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Author Topic: The year is 2020 - Lightning Network is a huge success! What now?  (Read 527 times)
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February 20, 2018, 06:24:36 AM
 #1

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?  

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February 20, 2018, 08:07:48 AM
Merited by achow101 (2), exstasie (2), Samarkand (2), djangocoin (1), Xynerise (1)
 #2

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.

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February 20, 2018, 09:21:40 AM
 #3

...
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?

...

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.
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February 20, 2018, 11:10:57 AM
 #4

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/ >

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.


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

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.


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?

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.


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?

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.

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February 20, 2018, 11:30:01 AM
 #5

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.
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February 20, 2018, 11:48:05 AM
 #6

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

Quote
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?
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.

Quote
Will increased adoption with the Lightning Network, increase settlement fees <on-chain>, when channels are opened and closed?
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.

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 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.

Quote
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.
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)

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.
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.

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February 20, 2018, 12:31:41 PM
 #7

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.
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.

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February 20, 2018, 12:44:45 PM
 #8

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.
There are currently 11404 Bitcoin nodes 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.

Quote
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.
That was my point, indeed.

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February 20, 2018, 01:49:20 PM
 #9

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.


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.

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February 20, 2018, 03:02:32 PM
Merited by exstasie (1)
 #10

The Mempool is basically empty, because all micro transactions are handled by the Lightning Network.


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.

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February 20, 2018, 03:10:17 PM
 #11

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.

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.


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February 20, 2018, 03:22:03 PM
 #12

The Mempool is basically empty, because all micro transactions are handled by the Lightning Network.


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.

You should adjust your math to fit 2MB Blocks.  Roll Eyes {We have seen SegWit with 2MB blocks}  Grin

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.  Grin

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February 20, 2018, 03:59:48 PM
 #13

Miners will be fine because you still need on-chain transaction to open/close channel and refill user funds, also i'm sure very few bitcoiner choose on-chain transaction. Mining won't dead since miner with old equipment with high electricity/maintenance fees and others will survive since the difficulty might be reduced.

The Mempool is basically empty, because all micro transactions are handled by the Lightning Network.


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.

You should adjust your math to fit 2MB Blocks.  Roll Eyes {We have seen SegWit with 2MB blocks}  Grin

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.  Grin

Increasing block size will be necessary when more people use Bitcoin, even if majority use LN and rarely open/close channel and refill balance (according to LN whitepaper). Also, i'm sure in future normal folks can run full nodes even with increased block size/weight since i'm sure computer/server price will be cheaper and faster.
But surely someone need to do more research about risks/benefits of increasing block size or we will see some people complain about it.

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February 20, 2018, 08:46:15 PM
 #14



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.

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.

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February 21, 2018, 05:16:07 AM
 #15

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.
There are currently 11404 Bitcoin nodes 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.

Quote
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.
That was my point, indeed.

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^

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February 21, 2018, 05:42:30 AM
Merited by DannyHamilton (2), achow101 (2), exstasie (1)
 #16


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.
Bitcoin already has smart contracts, which is how the Lightning Network works 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.

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February 21, 2018, 03:47:51 PM
 #17

Miners will be fine because you still need on-chain transaction to open/close channel and refill user funds, also i'm sure very few bitcoiner choose on-chain transaction. Mining won't dead since miner with old equipment with high electricity/maintenance fees and others will survive since the difficulty might be reduced.

The Mempool is basically empty, because all micro transactions are handled by the Lightning Network.


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.

You should adjust your math to fit 2MB Blocks.  Roll Eyes {We have seen SegWit with 2MB blocks}  Grin

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.  Grin

Increasing block size will be necessary when more people use Bitcoin, even if majority use LN and rarely open/close channel and refill balance (according to LN whitepaper). Also, i'm sure in future normal folks can run full nodes even with increased block size/weight since i'm sure computer/server price will be cheaper and faster.
But surely someone need to do more research about risks/benefits of increasing block size or we will see some people complain about it.

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!"

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February 21, 2018, 04:01:18 PM
 #18

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.
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February 21, 2018, 05:36:30 PM
Merited by Carlton Banks (2)
 #19

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. [...]

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.

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February 21, 2018, 06:56:04 PM
 #20

Nodes or LN hubs?
Nodes.

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

Quote
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^
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.

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.
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.

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