Early Days of the Internet Similar to Bitcoin – Bitcoin Magazine
This is a transcribed excerpt of the “Bitcoin Magazine Podcast”, hosted by P and Q. In this episode they are joined by Nate of Voltage to talk about how the Lightning Network can transfer value instantly between two parties without having to involve an intermediary. The Lightning Network will allow the Bitcoin network to scale exponentially into the world of payments.
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Q: What does “Layer 2” mean? Can we equate it and give examples back to today’s internet infrastructure and how we interact with it to make it digestible? I found the explanation to be most helpful.
Nate: So the internet is decentralized information. Bitcoin is decentralized money. When the internet was first put together by geniuses 40-50 years ago, they were [engineers] were just happy to send bits and bytes to various colleges. None of them had any idea about music streaming, video streaming, what we’re doing right now, none of that was possible.
Different protocol layers had to be built on the Internet on the TCP/IP protocol. I’m no expert on it, but what we’re doing right now is interacting with five or six layers of the basic internet protocol. It increases things like throughput, bandwidth and quality, all that sort of thing.
So the internet is this layered cake that you can visualize. You can Google “internet protocol layer” and I’m pretty sure there’s some cool graphics for that. And Bitcoin is only a little over 12 years old now or something? Layer 1 is great. It is very safe. It’s immutable, censorship resistant, all these really cool features. But the throughput has a problem if you put global finance on top of it.
Layer 2 is this idea where you can do bitcoin transactions without having to fill the blocks or stick the pipes in the base layer. We can still have that security apparatus in a way, but also get immediate settlement and finality without having to interact with it [base layer]. The Lightning Network is one proposal for that block.
Blockstream has something called the Liquid Network where you basically just transfer bitcoin from the Bitcoin base – you don’t actually do that, but it helps you visualize it. Lightning is similar but different because Lightning has this kind of node gossip network system. It’s just about taking the same concept that worked for the internet and applying it to this new money because bitcoin is the money of the internet, but it’s also the internet of money in that sense.