commit b6e7fda1caf0f420e85c0506d3793285fb023d74
parent 86ac57af25b3b043004e4d023b03facee90daeeb
Author: Florian Dold <florian@dold.me>
Date: Thu, 15 Apr 2021 17:49:55 +0200
Taler vs lightning discussion
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+# Taler with blockchain adapter vs. Lightning
+
+## Lightning network
+
+The lightning network is an additional payment layer on top of Bitcoin. Its
+goal is to settle transactions faster without involving a full transaction on
+the Blockckain every time that money is moved, because that would be slow and
+expensive.
+
+It works by establishing "payment channels" between two parties, where both
+parties "lock" an initial amount (say, Alice locks 2 BTC and Bob locks 1 BTC to
+create a channel).
+
+Signatures communicated outside of the blockchain change how money is allocated
+between the two sides of the payment channel. Eventually a payment channel will
+be closed by submitting a multi-party signature of the latest allocation between
+the two parties to the Blockchain, and the locked money will be sent back to
+Alice/Bob according to the most recent allocation.
+
+A payment can be "routed" through a network of multiple bidirectional channels.
+If channels "Alice-Bob" and "Bob-Carol" exist and are funded, then Alice can
+send a payment to Carol over the route "Alice-Bob-Carol".
+
+
+Problems:
+
+* A payment can only be made if route made up of channels exists
+ between the payer and payee.
+* Participating in the Lightning Network requires the participants
+ to "lock" significant amounts of Bitcoin in a channel,
+ resulting in opportunity costs.
+* To participate in Lightning Network payments, the payer+payee either need
+ to run their own Bitcoin node (impossible for the average user)
+ or fully trust a third-party Lightning Network node.
+* Privacy of payments is unclear [1], and
+ there is no notion of "income transparency" for AML/KYC either.
+* Even though Lighning Network is theoretically decentralized,
+ it is tending towards centralization in practice [2].
+* Fraud attempts are possible, and need to be resolved via
+ a complex penalty system if channels are force-closed
+ without taking the latest allocation of funds into account
+
+## Taler with blockchain adapter
+
+Taler works by providing a central, trusted payment service provider that
+settles payments instantly via blind signature tokens. It can work
+with Blockchain or any other lower-level settlement layer.
+
+* Taler requires participants to trust the operator
+ of the exchange, or at least the responsible auditor(s).
+ Trust is required until the payment is settled on-chain.
+* Payments are always possible and instant when both parties
+ trust the Taler exchange. Route establishment can't fail,
+ payment channels can't be force-closed.
+* Taler covers more than just the settlement system: There is a wallet software
+ (including Anastasis) and the merchant backend, which serves as an
+ (on-premise or hosted) payment gateway that is easy to use for merchants.
+* There is no requirement to lock money up-front to participate.
+ Payer/payee only need a wallet, and do not need to
+ operate a node that needs to be permanently online.
+* Payments with Taler / T-BTC have clear privacy and income-transparency
+ guarantees, and are based on signed, digital contract terms
+ between the two parties.
+* T-BTC could be operated in two modes: Custodial and non-custodial.
+ In the custodial version, the exchange would keep and fully manage the
+ users' Bitcoin, whereas in the non-custodial version, the user would
+ need their own Bitcoin address.
+
+[1] https://arxiv.org/abs/2003.12470
+[2] https://iopscience.iop.org/article/10.1088/1367-2630/aba062
