user57478: I'm confused. 
I've watched the video The Lightning Network Explained (Litecoin/Bitcoin), and read the following comments by Craig Wright:

This occurs because schemes such as segregated witness allow for the
  introduction of fractional reserve systems into bitcoin. 
  [Sources: coingeek,
   SegWit and the Illusion of Scale]

From the video explanation of segwit/lightning it would seem that a bitcoin is required to open a payment channel and create the "IOU" that is used for the lightning transaction(s).
How can this be considered fractional reserve if there is a 1-to-1 mapping from bitcoins to payment channel balances?
It would actually seem to do the opposite and keep 3rd parties honest.
What am I missing?
Thanks.

user85: While the other answers have done a good job of explaining why the statement is misleading, I want to point out that it is technically true. Again, what he said was:

This occurs because schemes such as segregated witness allow for the introduction of fractional reserve systems into bitcoin.

And that's true. You could, if you wanted to, build a fractional reserve bitcoin system on top of segregated witness. Lightning is not such a system, but anyone who wanted to could build one. (And one could imagine a system very similar to Lightning that used SegWit the same way but that permitted fractional reserves.)
As for whether this is a rational reason to oppose segregated witness, I would argue that it's absolutely not. Any powerful feature or system can be used by other people to do things that we might prefer that they not do. If the fact that it could be used to build a fractional reserve system is a rational reason to oppose segregated witness, then that it could be used to fund terrorism is a rational reason to oppose bitcoin itself.

user48884: Craig Wright's statement is fundamentally incorrect. Craig Wright is often wrong; he spews nonsense and technobabble and doesn't seem to actually understand anything.
First of all, the Lightning Network is not a sidechain. It is a network of off-chain payment channels. Since each channel is directly funded with Bitcoin and the transactions made in the payment channel are Bitcoin transactions, there cannot possibly be a fractional reserve. You aren't missing anything, the articles are simply wrong.

user5406: A sidechain has its own blockchain which is coupled to the Bitcoin blockchain via a two-way peg. This allows tokens on the Bitcoin blockchain to be frozen in order to make new tokens available on the sidechain. In turn tokens on the sidechain can be either destroyed or frozen to move money back to the Bitcoin blockchain.
Lightning Network is not a sidechain. It's a second layer that builds on top of Bitcoin and uses the same tokens as Bitcoin. 
Channels are created by sending money into native 2-of-2 multisig addresses on the Bitcoin blockchain. After a channel is created by sending money to the mutually controlled address, the current state of a Lightning channel is stored in a pair of unconfirmed Bitcoin transactions. When one of the participants wants to close the channel, they can unilaterally broadcast the latest state to the Bitcoin network. When the exit-transaction is added to a block, the final state of the channel is executed. Alternatively, they can collaborate with their partner to close it.
Since the full Bitcoin balance of the Lightning channel is stored in the multisig address that established the channel,  all bitcoins are fully accounted for. Therefore, there is no fractional reserve in Lightning Network.

57478: <p>I'm confused. </p>

<p>I've watched the video <a href="https://www.youtube.com/watch?v=MpfvhiqFw7A" rel="nofollow noreferrer">The Lightning Network Explained (Litecoin/Bitcoin)</a>, and read the following comments by Craig Wright:</p>

<blockquote>
  <p>This occurs because schemes such as segregated witness allow for the
  introduction of fractional reserve systems into bitcoin. 
  <sub>[Sources: <a href="https://coingeek.com/problem-sidechains-craig-wrights-view/" rel="nofollow noreferrer">coingeek</a>,
   <a href="https://nchain.com/app/uploads/2017/07/SegWit-and-the-illusion-of-scale.pdf" rel="nofollow noreferrer">SegWit and the Illusion of Scale</a>]</sub></p>
</blockquote>

<p>From the video explanation of segwit/lightning it would seem that a bitcoin is required to open a payment channel and create the "IOU" that is used for the lightning transaction(s).</p>

<p>How can this be considered fractional reserve if there is a 1-to-1 mapping from bitcoins to payment channel balances?</p>

<p>It would actually seem to do the opposite and keep 3rd parties honest.</p>

<p>What am I missing?</p>

<p>Thanks.</p>
 85: <p>While the other answers have done a good job of explaining why the statement is misleading, I want to point out that it is technically true. Again, what he said was:</p>

<blockquote>
  <p>This occurs because schemes such as segregated witness allow for the introduction of fractional reserve systems into bitcoin.</p>
</blockquote>

<p>And that's true. You could, if you wanted to, build a fractional reserve bitcoin system on top of segregated witness. Lightning is <em>not</em> such a system, but anyone who wanted to could build one. (And one could imagine a system very similar to Lightning that used SegWit the same way but that permitted fractional reserves.)</p>

<p>As for whether this is a rational reason to oppose segregated witness, I would argue that it's absolutely not. <em>Any</em> powerful feature or system can be used by other people to do things that we might prefer that they not do. If the fact that it could be used to build a fractional reserve system is a rational reason to oppose segregated witness, then that it could be used to fund terrorism is a rational reason to oppose bitcoin itself.</p>
 48884: <p>Craig Wright's statement is fundamentally incorrect. Craig Wright is often wrong; he spews nonsense and technobabble and doesn't seem to actually understand anything.</p>

<p>First of all, the Lightning Network is not a sidechain. It is a network of off-chain payment channels. Since each channel is directly funded with Bitcoin and the transactions made in the payment channel are Bitcoin transactions, there cannot possibly be a fractional reserve. You aren't missing anything, the articles are simply wrong.</p>
 5406: <p>A sidechain has its own blockchain which is coupled to the Bitcoin blockchain via a two-way peg. This allows tokens on the Bitcoin blockchain to be frozen in order to make new tokens available on the sidechain. In turn tokens on the sidechain can be either destroyed or frozen to move money back to the Bitcoin blockchain.</p>

<p>Lightning Network is <em>not</em> a sidechain. It's a second layer that builds on top of Bitcoin and uses <em>the same tokens</em> as Bitcoin. 
Channels are created by sending money into native 2-of-2 multisig addresses on the Bitcoin blockchain. After a channel is created by sending money to the mutually controlled address, the current state of a Lightning channel is stored in a pair of unconfirmed Bitcoin transactions. When one of the participants wants to close the channel, they can unilaterally broadcast the latest state to the Bitcoin network. When the exit-transaction is added to a block, the final state of the channel is executed. Alternatively, they can collaborate with their partner to close it.</p>

<p>Since the full Bitcoin balance of the Lightning channel is stored in the multisig address that established the channel,  all bitcoins are fully accounted for. Therefore, there is no fractional reserve in Lightning Network.</p>
