For payment channels, it is better to use nLocktime on BSV: The Bitcoin Masterclasses #4 with Dr. Craig Wright

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Do you want Bitcoin to be the “money of the future” or a speculative trading asset? It can’t be useful at the same time. Likewise, you don’t want too many Bitcoins locked up in the future or promised payouts. This is where the efficiency of nLocktime and payment channels comes in, in Session 2 of the latest The Bitcoin Masterclasses series with Dr. Craig S. Wright.

Why it’s bad to lock in the value of expenses

You get some pretty big numbers by looking at how much money is circulating in the global economy. Cash transactions alone (base currency N1 and below) averaged 163.9 million per second in 2022, peaking at 2.7 million per second, worth around $17 trillion. Cash represents only a tiny percentage of all transactions, which were closer to 21 trillion per second.

Dr. Wright points out that bitcoin “going to the moon” (i.e., significantly increasing the market price) makes it less useful. If a single unit of satoshi is worth $10,000, “you won’t buy coffee with that satoshi”. Price speculation causes the value of Bitcoin to be “locked in” rather than used, which in turn would (hypothetically) remove an enormous amount of activity from the global economy if Bitcoin were to replace cash.

Money sitting on the chain also does nothing, for example, in future payments locked to the BTC network (known as CLTV, or “CheckLockTimeVerify”). The BSV protocol, as usual, has much better ways of doing this.

To think that you are rich because you have a piece of gold is a communist idea because real wealth comes from your ability to buy goods and services with something more liquid. “Trotsky would love them… crypto libertarians my ass,” he says of BTC fans and those who prefer to keep spending value locked away like that. Even (so-called) communist China is smart enough to realize this, promoting profiteering and commerce.

Payment channels

“Money in circulation is wealth.” We need to build payment channels that are secure and in a way that money can always flow.

Dr. Wright gives the example of a possible payment channel for a car, where ownership is divided into tokenized “shares”. Channel participants could include the seller and owner, as well as the financier, an insurance company, and a service mechanic. Various terms would be written into the contract that determine the payouts and their amounts, which could change based on real-world events. The ultimate goal could be full ownership of all shares by the buyer, or it could be a lease agreement, but terms and amounts can be adjusted along the way.

This is just one example, and you may or may not like the idea, but it’s simply a demonstration of how complex contracts can be automated and applied to any situation. Best of all, it doesn’t need to “lock” the monetary value of prepayments (like CLTV would).

We can use nLocktime to “structure things without tying you to the chain”. We want to implement a variety of (financial) statements, each of which changes terms and amounts and would include payments made along the way, leading to the desired end state. Payments can also be automated, meaning they don’t necessarily require individual approvals or signatures.

He also points out that Bitcoin contracts can borrow some ideas from older “alternative finance” traditions, such as Islamic finance, and their various contractual/conditional features.

The complexity of these arrangements can be confusing to the average person, but the fact is that our lives are already full of such complicated arrangements. It is part of living in the modern world and of a functioning society. As Dr. Wright says, Bitcoin is not designed for the post-apocalypse and probably wouldn’t perform as well in that situation as some people think. Instead, it’s supposed to pass that complexity on to developers and automation, making life easier.

Watch: The Bitcoin Masterclasses on On-Chain Transaction Accounting and Mapping

New to Bitcoin? Check out CoinGeek’s Bitcoin for Beginners section, the ultimate resource guide to learn more about the Bitcoinas originally envisioned by Satoshi Nakamoto and blockchain.

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