For quite some time now, developers have been exploring the option of Bitcoin payment channels. On paper, such small transfers should be subject to lower fees. That may not be the case, though, according to a recent post by Ryan X. Charles. In fact, he states payment channel network transactions may be at least as expensive as traditional payment processors. That is not what people are hoping for, to say the least.
The Lightning Network is a big development for Bitcoin, to say the least. It will effectively provide the popular cryptocurrency network with microtransactions. Paying for the proverbial cup of coffee with Bitcoin may become an actual thing in the future. Unfortunately, paying that coffee will still come with high fees, which is less than ideal. Ryan X. Charles recently outlined some problems associated with payment channels and Bitcoin.
Payment Channels may not make Bitcoin Competitive
There are many benefits to the Lightning Network. First of all, it improves the number of p2p transactions in the same block. Secondly, it allows for instant transactions. One expects to pay less in fees for instant transactions, but that may not necessarily be the case. More specifically payment channels are a great development, but they are not without flaws. Any payment channel on Bitcoin funded with US$44 or less is not viable for one-directional payments. To offer competitive rates, these channels need at least US$150 in funding.
This is not how most people envisioned the use of payment channels for Bitcoin. On-chain transaction fees are still on the rise, we know that much.As a result, payment channel network transfers will be expensive as well. Right now, the fees would be at least as high as PayPal or other payment methods. This means there is no incentive to use Bitcoin over traditional solutions by any means.
A micropayments layer on top of Bitcoin will cause some issues, by the look of things. On-chain settlement fees are too high and need to be reduced. If even payment channels can’t be competitive, things are not looking great for Bitcoin by any means. It is not surprising Yours switched to Litecoin when keeping this information in mind. It will be interesting to see if a solution can be found to make Bitcoin more competitive. That is much easier said than done, though.