How Will The Lightning Network Affect Bitcoin Privacy?

Lightning offers faster and cheaper bitcoin transactions, but what is the catch? This is a question that has been hovering around the pages of cryptocurrency forums for a while now. Many of bitcoin’s users were drawn to it not just for the financial sovereignty it promises but also because of the privacy and anonymity it is known for. However, there is a huge divide between the vision and the reality of bitcoin as well as other cryptocurrencies where user transactions must still be published to a globally distributed ledger (blockchain). This particular issue has long been a huge point of controversy for cryptocurrency users.

This is where the Lightning Network comes in – the new innovative technology intends to give bitcoin and altcoin users a whole new way of making transactions. The idea seems quite promising especially considering the fact that the Lightning Network-powered transactions will occur ‘off-chain’ which implies that the information will not be included on the globally distributed ledger that is stored by the nodes of the network.

In essence, there is no actual Lightning ledger, per se, and thus payments are still broadcast across the nodes within the network. Basically, to ensure that routing is always available, the Lightning channel users are required to trust other network users in order to help relay the transactions. There have been a number of concerns that have been raised regarding the degradation of privacy in the already imperfect state of bitcoin and this case is one of the areas that have caused the doubt.

Where the Divide Begins

In many ways, the concept of the Lightning Network makes it possible for the participants to pry on transactions in the system – the information can then be potentially sold to interested parties such as advertisers or even governments.

“Bitcoin is Twitter for your bank account. Everything is public to everyone,” Ian Miers, the co-founder of the privacy-centric cryptocurrency Zcash, said in an interview with CoinDesk. “Lightning likely won’t improve privacy, it may make it much worse from an average consumer’s perspective.”

As it stands, there have been mixed sentiments as to which path bitcoin transactions will take thanks to the uncertainty revolving around it coupled with the tremendous amount of effort being put in by Lightning Network’s developers to add as many privacy features as possible to the platform. One thing is for sure though – without banking too much on the speculations about the tech, it is quite clear that the risk to user privacy will only manifest or be seen once the network is deployed. But, who is willing to take that risk? Perhaps some reassuring features are needed to convince users to try it out;

Onion Routing

This is the, by far, the most advanced feature that the Lightning Network offers. It is part of the Basics of Lightning Technology (BOLT) which is a series of protocols that are meant to guarantee the interoperability of multiple iterations of Lightning. Onion routing works by allowing payments to pass through multiple channels but only minimum information about the payment is exposed.

Onion routing is synonymous with the Tor network and this has often seen it hailed as the darknet for bitcoin payments. Being that it is still yet to be tested, it could not only present its only challenges but also inherit some of the problems that are native to the Tor network itself.