Thread by @AdrianoFeria

1/A lot of Bitcoiners are unaware that Strike (the wallet used to distribute BTC in El Salvador) is a custodial service. Others are spreading the narrative that Strike preserves the properties of the LN because it is built on top of it; this is incorrect.

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2/Strike is using the LN for their internal operations (multiparty channels). This does NOT mean that they offer the same fundamental properties of the LN to the end-users. Strike controls all private keys, and users NEVER have access to keys unless funds are withdrawn.

3/This is not different from any other custodial service that also allows users withdraw their crypto balance. The use of the LN for operations is only significant in reducing operational costs and providing the same service banks offer for a potentially cheaper

4/price, but with similar risks and restrictions.

Risks/issues of Strike:
-Requires some level of KYC
-Not permissionless or censorship resistant (there are NO guarantees against balance restrictions/seizure/service disruptions)
-Running on their own centralized network.

5/The LN is only used internally, user communication is done exclusively via Stike’s servers. A disruption of EITHER the LN or Strike’s servers would cause temporary or potentially permanent access to funds.
-They are operating with hot wallets (this is riskier than custodial

6/wrapped BTC alternatives like BitGo’s wBTC because reserves are stored in cold wallets). If funds are compromised, then users lose their balances.

The good news is that users are allowed to withdraw their balances from Strike. The bad news is that the cost of doing so is

7/extremely high, the LN itself is less than ideal to allow for mass adoption, and its technology (payment channels) can be severely bottlenecked by BTC’s L1.

The LN is fundamentally a P2P permissionless protocol, but it has serious drawbacks that, when combined with a

8/bottlenecked L1, is not suitable for mass adoption. These are the main things we need to know about it:
+It is a P2P permissionless protocol
+Trx cost is extremely low, but that is not taking into account the overhead of opening/closing a channel.
+Users CAN recover funds if

9/access to the LN service interrupted (or if the network itself goes down) as long as unpublished trxs have been safekept
-It works like a staging area for BTC (opening/closing channels require users to commit funds in advance and transact directly on L1)
-The channel dynamic

10/does not work well for unidirectional payments (like periodically saving X% of income)
-Potentially bottlenecked by L1 because of the issues mentioned above
-Data availability risk (users must safekeep data and/or trust on a third party to do it for them)
-A practical

11/implementation for mass adoption leads to centralization via channel hubs. This has a negative impact on permissionless, censorship resistance, etc.

Let's run some number:
Bitcoin’s 90-day running avg of median trx cost is ~$7.72. The trx cost can be lower when executed in

12/batches by centralized services, but it would still be significant. The cost of single/batched trxs would increase significantly if all El Salvadorians decided to do self-custody (even if using the LN). Now let’s imagine a scenario where ⅓ of El Salvador’s population is using

13/LN and saving 10% of their monthly salary. This would require at least 16% of the total trx capacity of the BTC network, which is already operating at full capacity. This is the impact of mass adoption for just a miniscule country with a population of ~6 million. Imagine what

14/it would be like for global adoption considering that the world population is ~7.6 billion (roughly 1,000 times more than El Salvador). BTC and the LN are grossly insufficient to provide a self-custody alternative (even if it is used just for savings)!

15/Long story short, considering the current state of BTC and LN, we are on track to going back to a monetary system that operates almost identically to what the gold standard was, and destined to fail in the exact same way.