Re: [bitcoin-dev] What Lightning Is

[Anthony Towns <aj@erisian.com.au>]

On Sun, Aug 09, 2015 at 06:44:08PM -0400, Gavin Andresen via bitcoin-dev wrote:
> I'd love to see somebody write up a higher-level description of what the
> user experience is like, what communication happens underneath, and what
> new pieces of infrastructure need to get built to make it all work.
> 
> A use-case to start with:
> 
> A customer starts with eleven on-chain bitcoin. They want to pay for a nice
> cup of tea.

IMO:

 1. User swipes their phone over merchant's NFC device
    (or scans a QR code displayed by the register or whatever)

 2. Dialog pops up on phone:
     "Pay Infinitea $5.20? [yes] [no]"

 3. User presses [yes]

 4. Brief pause

 5. "Payment confirmed" appears on both user's phone and merchant's POS
    device

The backend bits that need to happen:

 1. Merchant passes on their identity and public key, an amount, and a
    hash for the payment.

 2. User's phone goes online to see if a route to the vendor can be
    worked out, and to work out what lightning network fees are needed.
    Also translates the bitcoins requested into the user's preferred
    currency so they don't have to do maths in their head.

 3. User's phone prepares a lightning transaction to the vendor, signed
    with the corresponding lightning channel keys, using the hash the
    merchant provided, and sends it through one of the channels the user
    already has open and funded (at >$5.20 worth of bitcoins).

 4. The transaction makes its way through the lightning network, and the
    confirmation makes its way back. It's not clear to me how long this
    realistically takes (either how many hops are likely, or how long
    a single hop will actually take; I assume it should be a couple
    of seconds).

 5. UIs at both ends update. User gets a nice cup of tea.

There's a few potential problems with this:

 - what if the merchant says "no you didn't pay me, your phone is lying,
   you're a liar, I hate you, no tea for you" despite your phone saying
   you paid?

     a) you could mitigate this by having the payments be incremental
        (here's 1c, 520 times) with both terminals visibly updating;
        but that would take up to 520x longer than sending a single
        transaction, and mightn't really be any better anyway

     b) you could also have the initial negotiation involve signing
        something that could be adjudicated independently later (hey,
        here's a QR code saying he owed me a tea, here's a QR code showing
        I paid for it, and here's a video of him saying "no tea for you").

     c) Or maybe you just bite the $5 and never shop there again; just
        as you would if you handed over $5.20 in cash and then they told
        you you hadn't paid them.

 - what if the transaction's unroutable? then you get a "service
   unavailable" notice on your phone and pay by other means -- blockchain,
   cash, etc. Same as if your credit card won't register. ditto if your
   phone can't get on the internet.

 - what if the fees are large? (eg, the coffee costs $5, and the fees are
   20c?)

     a) I think they'll actually be small -- even for a 10% pa interest
        rate denominated in bitcoin, the time-value of $5.20 in bitcoin
        for 7 days is just under 1c (.35%). If so, that's noise, and the
        user legitimately doesn't care. OTOH, it does get multiplied by
        number of hops, and maybe the user cares about $5.20 vs $5.26.

     b) Alternatively, the app could just indicate the fees ("Pay $5.20 +
        <1c in fees") and/or the user could have an explicit setting for
        fee info ("Only warn me when fees are greater than either 5c/1%")

     c) Or you could have some UI magic, so the vendor's POS device
        initially says "advertised price is $5.20, but I actually
        expect just $5.05, call the rest a discount", the phone says
        "fees are 5c, so I'll display "Pay just $5.10 for a $5.20 cup of
        coffee!". That's closer to how Visa/Mastercard do it and might
        be reasonable in many cases.

 - what happens if the user presses "yes" but the lightning transaction
   then fails? you don't want to wait for the 7 day timeout to know if
   you can have a cup of tea; and you don't want the payment to go through
   after you've paid for your tea in cash, drank it, and gone home.

     a) Maybe the lightning network hubs just reply early cancelling the
        transactions, and your phone can say "failed". You can't force
        them to do this, but maybe the incentives work out okay so that
        they'll want to anyway. (I think they will) If so, everything's
        fine. As far as the merchant's concerned, you may as well have
        just pressed "No".

     b) The vendor could issue a conditional refund, eg an on-blockchain
        transaction for the amount of the coffee from them to you,
        payable if you ever receive the hash token. (And if you don't,
        redeemable by them after a timeout). That doesn't work real well
        if the fee for a blockchain txn is more than the price of a cup
        of tea of course.

> Assume neither the customer nor the tea shop are technically sophisticated
> -- assume the customer is using an SPV wallet and the tea shop is using a
> service similar to Bitpay.

IMHO, most of the complexity isn't in doing the transaction, it's in
maintaining the channels. For example:

 - what if the tea shop has a sudden run of customers, and all their
   payment channels fill up?

 - how do you close the till at the end of the day (ie, put your
   earnings into a cold wallet so they can't be hacked as easily and
   clear your channel so you can accept more payments tomorrow?) Do you
   do this on the blockchain or do you have a different lightning
   network channel to your "bank account"?

 - inversely; if you do all your weekly shopping and impulse buys (tea,
   coffee, beer, meals, groceries, fuel, road tolls, ...) on lightning,
   how do you reset your channels once a day/week/fortnight/month with
   some money from your salary/savings, so they don't run out?

 - do refunds work, even after the original txn has finished? ("Oh,
   actually we're out of tea")

 - you have to watch the blockchain once a week or so in case your
   counterparty tries stealing your balance by replaying old states and
   hoping you don't notice

 - how do you keep the channel keys/secrets sufficiently available
   and secure?

 - how do you figure out who to make channels with in the first place,
   and if/when to change them?

 - what happens if your phone breaks, is stolen or gets lost; have you
   lost your channel secrets, and potentially all the coins in your
   balance?

 - etc.

(I don't think they're unsolvable or anything, though)

Cheers,
aj