Jameson Lopp defends Lightning against 'inelegant pile of hacks' criticism

Casa CTO Jameson Lopp defended the Bitcoin Lightning Network against recent criticism in an interview with The Block amid a peculiar dump of bitcoin transactions and the ongoing debate surrounding Ordinals and inscriptions on Bitcoin.

The Lightning Network — designed to address Bitcoin's scalability issues via fast and cost-effective bi-directional payment channels on top of the Bitcoin blockchain — has never been free from criticism from the broader crypto industry since it launched in 2018. 

More recently, Lightning has also been on the receiving end from those within the Bitcoin community, with the creator of the decentralized social media protocol Nostr, Fiatjaf, describing it as an “inelegant pile of ugly and complicated hacks.”

Another criticism relates to the large number of users reliant on custodial solutions like Wallet of Satoshi to interact with it, which, while convenient, runs the risk that such projects could potentially take off with users’ bitcoin at some point down the line.

Lopp defended the Lightning Network, acknowledging the complexities that have led to a convenience trade-off with custodial solutions. However, he pointed out that the actively developed system was nowhere near complete, and part of an engineer's job was to solve the remaining complexities.

“There's no doubt that Lightning is complicated and complexity means that you're going to have trade offs and this is one of the reasons why a lot of people end up using the custodial solutions,” Lopp said. “Custodians have the ability to hide a lot of complexity under the hood, and that's why they're able to get more users, because they then provide a more user-friendly solution.”

“But on the flip side, we continue to learn this is a very actively developed ecosystem, so it's nowhere near complete,” Lopp continued. “Whenever you encounter complexity, one of the jobs as an engineer is to try to figure out, okay, how do we abstract that away? How do we learn from these edge cases that appear due to the complexity? And how do we write software and come up with best practices of how to handle them, preferably in as automated a fashion as possible.”

“So, it means it's challenging and that there's still a long road ahead of us, but I'm seeing good development happen there,” he added.

Lightning’s custodial concerns

Referring to the dangers of custodial Lightning solutions, “it's the same old story of convenience versus sovereignty,” Lopp said. “I am somewhat bullish on being able to provide better sovereign Lightning wallets and that's in part due to projects like LDK where they've got the efficiency down to the point where you can run a quote-unquote Lightning node in your mobile app. But this is not quite the same as what people generally think of as a Lightning Node where you have a full Bitcoin node and a Lightning node that's sitting on the same machine and they're talking to each other.”

“As long as you're controlling the private keys, that's one of the most important things,” he continued. “So I'm interested to see how that continues to develop. I know there are certainly some projects out there that are doing stuff like that. Zeus for example, which is one of my favorite Lightning wallets that I use to connect to my full setup that's running on a server somewhere. I know that they have been going down that route as well, trying to make a more convenient self sovereign mobile setup.”

“There is hope, but this is kind of the perennial question of will the non-custodial self sovereign projects be able to compete with the convenience and ease of use of the custodial solutions? Because at the end of the day, people are going to choose whatever is the easiest,” he added.

As for the self-custodial solutions provider Casa, Lopp said its clientele were mainly high net worth individuals and small teams — people that are managing hundreds of thousands to millions of dollars worth of assets — with low demand for solutions like Lightning.

“We have very low demand for Lightning, but I wouldn't expect a lot of demand for it because our clients tend to be living in first world countries where they already have excellent payments infrastructure,” he said. “They know what it is, but it's not something that they have a pain point around where Lightning is a solution for something that is happening in their daily lives.”

Lightning versus Ark

Lopp also didn’t think comparing Lightning, which has operated with real funds for around five years, with newer alternatives was fair.

“I forget if Fiatjaf was a fan of Ark or not,” Lopp said. “[But] you see a lot of people talking about Ark. Ark is an extremely new project that hasn't really seen real world adoption.” 

Ark is an alternative Layer 2 protocol for Bitcoin that aims to make onboarding easier without requiring the opening and closing of channels. 

“So I kind of giggle a bit when I see people trying to directly compare Lightning, which has been operating, I think, with real money since 2018 or so, versus Ark, which I don't think is actually operating as a production software project yet,” Lopp added. “That has potential, of course, but I don't think Lightning is going away. It is a reasonably large ecosystem, but it's still maturing.”

Earlier this month, the Lightning Network hit a record-high capacity in bitcoin (5,640 BTC) and U.S. dollar terms ($175.2 million), according to The Block’s data dashboard. These highs breached the prior peaks set in April before falling back as July progressed.

Medium of exchange versus store of value

Lopp also delved into Bitcoin's medium of exchange versus store of value narrative. While some believe bitcoin should be purely a medium of exchange for simple financial transactions, and there has been some traction on that front, especially via the Lightning Network, the reality is payments are likely to remain a longer-term goal given the capital gains tax implications every time you use it to buy something.

Others see bitcoin as a store of value over the longer term that can help protect savings against the forces of inflation. 

“I've always felt like you can argue about what comes first, store of value or medium of exchange, but I've generally felt that the store of value market is far, far larger,” Lopp said. “I mean, you can look at the entire payments industry and sure, while they certainly process a high volume of money going back and forth, the actual value that's captured by that industry pales in comparison to things like stores of value, whether that's gold or real estate or other types of assets.”

“From my perspective, at least for people in first world countries, payments are not a real high point of friction for us,” he continued. “I do think that payments for people in countries that don't have banking infrastructure is far more interesting. Though I couldn't tell you off the top of my head what the size of the sort of markets for that would be.”

“But allowing people to essentially leapfrog the traditional banking industry, kind of like we've seen in Africa with people leapfrogging landline based internet and going directly to mobile. I think we could very easily see the same thing happen with their payment systems where they never had traditional credit cards and might go directly to having some sort of mobile phone based crypto payment system,” he added.

Casa's stance on Ethereum support

Casa, which helps users secure their crypto assets in multisigs rather than single wallets, expanded its support to include Ethereum self-custody vaults in June, having initially announced the move in November 2022. Despite criticism from Bitcoin maximalists, Casa said it made the move to meet the client demand. “In recent years, it has become technically sound to implement Ethereum support via smart contract, which has dovetailed with market demand,” the company said at the time.

Asked how that move had impacted customer growth, Lopp said “we're still in the depths of a bear market, so everything has been going sideways, but I think we've positioned ourselves well for when the market wakes back up.“

“We've certainly had plenty of clients who they already had ether, and perhaps they were using a different solution, perhaps they were keeping that on an exchange or whatever, and they've been setting up their wallets and working with them,” he continued. “So for us, it's a question of what are people actually using and demanding. We get random one off requests for all types of things, but it's really ether and especially stablecoins that are the top demands for our clientele.”

“We're focused on generally helping people secure whatever is most valuable to them, and that tends to be bitcoin, ether and stablecoins for whales,” he added.

Are stablecoins next for Casa?

Stablecoins are one of the most successful crypto niches, gaining popularity in providing easy access to the U.S. dollar globally due to their convenience, cost-effectiveness and fast transaction times in contrast to traditional wire transfers. 

As one of the most requested features by Casa customers, stablecoins could well become the next asset to find support on Casa's solution.

“Yeah, for sure. It's kind of the missing piece,” Lopp said. “Once again, people can get upset about using fiat on the blockchain or whatever. But this is something where I can actually talk about from my own perspective. I don't send a lot of really high value payments, but when I do, I'm often presented with a choice of a wire transfer or a stablecoin.”

“If I find myself in a situation where I'm having to decide between those, I will choose stablecoin every single time, because for me, it's just a matter of time. It can take me easily, like half an hour to an hour to fill out the paperwork for a wire transfer, and then often anywhere from hours to a full business day to actually get it processed. Whereas if I want to send a stablecoin transfer, we're talking less than five minutes,” Lopp added.

Discussing the move away from stablecoin issuance on Bitcoin to other blockchains over time, Lopp said it again came down to convenience.

“Once again, convenience is really the question,” Lopp said. “USDT was originally based on Bitcoin, but from a technical perspective it was clunkier. And I think they're also running on [the Bitcoin sidechain] Liquid these days. But the network effects of Liquid I think prohibit how much use that is getting.”

The Ethereum and Tron blockchain networks currently dominate the market in terms of stablecoins like Tether’s USDT.

“When it comes to stablecoins, I'm very agnostic,” Lopp continued. “I've never sent a stablecoin transfer on Tron, but I wouldn't have anything against it because this is, for me at least, a sort of in and out quick operation where I'm not really looking for a long term store of value. I'm not even really looking for a high level of censorship resistance. It's whatever gets the money there as quickly and painlessly as possible.”

“And of course, stablecoins themselves are a single point of failure,” he added. “They have centralized issuers. They generally have administrative functionality where funds can be blacklisted. I see they have a lot of utility and they certainly have a lot of adoption, not only with the first world people, but I think we've also seen a lot of folks in third world countries also prefer stablecoins in many cases.”

Casa’s return to Bitcoin hardware products unlikely

For those who remember Casa nodes from the early days of Lightning Network adoption, the company is unlikely to return to such products, according to Lopp. Casa's venture into plug-and-play Bitcoin nodes faced challenges due to complexities and limited demand from non-technical users. It moved away from offering hardware products considering the difficulties in maintaining and supporting them.

“Casa’s bread and butter is taking complex issues and putting a really nice user interface around it that kind of guides users down the best practices of how to use the technology without necessarily having to know everything that's going on under the hood,” Lopp said. “And while I think we did a great job improving the UI of Bitcoin and Lightning nodes back in the day, what we really encountered is that there's this huge mess of complexity when you are selling a piece of hardware, especially a piece of networking hardware, and deploying it into unknown environments.”

“That, coupled with our preferences around user privacy, we really had no insight into what was happening with these boxes that were sitting in our clients homes,” Lopp continued. “So inevitably, when they hit some sort of issue, maybe it was networking related, maybe it was a hard drive failure, or whatever, it was incredibly onerous and time intensive from a support [perspective] and then the engineering level of debugging [required] to try and get enough information about what went wrong so that we could even tell the client what their options were.”

“So while it was certainly a feel good thing to get people to be more sovereign and running their own nodes, the amount of resources required to help and maintain people, non-technical people, to be running at that level, it's not something where people, I think, are willing to pay enough to make it a profitable endeavor,” he added.

“We were not the first and we were not the last company to do kind of plug and play, node in a box type things,” Lopp said. “The vast majority of those projects that came before us no longer exist. And I suspect that many of the projects that are running right now probably won't last too many years unless they come up with perhaps some other business product line to maybe help subsidize some of the additional resource and cost requirements around that stuff.” 

“I guess the short version is that there is a very limited market of people who care enough about that to pay for it in the first place,” he continued. “I would probably cap it at like 10,000 people. So even if you fully saturate the market, and I felt like we mostly saturated the market, then from a company perspective, there's this big question of how do you grow that?”

“It's a really tough business to be in,” Lopp added.

Mysterious Bitcoin mempool activity raises eyebrows amid hack

Last weekend, the Bitcoin network experienced an unexpected influx of transactions totaling 30 MB, paying fees about 10 times higher than necessary, according to Lopp. It caused significant congestion in the mempool — like a waiting room for pending bitcoin transactions. The surge also caused fee rates to get transactions added to the next block to jump considerably, with users experiencing delays of hours and even longer for their transactions to be processed.

Lopp joined the interview with The Block hot off the press from looking into what was behind this — a potential hack of Coinspaid, a crypto payments processor based out of Estonia that handles payments for several crypto gambling sites. The situation led to the suspension of withdrawals by some of those crypto gambling platforms, sparking further speculation about a potential hack.

Lopp suggested Coinspaid may also be linked to the Alphapo hack that occurred at the same time, with on-chain sleuth ZachXBT telling The Block on Tuesday that the teams behind Alphapo and Coinspaid were one and the same. Zach also said the Lazarus Group may be connected to the potential hack.

Coinspaid was initially silent on the matter but on Wednesday evening eventually confirmed it had experienced an attack on July 22, resulting in the theft of $37.3 million. It also suspected North Korea's Lazarus Group as being behind the attack, but assured users that transactions were processing again and client funds were not affected.

The Ordinals and inscriptions debate

The rise in popularity of Ordinals and inscriptions on Bitcoin earlier this year also caused a surge in transactions and fees, fueling debate over whether or not inscriptions representing things like NFTs and BRC-20 tokens on Bitcoin should exist. Inscriptions rely on Bitcoin’s OP_RETURN function, used to store arbitrary data on the blockchain.

Some argue that these elements are unintended consequences of Bitcoin’s SegWit and Taproot upgrades, making inscriptions more economically feasible, and should get removed from Bitcoin. Others maintain that such unintended consequences are an integral part of any upgrade and usage should continue as long as users comply with Bitcoin’s rules.

“It has always been possible to embed arbitrary data into the Bitcoin blockchain,” Lopp said. “Now, you could argue that the Taproot upgrade made it somewhat easier from a developer perspective to do that, and as a result, a creative developer wrote some tooling to make it easier for everyone else to do that. But I see this as a fundamental problem between two main perspectives of how Bitcoin should be used.” 

“One of them is more subjective, saying we should only allow simple and pure financial transactions. Like Bitcoin is just money. The other one is that Bitcoin is a programmable monetary protocol and it should be open for people to use as long as they're operating within the rules” Lopp continued. “The subjective perspective is that we're going to pick arbitrary types of transactions that we don't like and we're going to call those spam. Whereas the more technical and objective perspective, which is the camp I fall into, is that the entire antispam mechanism around Bitcoin is economic. If you pay a market rate, a competitive fee rate, for whatever valid transaction you are posting out onto the network, then you should expect that you should be able to get it into the blockchain.”

The adoption of inscriptions has played out as Lopp expected, dying down after an initial hype wave, though may be used as luxury status symbols in the future.

“It's pretty much been playing out as I've expected. There was this initial wave of hype and it seems at least due to current market conditions, this is not something that people are willing to pay a lot for now. We're still in the depths of a bear market, so if you're patient, you can generally get away with fairly low fee rates,” Lopp said.

“But really what I've been saying since the beginning is that this type of data storage on the Bitcoin blockchain is probably some of the most expensive data storage in existence of any type of storage system in the entire world. So as a result, I was never against the idea, but I always felt like even if it does take off whatever you want to consider to be a large amount of adoption, it will be relegated to a more niche, expensive type of data and artwork or whatever,” he continued.

“So it may be something that whales are interested in simply by saying, look, I bought all of this expensive block space way back in the day and maybe ten years from now it's so absurdly expensive that nobody would be able to do that again. And it's another cool thing that you can kind of put in your bio or brag about. Artwork in general is a luxury good, right? It's like you're saying I own this and nobody else can own it, and maybe that makes me feel better,” he added.

Ultimately, Lopp saw NFTs as more likely to have broad-scale adoption on other blockchains that are far cheaper and faster, but “it all comes down to demand,” he said. “And that's what I've never been great at predicting because the things that I'm interested in are often not the things that the mass market is interested in.”

The inscriptions debate will no doubt continue for some time to come.