After months of speculation that the Lightning Network would fix the major scalability problems facing bitcoin, many are starting to wonder if it will be the final solution. Bitcoin faces 3 major issues in the scalability area; it can not be fully decentralized, have a fixed money supply and provide the liquidity needed for efficient payments. Many have hoped for the long awaited Lightning Network to be the solution but it has some problems of its own.
Bitcoin must act to amplify its ability to handle transactions as it grows. They handle a relatively small number of transactions compared to other payment devices such as credit cards. To become a universal payment method, changes must be made. Bitcoin has become illiquid and will continue this trend if demand grows. The fees have also skyrocketed as people want their payment processed immediately. This comes at a cost that continues to grow.
The Lightning Network comes into play as a fix for the liquidity and speed problems facing bitcoin. Once enough people are on the network, it will be liquid. The routing methodology used will allow for users to quickly have their transactions placed and remain decentralized.
While Lightning sounds like the perfect fix, there are flaws that could hinder its abilities.
The liquidity of Lightning depends on how many users are in the pool. If channels have too many people or not enough, liquidity can become an issue as it is now with bitcoin.
Payments won’t be processed in a reasonable time in both instances. The two possible fixes for this would violate basic principles of bitcoin. First, larger channels could be made, these would be funded at all times to secure any transactions but would also disrupt the decentralized network. The second solution would be to have channels go into a deficit to process payments when there is no liquidity.
This would violate the standard of all payments being fully settled immediately. There is also the possibility of lost funds due to the price swings seen by Bitcoin if the price were to drop between transactions.
The issue of remaining liquid is something that the Lightning Network will need to work on before a full release. If it is to be a final solution to the scalability issue, the internal problems must first be handled.