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

by James · April 20, 2023

Do you want Bitcoin to be the “money of the future” or a speculative trading tool? It cannot be useful as both. Likewise, you don’t want too much Bitcoin locked up in future or promised payments. This is where the effectiveness of nLocktime and payment channels come in, in session 2 of the latest The Bitcoin Masterclasses series with Dr. Craig S. Wright.

Why locking away consumer value is bad

You get some pretty big numbers when you look at how much money is moving around the global economy. Cash transactions alone (N1 base money and below) averaged 163.9 million per second in 2022, peaking at 2.7 million per second – worth around US$17 trillion. Cash is only a small percentage of all transactions, which were close to 21 trillion per second.

Dr. Wright points out that Bitcoin “going to the moon” (ie dramatically rising market price) makes it less useful. If a single satoshi unit is worth US$10,000, “you don’t buy a coffee with that satan.” Price speculation causes Bitcoin value to be “locked away” rather than spent, which in turn would (hypothetically) remove a huge amount of activity from the global economy if Bitcoin were to replace cash.

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

Believing you are rich because you have a gold nugget is a communist idea because real wealth comes from your ability to buy goods and services with something more liquid. “Trotsky would have loved them…crypto-libertarians my ass,” he says of BTC fans and those who prefer to keep their spending locked up this way. Even (so-called) communist China is smart enough to realize this, and favors mercantilism and trade.

Payment channels

“Money in circulation is wealth.” We need to build payment channels that are secure and in a way that allows money to still move around.

Dr. Wright gives the example of a possible payment channel for a car, where ownership is divided into tokenized “shares.” Participants in the channel can be the seller and the owner, as well as the financier, an insurance company and a service mechanic. Various conditions will be written into the contract that determine payments and their amounts, which may change depending on real-world events. The ultimate goal may be a buyer’s complete ownership of all shares, or it may be a leasing arrangement, but times and amounts may be adjusted along the way.

This is just one example, and you may not like the idea – but it is simply a demonstration of how complex contracts can be automated and used in any situation. Best of all, it doesn’t have to “lock away” monetary value in upfront payments (as CLTV would).

We can use nLocktime to “structure things without hooking you up.” We want to set up a series of (financial) states, each of which changes conditions and amounts and will include completed payments along the way, leading towards the final desired state. Payments can also be automated, meaning they don’t necessarily require individual approvals or signatures.

He also makes the interesting point that Bitcoin contracts may borrow some ideas from older “alternative finance” traditions, such as Islamic finance, and their various contractual/contingent 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 a functioning society. As Dr. Wright says, Bitcoin is not designed for the post-apocalypse and probably won’t work as well in that situation as some think. Instead, it should hand that complexity over to developers and automation, ultimately making life easier.

See: Bitcoin Masterclasses on accounting and mapping transactions on the chain

New to Bitcoin? Check out CoinGeeks Bitcoin for beginners section, the ultimate resource guide for learning more about Bitcoin – as originally envisioned by Satoshi Nakamoto – and blockchain.