Bitcoin Forum

Let's fast forward a bit into the future. As the title said, it is 2020 and the Lightning Network is fully implemented and a resounding success. The Mempool is basically empty, because all micro transactions are handled by the Lightning Network.

What happens next for the Miners?

They have been feasting on the high miners fees for a long time and with the Halving in +/- 119966 Blocks, their Block reward will also be reduced by 50%. < http://www.thehalvening.com/ >

How long until Bitcoin mining becomes unprofitable, if most miners fees would be eliminated by the introduction on the Lightning Network?

Will these miners have to change their business model? Running Lightning Network hubs to make up for the miners fees that they are going to lose?

Will increased adoption with the Lightning Network, increase settlement fees <on-chain>, when channels are opened and closed? Will this make up for the reduction of miners fees, because most micro transactions moved to channels in the Lightning Network?

Please share your views?  

I don't think LN will fundamentally change mining incentives. As you point out, there is the matter of opening, closing and funding channels. These require on-chain transactions. Even if a majority of network traffic goes to LN, a significant portion of network growth will still be on-chain.

For another thing, the security model of LN is different than Bitcoin. As I understand it, parties must be online and private keys are required to update settlement transactions. So your LN node is a essentially a "hot wallet" and shouldn't be used for value storage. I think most high-value transactions will probably remain on-chain. Also, the security of LN hash preimages is based on the idea that you can settle to the blockchain if your channel partner is dishonest. But if you can't get a settlement transaction confirmed on the blockchain before the timelock expires, you can't necessarily empty your channel before a thief can. In the context of high on-chain fees, that could prove significant.

So, even if we sidestep the matter of opening and closing channels, I think the differences in security model mean that LN payments are not interchangeable with BTC payments. There will always be a market for distributed and permanently stored payments/contracts/data on the blockchain.

You should take into account the possiblity that Bitcoin will be trading for a much higher
BTC/USD price by then. The block reward halving in 2020 reduces the sell pressure on the BTC
market and therefore high price levels will be able to be sustained more easily.

Therefore mining may actually be more profitable (or at least equally profitable, because the mining
market is highly competitive and in consequence often ends up in an equilibrium) in 2020 than it is now.
E.g. if 1 Bitcoin is trading for 60k $ by then the miners may actually make similar amounts of money as they
are making now even if the block reward is reduced by 50 %. The fiat price of BTC is obviously relevant, because
miners have to pay most expenses in fiat currency (electricity, staff, hardware...).

The incentive system of Bitcoin worked amazing for nearly a decade and I don´t see this
changing due to the introduction of the Lightning Network.

The have been feasting on high transaction fees for half a year or so. Before that transaction fees were negligible. Heck, 2 years ago the price of BTC was negligible compared to nowadays. So even accounting for the upcoming halving I wouldn't be to worried about the balance sheet of miners.



While Lightning Network will vastly improve Bitcoin's transaction throughput, keep in mind that overall adoption and thus the amount of transactions is also likely to increase significantly. This means while each individual will send less transactions on-chain, the overall demand for on-chain transactions will persist.

Also keep in mind that Bitcoin mining will always remain profitable. Worst case you'll see hashrate growing at a slower rate and a decrease in Bitcoin's power consumption.



Running LN nodes is unlikely to be profitable. It might be a nice little side income, but unlikely to be worthy of a business model.



The fees per kb for channel opening and closing transactions won't differ much from the fees per kb for regular on-chain transactions. But as mentioned above, you can expect an overall increase of userbase and thus transactions to offset the "loss" of transactions moving off-chain.

When the year is 2020, the Bitcoin environment will have to overcome the problems that have introduced with the Lightning network. Or maybe there will be some other technologies and no one will talk about lightning network.

It's the same as any competitive business: the ones with lowest cost survive. If it's not profitable to buy new mining equipment, the Bitcoin difficulty will rise less fast, which means older hardware can be used efficiently for a longer time. One way or another, it will be profitable for the remaining miners.
At current Bitcoin price, 6.25BTC per block is just over $10M per day. At the peak in December, miners earned up to $40M per day. I don't mind to see this drain of money from the Bitcoin ecosystem to be a bit less. Just a year ago miners earned much less.

I hope they do! The more hubs, the more competition. I don't think it will be centralized behind the Great Chinese Firewall though, as it requires fast internet instead of cheap electricity.

When I do the math on the number of settlements per person per year, blocks can still fill up quickly if Lightning Network is used by enough people.

I currently have more funds in hot wallets than I plan to keep on my LN node. If it's for daily expenses, I don't mind funding it with enough to last me a month. But indeed, long-term storage should always be cold.

I've been wondering for a long time now if a trade parner who received 1 Satoshi can force on-chain settlement of the channel. He has (almost) nothing to lose, while the other party must open a new channel and pay fees again. If this can happen, it needs some sort of spam protection. (this is just my speculation and lack of knowledge on this part)

I expect exchanges to run a node. Take for example a payment processor: someone uses LN to pay $10 in Bitcoin to a website. The payment is processed by a company that pays the webshop in dollars. This company earns 2 Satoshis in fees, and charges the website $0.50 for processing the payment.

Of course exchanges will run nodes, how else would they receive Lightning payments? Same goes for payment processors. This doesn't mean that running Lightning Network nodes in itself is going to be a viable business model. If a company earns 2 Satoshis in fees and then charges USD 0.50,- for processing the payment, the latter is its business, not the former.

There are currently 11404 Bitcoin nodes (https://bitnodes.earn.com/) worldwide. I don't think it will be any problem for nodes not to make large profit, just like nodes don't make a profit now either.

That was my point, indeed.

I've always felt, in part, that Bitcoin's price has been driven up by the cost of mining, in the sense that miners or holders set a price that makes a profit for them. I look at South Korea and Zimbabwe as supply examples, where their prices have always been above global average.

Despite the high costs of mining currently, remember that miners were already profitable even last year before Bitcoin made its bull run. I'm very sure they lock in profits to ride out low periods, not to mention all the merge mining going on... there's plenty of extra revenue coming in from the side alts market.

I agree: the incentive system has worked very well, and is probably still largely in favour of miners. Three years might seem a short period, but it's still probably too long for us to comprehend in terms of mining profitability.

In an alternative scenario where fees are simply too low to be profitable, I don't see why there wouldn't be miners voluntarily keeping operations going. just as they did when all this started. And when there are corporate and state interests, I can even foresee some setting aside budgets for the purpose of securing the network - thus securing their own Bitcoin-reliant businesses.

I don't see how this is the case. It seems some people are thinking that the lightning network will make on-chain transactions cheaper... I don't see how. Ultimately if LN is an huge success and people all over the world use it all day, it's going to get the mempool increasingly filled since the transactions sooner or later get settled into the blockchain.

I don't know to what capacity the blocks would be filled, but they will go up, and with this on-chain transaction fees. Will 1MB full blocks of LN activity will be enough to cover the entire world's needs? I haven't done the math, but I guess we will need to see it in practice. In any case, at this point im pretty certain Bitcoin will never hardfork and it's going to be 1MB forever, so devs will have to work with that.

So as a result, miners will actually make more money long term.

Mining profitability is actually self-balancing. The miners with the highest cost will stop first and as their hashing is removed the difficulty will retarget lower. The worst case scenario is that after the halving it takes a few weeks to sort itself out. As long as Bitcoin has value there will always be some reward in mining and the difficulty retarget will always ensure that it is profitable for enough miners to continue.

You should adjust your math to fit 2MB Blocks.  ::) {We have seen SegWit with 2MB blocks}  ;D

I also think that the Block sizes can still be "upgraded" in the future, if it becomes necessary. It is not necessary now, so they

settled for something a little more acceptable. Why would the developers stay with 2MB blocks, if the LN adoption grow so fast that

bigger Block sizes is needed? The volume of on-chain tx's will have to grow exponentially to necessitate a Block size

upgrade.  ;D

If smart contracts were eventually developed, would they be exclusive to Blockchain or could they use LNs? It seems to me that for store of value and Smart contracts the miners would be essential and irreplaceable at this time.

Nodes or LN hubs? So you are saying people will open channels and pay for that to basically support the network and not just to reduce fees on micro transactions for themselves, right?

Interesting angle to this discussion, because I have never thought about it like that. The people running full nodes now, have expenses at the moment, but they doing it voluntarily to support the network. ^Cool^

Bitcoin already has smart contracts, which is how the  Lightning Network works (https://rusty.ozlabs.org/?p=462) With Hashed Time Lock Contracts (HTLC)

Although it is not as fleshed out as on other altcoins like Ethereum, and seeing the fails of smart contracts on ETH, it's good idea to delegate smart contract to sidechains like Rootstock.

We will once again face a uphill battle to reach consensus to implement a Block size increase, like we had before SegWit.

The only difference will be that this would be a forced {emergency} situation that would need a prompt solution. Most

complaints/comments will come from the people that where pushing for bigger Blocks and they will say, "I told you so!"

The only difference is that without staying at the 1 MB blocksize limit, we wouldn't be able to force people to use SegWit. Even Coinbase claims that they will have 100% SegWit support by the middle of the next week. Increase of the blocksize will be mandatory in the future after Lightning Network becomes used by thousands of people. If we didn't go for SegWit, I guess we would be constantly raising the blocksize which would lead us to nothing. Don't like LN? Nobody forces you to use second layer. Current version of LN protocol has a limit of around 0.04 BTC per transaction which means it can't be used for bigger transfers.

Exactly. A blocksize increase should be seen as a last resort and only when all other options have been exhausted. Seeing how the mempool is currently close to empty while SegWit still only accounts for roughly 14% of transactions I'd say we still have some leeway, especially once Lightning Network becomes more widely adapted.

We now have a solid foundation for future scaling solutions. If Core had simply increased blocksize right away, SegWit and thus Lightning Network deployment would have been postponed with each subsequent inevitable blocksize increase. Businesses tend to externalize costs to the community wherever possible. Pollution in the case of industry, blockchain bloat in the case of crypto. Case in point: Coinbase not caring about batching transactions until just recently. Why should they? Blockchain space costs nothing to them, while implementing SegWit does. That is, unless they get flak by the community. And unless blockchain space gets accepted as the scarce resource that it is. So finally, here we are.

Nodes.

I expect so, yes. Bitcoin wouldn't exist without people who support the network.

I can imagine someone throwing 1 Bitcoin in a hub, getting a million transactions per year, and earning a million Satoshis (1% of his 1 Bitcoin). I have no idea how often this million transactions need onchain settlement though.

That's because it's still experimental and there is a chance to lose all funds you put in there.
I'm curious to see how this will develop in the future: if many exchanges support LN, I see no reason to keep any funds on a non-Lightning hot wallet anymore. It will be directly from on-chain cold storage to LN and if needed back to on-chain cold storage.

That's why I wrote "Current version", my point was that Lightning Network cannot be used for cheap transfers of bigger amount of BTC. It shouldn't be a huge problem as long as fees will stay as they are today. We all know that they are all rushing to make Lightning Network usable. Even though people know the risk, they are still trying to use Lightning Network because they understand how huge impact it will have on Bitcoin future.  I also can't wait to see the results.

I can imagine all (or most) of the 11,400 Bitcoin node operators thinking the exact same thing.

That would be 11 billion transactions that they'd need to process in aggregate to earn their 0.01 BTC. If we assume that a generous 600,000 per day vanilla on-chain transactions (i.e. 1 signer, 1 input, 2 outputs) are possible, then the 11 billion transactions needed to earn back that 0.01 BTC for each node would take around 50 years to occur at today's rates of use. Lightning could be far more utilised than that, that's just a little perspective based on historical demand and on-chain technical limits.


I can also imagine how much more popular it would be to run a Bitcoin node that routes Lightning transactions, if this really was such a big money spinner. Any significant profits will be, like with mining, limited to the first movers. Even now, there is at least one very well connected Lightning node that charges 0.001 satoshis per transaction.

Looking at most of the responses here, I reckon that my initial concerns might be valid. We are hoping for explosive growth and adoption to sustain both the Lightning Network and mining. The next question should be, "Would the benefits of the Lightning Network" be enough to attract that much attention and adoption?

I know the end goal is "Cheap/near instant Global micro transactions" but looking at the math, this might pose serious challenges, once this is achieved. Miners are running expensive ASIC intensive operations and this needs to be profitable for them to continue doing this. Shifting from ASIC based hardware to hardware focused on running Lightning Nodes, is not profitable.

This is why this technology is still highly experimental and should be classed as a high risk investment. ^hmmmmm^

Does anyone know when Lightning Network will be available?  This will be a good addition to Bitcoin. :)

Lightning Network is available on both mainnet and testnet. However, I can't recall any user friendly Lightning Network clients for mainnet. Most of them are still being developed so that is why they are configured to send and receive transactions on the testnet. I doubt that anyone would like to lose their bitcoins due to bug in the code. You can check the number of nodes and channels right here (https://lnmainnet.gaben.win/). Zap (https://zap.jackmallers.com/) is easy to use and it seems like it might be one of the first ready-to-use Lightning Network clients. I'm quite curious when will Trezor and Ledger start working on LN support. As far as I know, TorGuard accepts Lightning Network payments for their service. You might try to contact them to learn more if you are interested in their offer.

TorGaurd is taking huge risks by doing this, but they have given customers their word that they would refund people, if they lose any money, due to exploits in the Lightning Network. I think most people are just doing small "test" transactions now, to see how it will react in a live environment.

As a matter of fact, I believe their are even a limit on the amount that you can send & receive now, to protect people from themselves. ^smile^

Great marketing, I wouldn't be surprised if they gained a lot of new customers only because of Lightning Network mainnet payments. I have tested Lightning Network quite a lot on the testnet and at first I had mixed feelings. I opened a few channels with the biggest available nodes and some of my channels were closed without any particular reason after a few days. I have checked LN explorer and it turned out that it wasn't node's fault. However, it got better after some time, now all of my channels on the testnet are running without any problems. I didn't have enough courage to test it on the mainnet, though.

I think that is a great success.. however it is still unsure for some people... It isn’t it ???

It would be amazing to see the lightning network fully implemented throughout the blockchain by 2020. That is not far away if you think about it. If all goes to plan there will be no need for 99% of the current payment systems given its effect it will have on fees and transaction times

It will depend on the market. If BTC remains the king and the price goes to the moon, then all players will probably in happy mood.

Why would LN be a huge success?

https://medium.com/@jonaldfyookball/mathematical-proof-that-the-lightning-network-cannot-be-a-decentralized-bitcoin-scaling-solution-1b8147650800

Huge success = all big merchants using it, big transaction volume, etc. If Steam, Microsoft, Amazon, Ebay... etc, are all using it, and people are using it and the volume is huge, then it will be a success, irrespective of what Jonald Fyookball has to say.

Also on the technicals, im not sure how Fyookball can be right and Nick Szabo (a realistic satoshi candidate and an huge past in the crypto world) can be wrong:

http://bitcoinist.com/nick-szabo-bitcoin-censorship-resistance/

Of course there will always be a place for onchain transactions to be happened within the bitcoin network, but don't forget that the main that LN comes to handle is with the micro transactions, people who want to transact a small amount wouldn't really need the same amount of security that doing onchain transaction offers, and they will be okay with doing the transaction off-chain.

A big concern about LN network is that you would need to open a channel for each bitcoin address you have, which means that you won't be able to use multiple addresses- so you are losing anonymity and you are more open for security flaws as multi-signature addresses are not being supported within the LN network and you can only open channels with segwit addresses.
Not a big deal solution at all.
 

I think that a compromise will be found for the miners. However, small farms are likely to cease to exist. Home mining will not be profitable

The thing is, it is still very early days for this technology and people's expectations are possibly a bit too high. As the technology mature and more applications are developed, most of these problems will be solved. The Lightning Network was built on top of SegWit, so it is expected that SegWit addresses would be a requirement.

If it could be applied without SegWit, the guys at BCrash would have used it already. ^smile^

LN can be used without segwit actually. In fact it was almost assumed at some point that segwit would never get activated, and devs were working around this fact, possibly using Litecoin as a gateway to improve LN with a non-segwit Bitcoin, but as we know, it eventually got activated. This is what caused that big Litecoin dip, since as soon as Bitcoin got segwit, Litecoin went back into irrelevancy. I have nothing against Litecoin but that's just a fact.

I think LTC will still have a role in the future with further improvements that are delayed by miners and whatnot. It will be a test station for controversial updates before they go live.

Oh, that is news to me. I was under the impression that LiteCoin actually implemented SegWit before Bitcoin did. It also seems as though SegWit has been more successful on LiteCoin than on Bitcoin. LiteCoin Segregated Witness (SegWit) Adoption was at  99.8% out of 617 blocks, back in 2017-05-08 < Source :  http://litecoin-segwit.info/  >

I also read somewhere that SegWit had to be implemented for Lightning Network to work, but things might have changed since then. < I will brush up on that knowledge >

SegWit is not necessary for implementing Lightning Network, only fixing transaction malleability is (the very same issue that enabled the MtGox hack back in the day).

As for now, however, SegWit is the only available fix for transaction malleability on affected blockchains (I'm not sure if Ethereum is facing the same issue with Raiden, for example) so as a consequence SegWit is currently prerequesite for Lightning Network to work.

Mining will always be profitable, the system  is designed that way. Should the reward drop to near zero then some hashpower might leave the system, but it will only leave the system until it becomes profitable again.  I see higher difficulty as a good support for a higher BTC price.

As for LN; profit margins might get squeezed but there will always be people mining it. LN fees for off chain will probably be a reflection of the price of opening and closing a channel. Thus we will probably just spread the fees out. It doesn't make sense for me to let my channel run dry and close off and make less in fees than I did to open it. The same goes for if I want to make profit on it then my channel just  wont get used. The system will regulate itself to about the same price for an open/close.

Lightning I think also wont form as many hubs as people think. Remember channels will be closing as they are "used up" all the time, and committing 1000 BTC to a hot wallet just to have 10 000 channels is a really bad idea as well. Because, again if we want to make too much profit from it then user wallets will just not route through us. We have no way of enforcing the merchant to only have a channel with us. The merchant will probably have a ton of ones opening and closing all the time with various people.

The security risks associated with having a "lightning hub/ bank" will also prevent it from happening.  The above stated prevents you from outweighing the risk/reward ratio. As you scale up your reward wont go up much, but your risk certainly will

It would be much more viable for individual users to just commit their "spending BTC" to a channel in a peer to peer fashion on a decentralized small scale and use that.
I would also argue that even if  a hub does form that, my understanding is that the off chain consensus prevents the other side of your channel from playing dirty. i.e. lets say they want to censor you or steal your funds, you get their money as their punishment.  There might be a few more popular than the rest  channels but they would still not introduce any systematic risk to LN or the ecosystem as a whole.