: https://www.youtube.com/watch?v=k-bXIZOMNyA

Workshop: Task 2

• Open a channel to lightning-test.puzzle.ch
• Wait for the funding transaction to be confirmed (usually 3 confirmations)

When will it be ready?

from: https://lnmainnet.gaben.win/

How will we use it?

How will we use it?

Workshop: Task 3

Discussion:
assume Puzzle ITC has a Lightning Network Hub and channels with merchants:

• What considerations would you make when choosing a Hub?
• How big of a channel would you want to open?
• How big would the channels to the merchants need to be?