Everyone Needs An Uncle Jim

The recent decision by Wallet of Satoshi to stop serving customers in the United States brings us to a crossroads in the evolution of Lightning’s use as a consumer tool. While it is trusted and custodial, Wallet of Satoshi has been invaluable in giving casual users a functional and reliable tool for small value payments made across the Lightning Network. This departure from serving the US will leave a massive hole in the Lightning toolbox for American Bitcoiners.

Custodial tools are not the ideal type of tool, especially for anything beyond small amounts, but it is impossible to deny they have a place in this ecosystem. They are not for everyone, and certainly not in my opinion for anything even remotely approaching a significant sum of money, but they can be useful when the risks are well understood by users.

This is just a simple undeniable fact of Bitcoin. From a purely impartial economic point of view this is an inevitable reality. Fees will go up if demand for blockspace increases past the available supply. This will price out lower value users and use cases. Do you want to pay a $20 fee for opening a $50 or $100 Lightning channel? Most people will say no. That leaves custodial arrangements.

The problem with that is two-fold. First, you are no longer the person in control of your money. The custodian is, and you have no real recourse except to trust them. If they screw you over there is nothing at all you can do except, if you are lucky, wait and see how things play out in a courtroom. Second, you have absolutely no privacy. Your custodian sees everything you do with your money, every payment you receive, every payment you send, everything. The more that fees go up, the more people are going to be stuck making this compromise due to sheer economic pressure.

The real solution to this problem is adding some form of limited covenant to Bitcoin. Without that, any answer to the problem is simply in one way or another to introduce trust in the form of some entity co-signing transactions, or being a member in a federation custodying coins, or some other relationship where people using a service or protocol must trust some operator(s) to behave honestly.

That frankly sucks. Regulators will continue coming down on those custodians, making more demands for information, more demands on restrictions for what users can do with their money, they will not stop. So short of actually activating covenants on Bitcoin, what can we do?

Make more custodians. PLEBNET, while a mess in terms of privacy issues and not something actually profitable from the business sense, showed that lots of relatively non-technical Bitcoiners actually could handle running a full Lightning node if they devoted the time to doing so. They helped each other find people to peer with and open channels, helped troubleshoot technical issues, and ensured that people maintained a relatively high uptime for their nodes. They showed it could be done.

Who do you trust more with your money: a giant faceless corporation subject to any arbitrary regulation with no feasible ability to dodge around it, or someone you have known personally for years such as a close friend or family member? Personally, I trust the giant faceless corporation more (just kidding).

Lightning has many issues to deal with right now ultimately requiring either as of yet unknown inventive designs, or consensus changes to Bitcoin, that is why something like Wallet of Satoshi became so popular. It addresses all of those issues through economies of scale. One user managing a channel for just themselves can be expensive and uneconomical, but one person managing a channel for many users piggybacking on their node quickly becomes very cheap and economical on a per user basis.

So let’s do that in a more distributed way. Obviously it won’t be as cheap and cost effective as a massive service such as Wallet of Satoshi, but groups of friends, families, and wider social circles all sharing a single Lightning node will make it cost effective enough to be practical if individually owned self-custodial channels are not. There is already plenty of tooling for this available right now: LNBits, LNDHub, Cashu, Fedimint, and probably many more I’m not even aware of. The software to do it exists right now. With Cashu and Fedimint, it can even be done in a privacy preserving way where the operator has no clue which user is sending or receiving which payments.

The government might be able to easily go after a large operation like Wallet of Satoshi to enforce regulations, but how about thousands of people all running small Lightning nodes and serving a dozen or so close friends and family? That’s not practical at scale. It would also look completely and utterly absurd and ridiculous from a public perception point of view. Kicking in Uncle Jim’s door because he was letting grandma use his Lightning node to send and receive payments because grandma would inevitably screw up and lose all of her money doing it herself? Just think through how that would be perceived by the wider public who don’t care or think about Bitcoin aside from the headlines that the media shoves in their face.

The current realities of Lightning are what they are, it’s not ready for self-custodial use at scale unless you are willing to pay the higher economic cost and deal with the added technical complexity. That will change over time, but for right now it’s how things are. It’s more complicated than just downloading a wallet like Phoenix or Breez, but PLEBNET showed that running a full Lightning node is absolutely possible for a dedicated power user. You don’t have to be a developer to use it. As well, node in a box solutions like Citadel and Umbrel made it plug and play, and both of them support LN Bits in their app stores.

Wallet of Satoshi stopping service the US sucks, it was an incredibly useful app that smoothed over a lot of the rough edges of the current state of Lightning without requiring invasive information collection to use it. It will definitely create a hole for American Bitcoiners. Uncle Jim can step in and fill that hole. 

This is a guest post by Shinobi. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.