Author:GaryMa
Recently, Bitcoin L2 solution CKB released the full beta version of Fiber Network, a next-generation public lightning network built on Nervos CKB and off-chain channels, which can provide fast, low-cost and decentralized multi-currency payments and P2P transactions for RGB++ assets. The value proposition is that the current crypto payment model has deviated from the vision of "P2P electronic cash system" envisioned by Satoshi Nakamoto in the Bitcoin white paper. The crypto payment model seems to be constantly introducing rent-seeking intermediaries and centralized bottlenecks that the crypto industry should have eliminated as the industry continues to develop. With this in mind, this article will attempt to review the evolution of the crypto payment model and further explore the P2P off-chain payment vision that CKB is committed to building.
Bitcoin, the origin of the P2P electronic cash system
At present, the industry may position Bitcoin as a store of value, but let's not forget that Satoshi Nakamoto positioned it as "a P2P electronic cash system" in the Bitcoin white paper. The original goal of Bitcoin was to develop a P2P decentralized payment system that could operate without the involvement of a central bank or financial intermediary. Bitcoin also naturally became a medium for early geeks to exchange gift rewards between forums.
However, with the gradual rise in Bitcoin prices and limitations on Bitcoin mainnet throughput, Bitcoin, as a P2P electronic cash encrypted payment method, seems to have difficulty gaining mainstream market appeal.
On-chain payment for smart contract platform
We cannot deny that the emergence of smart contract platforms has promoted a more diversified blockchain ecosystem, and has also evolved encrypted payment models such as on-chain payments. However, despite being the current mainstream stablecoin on-chain payment (such as on-chain transfers of stablecoins such as USDT), it seems that it cannot become the final solution for the encrypted payment model, and there are still many bottlenecks and difficulties.
Ultimately, the problem may be that the smart contract model led by Ethereum deviates from P2P. Even if such blockchain platforms also hold high the banner of "decentralization", this kind of "decentralization" is still fundamentally different from the P2P architecture. The former may still contain levels or middlemen, while the latter aims to eliminate them and realize direct interaction between participants.
A general-purpose world computer might not be the best choice for crypto payment infrastructure.
The "everything on the chain" mentality of this type of smart contract platform overwhelms the network. Although there are various expansion plans, their combined expansion effect is still difficult to meet the basic requirements of payment infrastructure. For example, Visa, as a global payment network, can execute more than 65,000 transactions per second, while Ethereum's average TPS is 12, and the average TPS of various L2s is only a few dozen. Even Solana, which has a high hardware threshold for validators, has an average TPS of only about 2,000. This is just a comparison of throughput, and other requirements such as latency, cost, and privacy have not yet been taken into account. Of course, if there are privacy tokens such as Zcash and Menero that are working hard on payment privacy, this type of privacy seems to have been unconsciously associated with terms such as gray production, which makes people change color when talking about privacy.
Different from Bitcoin's PoW consensus mechanism and UTXO model, current smart contract platforms basically adopt an account model and a smart contract-centric design. This design introduces a certain degree of centralization, closely integrating asset ownership with application layer logic, and transforming P2P (Peer-to-Peer) interaction into a peer-to-contract relationship. To give the most straightforward example, the token contract owner has the authority to directly modify the number of tokens in your account.
Therefore, although on-chain payments can sometimes meet the needs of some scenarios of crypto payments, if judged from a comprehensive perspective such as throughput, latency, cost, and privacy, they still cannot be the best answer for crypto payments.
Combining Cryptocurrency and Traditional Payment Systems: Products in the Transition Phase
The model of combining cryptocurrency with traditional payment systems is gradually emerging. The driving forces behind this trend include the high profit potential of the cryptocurrency industry, the fierce competition and high operating costs of traditional payment services, and the payment advantages brought by new technologies.
Common scenarios include deposits and withdrawals, and using cryptocurrencies to purchase goods or services in the real economy (such as crypto prepaid debit cards, third-party payment platform Revolut, etc.).
The current model of combining cryptocurrency with traditional payment systems is believed to be a transitional product that is pursued from a commercial perspective. Although it does open up the channel between cryptocurrency and traditional payment systems, there are still many limitations and shortcomings. For example, crypto prepaid debit cards have large handling fees (wear and tear of cryptocurrency and legal currency conversion, monthly fees, etc.), the funds in the card can only be used for consumer payments and cannot be used for real transfers, KYC requirements, regulatory requirements in different regions, potential platform risks, and the resulting sustainability issues.
What should crypto payments look like?
It doesn’t mean that the existing encrypted payment models mentioned above are wrong. It just needs to be matched with corresponding usage scenarios.
If a whale needs to transfer a payment of up to hundreds of millions of dollars, then doing it in BTC on the Bitcoin network may be the safest on-chain option. At this time, the so-called throughput, cost, and latency do not seem to be a problem for the transaction. The only problem is that privacy may be a little unsatisfactory. Even if the address is anonymous, some clues can be found through various on-chain tracking methods.
What if you want to achieve the current Web2 mobile payment experience? Or let's talk about it in the long term. Some people believe that encrypted payment is the ideal way for machine-to-machine payment in the future IoT era; similarly, in the AI boom, encrypted payment is also suitable for task settlement payment between AI Agrents. However, in this scenario, high-frequency, small-amount, and fast settlement is likely to become the most basic feature. Looking back at the present, these current smart contract platforms seem unable to meet the current needs of this scenario.
Friends who have been in the industry for a few years may be able to think of a term at this time: Lightning Network.
Yes, this type of scenario is indeed the application scenario envisioned by the original Lightning Network solution.
Return to the Vision: P2P Off-Chain Payments on the Bitcoin Technology Stack and Public Lightning Network
After many twists and turns, the direction is once again back to the Bitcoin technology stack. Of course, this does not mean that Bitcoin should be built into an electronic cash system again, but rather that we should try to absorb the advantages of Bitcoin's technology stack, make up for the shortcomings of the existing system, and build a true P2P payment infrastructure.
Bitcoin Technology Stack: PoW + UTXO
The PoW consensus mechanism and UTXO model are the core differences between Bitcoin and the current mainstream smart contract platform technology stack. In general, the main advantages of combining the two include:
● True decentralization: Through the PoW mechanism, all participants can compete on an equal footing, without relying on centralized institutions, ensuring the fairness and censorship resistance of the network.
● Security and anti-attack: PoW ensures that attackers require a lot of computing power, increases the cost of attack, enhances system security, and effectively resists 51% attacks.
● User-controlled assets: The UTXO model allows each user to directly control their own assets without having to trust a third party, which enhances the privacy and ownership of assets.
● Scalability: The UTXO model allows nodes to verify only specific transactions, which improves the scalability of the system and is especially efficient in transaction verification.
● Free competition and governance: Miners compete for rewards through personal efforts, and users can transfer assets freely without the permission of a central agency, which is in line with the concepts of libertarianism and decentralization.
Public Lightning Network Solution: Make P2P Vision Glorious Again
Bitcoin's base layer provides a secure, decentralized foundation for storing and transferring value. However, it faces limitations in scalability and transaction speed. To address these challenges, the Bitcoin community launched the Lightning Network, a second-layer solution that runs on top of the Bitcoin blockchain and has the following key advantages:
● Efficient small payments: Realize instant, low-cost and high-throughput small payments through off-chain payment channels, reduce the burden on the main chain, and are suitable for frequent transaction scenarios.
● Privacy protection: Transactions do not need to be broadcast publicly, providing a more private payment method and reducing the risk of surveillance of user financial activities.
● Disintermediation: Direct P2P payment channels eliminate intermediaries and promote true decentralized value transfer.
● Scalability: Supports higher transaction frequency and speed, solves the scalability problem of Bitcoin's basic layer, and is suitable for global payment needs.
● Promote new applications: Support machine-to-machine (M2M) payments and Internet of Things (IoT) interactions, expanding new payment and pricing models.
● Compatible with Bitcoin: As a second-layer solution for Bitcoin, it maintains the security and decentralization characteristics of Bitcoin.
However, one dilemma we cannot ignore is the poor development progress of the current Bitcoin Lightning Network. In the past two years, the capacity of the Bitcoin Lightning Network has fluctuated around 5,000 BTC and has stagnated. The number of channels has also continued to decline from a peak of 80,000 to around 48,000, and the current number of nodes is only about 13,000.
There may be two main reasons behind the poor progress: one is the lack of application scenarios, and the other is that Bitcoin itself is not a stable currency, making it difficult for ordinary people to use it for daily payments.
This may also be one of the original intentions of CKB to release Fiber Network. The design of Fiber is inspired by Bitcoin Lightning Network, and its goal is similar to that of Lightning Network, both of which are to provide a high-performance, low-cost micro-transaction payment network. However, Fiber Network does not intend to replace Lightning Network. The two are in a cooperative relationship, not a competitive relationship. As a latecomer, Fiber Network has some unique features that can more flexibly solve the current dilemma of Bitcoin Lightning Network:
● Based on Turing-complete CKB, it has more flexibility and can implement some functions and innovations that are difficult to implement on Bitcoin. This makes Fiber Network simpler than Lightning Network in some implementations and can solve some scenarios that Lightning Network is difficult to handle.
● The on-chain cost of CKB is lower than that of the Bitcoin network, so it also has more advantages in liquidity management.
● Supports multiple digital assets and user-defined tokens, including BTC, CKB and stablecoins.
In order to promote the implementation of P2P off-chain payment models such as the Lightning Network, CKB has proposed a public Lightning Network solution, which consists of three key parts:
● Create an interconnected and more inclusive Lightning Network universe: Advocate for the expansion of the Lightning Network beyond Bitcoin and encourage other blockchains to develop their own Lightning Network implementations. For example, CKB has launched the Fiber Network (CFN), Liquid also has a Lightning channel, and Cardano is developing Hydra. These different implementation plans are interoperable, thus creating a highly liquid global value network and facilitating the seamless transfer of assets between various channels.
● Expansion of Lightning Network nodes: Creating a globally distributed, censorship-resistant network through dedicated hardware devices, and encouraging users to set up their own nodes using personal devices and our open source software to make fast, low-cost payments on multiple blockchain networks.
● Build a P2P application ecosystem: By providing a fast, low-cost and scalable payment infrastructure, a wide range of innovative applications and services can be realized, thereby reshaping traditional business models and creating new opportunities for value creation and exchange. This may include DEX based on the Lightning Network, content platforms based on micro-transactions, etc.
At this point, perhaps we can roughly picture the P2P off-chain payment ecosystem that CKB aspires to build. It is completely different from the current mainstream EVM-based crypto ecosystem. It uses PoW+UTXO as the underlying technology stack of the entire ecosystem and the Lightning Network as the upper-layer application infrastructure, naturally forming a P2P payment infrastructure, and also perfectly meets our imagination of the real crypto payment model:
● High throughput: the natural advantage of Lightning Network off-chain channel payments.
● Low latency: Instantly confirmed off-chain transactions can achieve payment confirmation experience within seconds.
● Low cost: Reduce the frequency of on-chain transactions, reduce users’ transaction fees, and make small payments feasible and efficient.
● Privacy Protection: The Lightning Network’s off-chain payment channels allow for private transactions that are not broadcast to the public blockchain, without the stigma or risks associated with specific privacy coins.
At this time, the future landscape of crypto payments may be truly perfected. For whales to make large transfers, there is the Bitcoin mainnet, and ordinary users can still choose to transfer stablecoins on various public chains. For small-amount, high-frequency micropayments and even scenarios such as the Internet of Things and AI agents, there is a complete Lightning Network P2P off-chain payment infrastructure available.
Conclusion
From Bitcoin's P2P electronic cash system in 2008, to the on-chain payment of smart contract platforms such as Ethereum in 2014, to the combination of cryptocurrency and traditional payment systems today, the crypto payment model has undergone many evolutions, but has never been able to achieve the industry's ideal blueprint. Today, Nervos CKB bravely returns to Bitcoin's original vision, regains the core concept of the Lightning Network, and explores the possibility of P2P off-chain payment through the Fiber Network, promoting the actual implementation of this payment model. This not only completes the map of crypto payments, but also actively explores future payment scenarios, especially the Internet of Things and AI agent payments.
