Strike and Lightning Network Issues Highlighted by the El Salvador Integration
A narrative has been making rounds that Strike preserves the LN properties because it is built on top of it. The information is, however, incorrect. To this effect, many Bitcoiners do not know that the wallet is a custodial service.
Strike, the largest digital wallet on the Bitcoin Lightning Network welcomed last month’s law announcing its adoption by the U.S. currency of Bitcoin as a legal tender for El Salvador as the first sovereign nation in the world. This action helped unlock Bitcoin’s power and potential for day-to-day use on an open network benefiting individuals, companies, and public services.
Strike and Bitcoin’s Lightning Network
For example, when Strike got into El Salvador, it allowed clients to immediately and for free transfer global payments via the Lightning Network.
Strike wallet is using the Lightning Network for its internal operations (multiparty channels). However, it does not mean that they offer the same fundamental properties of the LN to the end-users. For example, strike controls all private keys, and users never have access to keys unless funds are withdrawn.
No other custodial provider, also allowing consumers to remove their crypto-balance, differs. In reducing operating costs and delivering the same services, the Lightning Network is important for operations but with the same risks and constraints, such as KYC requirements.
The Lightning Network is utilized internally only; user communication only takes place via Strike servers. Storing LN and Strike servers would result in the access to funding being temporary or may be permanent. Additionally, they work with hot wallet systems (this is riskier than BTC-wrapped custodial alternatives such as BitGo wBTC because reserves in cold wallets are stored). If funds are compromised, then users lose their balances.
Destined to Fail?
The good news is that users can withdraw their Strike balances. The bad news is that the cost is quite important, the LN itself is less than suitable for large numbers of people, and BTC’s L1 can seriously affect its technology (payment channels).
The LN is primarily a P2P non-permit protocol but has major inconveniences that are not fit for mass adoption combined with a bottlenecked L1.
Given the current status of BTC and LN, we are on the path to a monetary system that works much the same as the gold standard and which is bound to fall the same way.
On the other hand, Strike’s mission is to develop a more connected financial world through the easy access and use of the Bitcoin network. In the coming months, Strike aims to reach other markets. When governments realize the advantage of Bitcoin technologies such as Strike in terms of financial efficiency and inclusivity, they desire to follow in El Salvador’s footsteps.