⚡ StackSats Saturdays | 2021 Week#4
🤓 How does Lightning Network work? ⏮ Origins of Bitcoin 🏧 Offramping to fiat
🤔 How does Bitcoin's Lightning Network work?
State channels on the Bitcoin blockchain.
The Lightning Network (LN) works by creating a double-signed transaction. Think of it as a new check that requires both parties to sign for it to be valid. The check specifies how much is being sent from one party to another. As new micro-payments are made from one party to the other, the amount on the check is changed and both parties sign the result.
Another way to describe LN is like "opening a tab at a bar".
LN apps that are being developed:
The Lightning Protocol is an implementation of Hashed timelock contracts (HTLC). HTLC extends timelocks by introducing “Hashlocks”. Payments get acknowledged via the submission of cryptographic proofs. Along with that, another brilliant feature of the HTLCs is that it allows a party to forfeit the payment given to them and return it to the payer. Cross chain transactions are possible. This is called atomic cross chain trading and enables users to exchange a part of cryptocurrency on one chain (eg. bitcoin on the main blockchain) for a part of cryptocurrency on another chain (bitcoin on a sidechain).
Benefits of LN
- Instantaneous payments
- Not dependent on miners
- Micropayment friendly
- Multi-signature friendly
- Reduces blockchain load
- Decreases waiting time
- Helps in scalability
🤔 How did Bitcoin get started?
In the early 1990’s, most people were struggling to learn how to use a new tool called the internet. A group of cryptographer activists, called cypherpunks, knew the growing digital world needed digitally native money.
The idea behind digital cash was to create a way to exchange value using the internet. with it, people would be able to send and receive money anywhere in the world without the friction and fees of traditional middlemen.
Early attempts to create digital cash failed, but their progress paved the way for future success.
In 2008, the global financial crisis made the need for alternatives to a centralized banking system apparent. during the fallout from the crisis, governments began printing new money in order to stabilize economies.
With confidence in the traditional banking system eroding, an unknown person or group of people named Satoshi nNakamoto published a now famous paper to a cryptography mailing list.
Nakamoto’s idea detailed an open financial system called bitcoin. for the first time, bitcoin solved the trust issues that prevented early versions of digital cash from working without a centralized gatekeeper.
Using bitcoin, people could transact with each other directly over the internet and participate in growing the network while making it more secure.
Satoshi Nakamoto continued to communicate with the growing community through online forums, working to refine bitcoin while creating a large following of early adopters. Satoshi disappeared completely in 2011, confident that development of the network would continue. The identity, or identities, of Satoshi Nakamoto remains unknown. that’s one of many unique things about bitcoin — there isn’t one central leader to decide what happens to the network. instead, changes are made via consensus among all network participants.
In its infancy, convincing people to adopt bitcoin was a major challenge. in the early days, bitcoin traded for only a few cents and was mainly used for things like online poker. To become a widely accepted payment method, people needed the ability to exchange bitcoin for traditional money.
In 2010, early bitcoin pioneers opened Mt. Gox, an online exchange that enabled bitcoin purchases. at its peak, Mt. Gox handled up to 70% of bitcoin network transactions.
Soon after, other uses for bitcoin started to emerge. the most popular was Silk Road, a dark web internet marketplace for buying and selling drugs. As use and adoption increased, the price of bitcoin rose. this caught the attention of more early investors and speculators. during the spring of 2011, the price of bitcoin hit $1 for the first time. by July of 2011, the price surpassed $31.
At the same time, new cryptocurrencies were created to compete with bitcoin or solve other problems. these new coins — like Litecoin, Namecoin, and Peercoin — became known as altcoins, as in alternatives to bitcoin.
In 2013, Silk Road was shut down by the fbi. illegal activity aside, it showcased the promise of cryptocurrencies as a digital payment method. with the closure of silk road, many thought bitcoin might die. the price sank from roughly $145 to nearly $100.
But as bitcoin development and growth continued around the world, its value rose to over $1,000 during the next year. in March of 2014, Mt. Gox filed for bankruptcy following a massive hack. as news of this spread, the price of bitcoin was cut in half.
Like the closure of Silk Road, the collapse of mt. gox caused people to declare bitcoin dead once again. a crypto winter set in and the price of bitcoin stagnated between early 2014 and late 2016. at the same time, the crypto space kept expanding.
Altcoins started to grow. some were designed to enhance privacy, others to create economies around digital services like file sharing or micro-payments.
Over its first decade, bitcoin has grown wildly. it experienced major price increases, the most recent was december 2017, when it nearly reached $20,000.
Suddenly, the whole world seemed to be talking about bitcoin and cryptocurrencies. believer or skeptic, the ride was just getting started.
Bitcoin has kickstarted a new movement of people interested in creating a global economy built on the foundation of programmable money.
🤔 How can I change my bitcoin to fiat money and cash it out or withdraw it?
Being able to offramp is now as easy as onramp. Simply state the price and amount of BTC you wish to trade; this includes the currency and the rate of margin (e.g. how much of a premium or discount that you are offering). Once you set the rate of margin, the BTC price will be automatically calculated based on the prevailing market prices. Trade bitcoins person-to-person in an easy, fast, and secure way.
Examples of P2P crypto to fiat exchanges
You’ll soon discover that process doesn't have to be hard when you take advantage of the flexibility afforded by P2P trading. You can even search for traders who are willing to pay your bills in exchange for bitcoin. This can save you having to cash out then wait for bank deposits, and instead have someone pay your bills for you so you can get back to doing whatever it is you want to do, hopefully, something more enjoyable than dealing with bill payments.
👀 Highlights of the week:
Bitcoin Energy Consumption Is Far More Efficient and Greener Than Today’s Banking System. (Bitcoin.com)
Cantillon Effect 2.0: Bitcoin Is The World’s First Truly Fair Money. (Bitcoin Magazine)
Key Indicator Suggests Major Bitcoin Correction in the Works. (CryptoBriefing)
The Bitcoin Double-Spend That Never Happened. (CoinDesk)
Going long: 270K Bitcoin moved into storage in a month. (Cointelegraph)
Anyone else feel like gollum. (r/Bitcoin)
Bitcoin On-Chain Data Reveals Chinese Mining Pool Behind Its Crash. (Bitcoinist)
Grayscale Now Owns More Than 3% of Total 21 Million Bitcoins That Will Ever Exist. (CryptoPotato)
U.S. Treasury Secretary nominee Janet Yellen acknowledges potential benefits of crypto. (Cryptoslate)
Bitcoin Could Reach One Million by 2030 Says the Electricity Model. (Trustnodes)
PS - Joined our community on Quora yet? A bunch of Bitcoin ₿elievers sharing, learning and looking out for each other.
Not financial advice. This newsletter is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Do your own research.