Bitcoin failure modes
and the role of the Lightning Network
Thaddeus Dryja, Joseph Poon
Scaling Bitcoin, Montreal 2015

Bitcoin is working● Transactions are propagated● Blocks start with 00000000...
● Coins stay put, and then movewhen you send them
● That is so cool. I didn’t think
this would work.
● But it does! Great!

Bitcoin can fail● But, but... anti-fragile!You
mean... the final block?

● There are fates worse than theend of blocks.

Block size bathtub● Let’s take extreme numbers.
● What would bitcoin be like with
1KB blocks? (~1 byte / sec)How
about with 1PB blocks? (~1TB/sec)● Both sides are bad. We can callboth “failure”.
● In both failure modes, assume
every human on planet earth(~7Gh) would like to use bitcoin(not a particularly pessimistic failure projection)

Left side failure - key failure● 1tx / block means ~100 tx/day● Block size increases by ~50MB /year● Full blockchain can be verified
on your phone. Great! But...
● ~10 large institutions haveprivate keys to the UTXO set● Coinbase, changetip, Bank ofAmerica, and BNY Mellon havekeys.

Left side failure - key failure● How is this a failure?
● You don’t have the keys
○ You don’t have the coins. That was acentral promise of bitcoin.

● You can’t be your own bank.
● You can, however, verify allbalances that your bank holds foryou.

Left side failure - Good delivery model●Left side failure - Good delivery model●

Right side failure - 21M failure● All 7Gh can use bitcoin manytimes a day for any transaction.
Everyone has their own private
keys on their phone.
● ~50 EB/year expansion ofblockchain.
● SPV proofs are still quite
compact, phones can store theheader set (~4MB/yr)

Right side failure - 21M failure● ~10 large institutions can store
and verify the blockchain.
● While you have lots of keys,
Amazon, Visa, Google, Bank ofAmerica, and UnionPay are theones who have the blockchain.
● You can verify when you receive
coins. But you can’t verify
everyone else’s. Are you surethere are still 21M coins? No
double spends anywhere?

Right side failure - Bureau ofEngraving and Printing model●Expanding the bathtub(bathtub not to scale)Expanding the bathtub● How can we expand usability
without hurting verifiability● Methods to have more user to usertransactions with lower global
verification cost
● Linked nodes of payment channels
is one way to expand the bathtub
to the left (reduce need toincrease global throughput)

Bitcoin Payment Networks● E.g. Lightning Network● Widens the bathtub sweet spot
● Problems which it helps with:○ Net settle many transactions○ Micropayments which are below the minimum fee($0.01 micropayment with $0.03 bitcoin blockchaintransaction fees)○ Fee Market?
○ UTXO set bloat...

Micropayment UTXO Set Bloat

Alice’s Bitcoin Address

Transactions

Transactions

Transactions

Transactions

No problem, right? What happens when you want to spendthese transactions? You need to include each one as an
input. What if each input is a couple cents? Thesetransactions would be insane!

Lightning NetworkBobH

AliceH

CarolH

DaveHR

Decentralized Bitcoin PaymentNetworks● While these are actual bitcoin transactions
with consensus enforced on the blockchain,payment path selection is local● Why do we need it to be decentralized?
○ Bitcoin’s values○ We need to ensure there’s no custodial ownership■ Open participation■ Anyone can run a node
■ Extremely low fees

Decentralized Bitcoin PaymentNetworks● Trusting a 3rd party custodian with yourbalance (or payments in transit) will begiving them a lot of economic rent
● Routing behavior is a local protocol among
participants (local consensus)■ Therefore it’s necessary to ensure and enforce
routing and node selection is fairly decentralized.

● Make sure all wallets are also channel
nodes, to ensure decentralization