Ethereum: Does a segwit based side chain like the lightning network allow for fractional reserve?

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Ethereum: Does a segwit-based side chain like the lightning Network Allow for Fractional Reserve?

As One Such Side Chain is The Ethereum Network’s Native Side Chain, which has Garnered significantly in recent Times. Specifically, I’m referring to segwit-based side chains like the lightning network.

What are segwit and side chains?

Before Diving Into This Topic, It’s Essential to Understand Two Fundamental Concepts:

• Segwit (Segregation of Weakly Validated Transactions) : Segwit Enables More Efficient and Scalable Validation Processes.

• Side Chains Several Advantages on Traditional Mainnets, Including Increased Scalability, Faster Transaction Processing Times, And Improved Security.

The Lightning Network: A Defi Side Chain

Craig Wright, The Australian Entrepreneur Behind The Lightning Network (LN), HAS Extensively Discussed His Vision for a Decentralized, Permissionless Finance System That Leverages Blockchain Technology. The LN is an open-source side chain that enables fast, cheap, and secure payments between users without the need for intermediaries.

The ln uses segregated fitness (segwit) to Validate Transactions, which Improves Transaction Validation Speed ​​and Reducces the Risk of 51% Attacks. This Feature Implications for Defi Applications, Including Lending, Borrowing, and Trading Platforms.

Fractional Reserve Banking

Now, let’s discuss how a chain like lightning Network Can Facilitation Fractional Reserve Banking:

* Fractional reserve : This practice Ensures Liquuidity and Reduces the Risk of Bank Runs.

. This process is facilitated through segwit, which Improves Transaction Validation Speed.

In this scenario:

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Benefits and Limitations

Including:

• Increased Accessibility to Financial Services

• Reduced Costs Associated With Traditional Banking Infrastructure

• Improved efficiency and scalability

However, there are also limitations to prospective:

* Regulatory Challenges : The use of blockchain technology in Defi Applications is Still Largely Unregulated.

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Conclusion

Network and Fractional Reserve Banking Offers A Promising Solution for Improving Financial Services. While Regulatory Challenges and Security Risks Excist, these can be mitigated through careful planning and implementation.