Segregated Witness and the Lightning Network come up together in conversations, but many Bitcoin users don't understand how the two connect. SegWit would enable a better version of Lightning on the ne
Segregated Witness and the Lightning Network come up together in conversations, but many Bitcoin users don't understand how the two connect. SegWit would enable a better version of Lightning on the network, yet most people watching the debate don't see the specific improvements.
Olaoluwa Osuntokun, co-founder of Lightning Labs, spelled it out at a recent Bitcoin Milano Meetup presentation. The timing mattered: SegWit could activate before August 1st.
Osuntokun walked through four specific ways SegWit improves the Lightning Network and what happens if Bitcoin never gets SegWit.
Payment channels form the foundation. They enable Bitcoin transfers using cryptographic security without needing to broadcast each transaction to the blockchain. The Lightning Network takes that core idea and scales it by creating a whole mesh of these channels atop Bitcoin.
The original design had a flaw, though. "Previously, there were payment channels, but they had a limited lifetime — meaning basically that you open a channel and then five days later or some amount of days you basically have to close it," Osuntokun said. "That's kind of limiting because you as a user or the software itself (ideally) needs to decide what duration [the channels] should be open. And that depends on a lot of parameters."
The need to restart channels erodes the scalability gains you get from moving transactions off-chain. SegWit fixes that. "One thing SegWit allows us to do very cleanly is we can have channels that can be open forever," Osuntokun explained. "You can have channels that are open for months, for years." He tested this on his own, with a testnet Lightning channel on his laptop running for four months.
Second, SegWit helps with transaction malleability. SegWit solves it "in a clean way," per Osuntokun. The structure works like a tree: one transaction depends on another. If the second transaction becomes invalid, the first does as well. That creates a scenario where "even though you have a — ideally you could always get your money back — if the transaction got maleated then basically you wouldn't have a valid signature to unlock your money."
The Lightning Network white paper calls this a "hostage situation" for your funds.
You must watch the blockchain to catch someone cheating, and that costs time and computing power. SegWit lets you outsource this work. "With SegWit, we can do this thing called outsourcing where we can basically give a server a very minimal amount of information, which doesn't even reveal which channel you are, and that sort of can act on your behalf," Osuntokun said.
What if Bitcoin never gets SegWit?
SegWit is active on Litecoin, and Osuntokun pointed to that as a testing ground. "We can basically use Litecoin as kind of a testbed," he said. "We can basically test our software out on something that's a little bit smaller scale to make sure it's actually hardened and works well."
But Lightning doesn't require SegWit to work on Bitcoin. "We can still do it, but it'll be more limited in terms of its capability, and it'll be a little bit hacky," Osuntokun said. "So, ideally, we get a malleability fix, and the main one that's [available] right now is SegWit. It has a bunch of testing; I've implemented it, and I think it's pretty good."
