Was the Lightning Network set up to facilitate anonymous criminal activity in the wake of darknet markets like Silk Road being shut down?
That’s one of the theories that Dr Craig S Wright (‘I Am Satoshi’) expounds in the latest edition of the UK’s Financial Times, in an article titled ‘Segwit and the Bitcoin transaction fee conspiracy theory‘
Interviewed by Izabella Kaminska for Alphaville (a section that has been incredibly dismissive of Bitcoin recently) the Bitcoin SV founder said Lightning Network was set up without onchain logs, which helps obscure transactions and keeps the system out of the regulatory net.
That’s very different to Bitcoin itself which keeps a permanent record of signatures that cannot be tampered with.
Bitcoin is not anonymous and cannot be anonymous
“Bitcoin is not anonymous and cannot be anonymous. There are people in Core who want to create a system that does not maintain logs. Hence SegWit,” Wright told Alphaville.
“All that we can see happening is an alteration of the system to remove logs long-term. This increases the need for separate systems to record AML and KYC information which is contrary to the purpose of bitcoin.
“Isn’t segregated witness simply a means of handing Bitcoin off to the Lightning Network where logging is no longer required and users can engage in a system that only settles on bitcoin? Wouldn’t such a system be exactly what criminal groups wanted?”
— Calvin Ayre (@CalvinAyre) June 12, 2019
The story goes on to say:
“It’s no coincidence Wright adds that Lightning started to be developed just after the Silk Road dark market arrests happened. It was then, possibly, that nefarious entities realised Bitcoin — being an immutable evidence trail — could actually be used not just to facilitate criminality but to prevent it, upping the urgency for a workaround to be developed.”
That’s certainly one theory.
Lightning Network proponents of course argue it has nothing to do with anything like that – it’s simply a second layer solution to enable small value, low fee transactions much faster and cheaper than the Bitcoin network itself.
In doing so, it will hopefully bring about mainstream adoption of Bitcoin for retail payments.
SegWit established purely for Lightning
Wright told The Financial Times that he believes the SegWit upgrade was implemented purely in order to roll out the Lightning Network.
SegWit is credited by many with helping bring down the astronomical fees from the All Time High and speeding up transactions times – but Wright said these benefits were simply ‘byproducts’.
(Due to the way the article is written its sometimes difficult to tell if Kaminska is venturing her own opinion or summarizing Wright’s.)
Lightning is shadow money banking
The article also criticizes Lightning for being too close to the banking systems that cryptocurrency was supposed to replace.
Lightning attempts to solve Bitcoin’s scaling problems by diverting transactions off chain.
This is achieved, Kaminska writes, by establishing: “trusted bilateral channels of repeat custom, which are policed privately through bonded arrangements in code”.
She likens this to “shadow money banking and shadow money creation, precisely the sort of thing bitcoin was supposed to put to an end.”
“Any dependence on a separate external system is tantamount to a trusted relationship, which defies the whole logic of arguing the world needs to turn to bitcoin because third parties are untrustworthy,” she writes.
In other Wright news, the UK resident has been ordered to appear in court in Florida next week to address allegations he stole 1.1 million Bitcoin from Dave Kleiman.