Why not use the fabled "lightning network" layer as layer 1 if it functions as it should?

Is it not just a blockchain slapped on top of the slower blockchain?

Transactions are encoded into the blockchain to set up a "lightning channel" that incentivize the participants of off-chain transactions to correctly settle the net payments of the channel on the chain later. Only once it's set up on the blockchain can users use it for off-chain payments (which can be instantly confirmed and have much lower fees).

Once the channel is set up on the blockchain between two users and has some amount of bitcoin committed to it, the participants can securely transact between each other with only private communications between each other, without requiring transactions in the blockchain. When either user is done with the channel, either of them may broadcast the settlement transaction which withdraws the committed funds in the correct amounts to each participant. (Every time the participants make a transaction between each other, they create create a new settlement transaction, and a separate transaction which invalidates the previous settlement transaction. These are regular Bitcoin transactions, but they're held privately by the participants instead of being broadcast on the blockchain immediately. If either of the particpants tries to broadcast an earlier version of the settlement transaction, then the other participant can broadcast the invalidation transaction within a certain pre-agreed time, which rewards them the funds as punishment to the defector.)

Then the real fun comes from the "lightning network" part: if Alice wants to send funds to Charlie but has no open lightning channel to Charlie, but she knows that both her and Charlie have an open channel with Bob, then she can do an off-chain lightning transaction through Bob to Charlie, without any risk of Bob taking the funds for himself.

Importantly, the maximum net amount that can flow from A to B over the channel is capped at the amount which A contributes to the funding transaction.

The lightning network has no security (protection against double spend) on it's own. It relies on the underlying blockchain for that.

>The lightning network has no security (protection against double spend)

That's not true. By locking funds into a Lightning Network payment channel you solve the double spend problem _in the channel_ (the person receiving your payment knows that in order for you to double spend the channel, the payment recipient would need to approve the double spend). The risk of being double spent still exists on the underlying blockchain though, which is solved with a smart-contract structure that allows the counter party to the perpetrator of fraud to revoke a fraudulent double spend.

I think you misread my response, or maybe I wasn't clear, since I agree with you. I said the lightning network has no security on it's own. It requires an underlying blockchain on which to lock funds. Those underlying locked funds are what effectively secure the payments made on the lightning network channel.

What's a practical use case? It sounds like you have to deposit a balance into a lightning channel, meanwhile wait for the block to be accepted, and once the funds are in the channel any activity still needs to be verified by another block being processed and accepted into the main chain..

This process effectively doubles the required amount of transactions and time spent for the 'lightning' transaction to take place?

In Japan there are cards (and, indeed, your cell phone) that work exactly the same way. Debit cards don't really exist in Japan. Instead you buy a smart card (often the ones used for paying train or bus fares). You put some money on the card using a machine (you insert cash and it encodes the money on the card). Then you can flash the card onto a reader to pay for things (often train or bus fares, but in the past 10 years it has extended to vending machines, convenience stores, etc, etc).

Lightning is exactly the same way. You set up a contract with the payment processor. This requires the transaction to be accepted into a block. Then you make as many smaller transactions (which require no blockchain transactions) with the payment processor as you want. At any time, the payment processor can terminate the contract by cashing in the amount of money you have spent. This requires a transaction to be accepted in the block chain. After that the channel is closed and only the amount spent is transferred (the remaining amount is freed up). If it goes beyond the contract length without the payment processor cashing in, then the contract is cancelled and the total amount is freed up.

So basically it allows you to make many transactions through a payment processor, while only making 2 transactions on the block chain. Anyone can be a payment processor, but the protocol requires the payment processor to have capital equal to the transactions in process (they have to transfer funds to a third party before they get paid -- although they are guaranteed to get paid by the end of the contract).

It's actually a pretty slick protocol. Their website has a video with implementation details that explains exactly how it works: https://lightning.network/

Only two blockchain transactions, still costs multiple dollars right now.

No, once the channel is open, any number of transactions can happen within it as long as the net transfer from a party is less than the amount they committed to the channel. (I've made another post in this thread with a fuller explanation.)

The main use case is small payments. You open a channel locking X amount of funds, and then can send or receive small payments to/from other parties on the network without broadcasting those transactions to the blockchain or paying fees. The only thing that is required is a route connecting payment channels from sender to recipient. For example, if A has a channel with B, B has one with C, and C with D, then A can transact with B, C or D.

Here is some more information about what LN is doing: http://dev.lightning.community/overview/

Firstly, well the post I replied to implied that it was already there - AFAICT lightning is not in production use yet.

And secondly, frankly, I think Bitcoin dreadful for micropayments. It's really hard to get hold of for most people, requiring all sorts of setup and accounts.