The Lightning Network FAQ

[Wind_FURY]

Why aren't exchanges starting to run/operate their own Lightning nodes? The incentive is there.

I don't think they care about earning 0.2 BTC in several months, or 0.25% on withdrawing small transactions (they earn much more from the common 0.5 mBTC withdrawal fee).

And beyond that there will be time & infrastructure costs.
Unlike most of us, since they will be a bit more concerned with security (I hope...) their node is not going to be run on an RPi that was sitting around or a VM on a random desktop machine that has enough power to do it.
Going to need hardware, someone who knows what they are doing, redundancy, etc.

Going to be tough to justify the cost vs. profit.

-Dave

Then if adopted, will the Lightning Network's fees not be "unfairly cheap" forever? Is there some truth to what some people said that LN fees might be more than some altcoins' fees, because of limited capital, opportunity cost, and demand?

[LoyceV]

Then if adopted, will the Lightning Network's fees not be "unfairly cheap" forever?

Unlike on-chain transactions, off-chain transactions aren't limited in capacity, so market mechanisms should lead to an equilibrium between cost and profit. If fees go up a lot, new parties can join the LN-routing-market and fees will go down again until there's a new equilibrium.

Is there some truth to what some people said that LN fees might be more than some altcoins' fees, because of limited capital, opportunity cost, and demand?

Yes An XLM transaction for instance costs 0.00001 XLM, which is about $0.0000008 or 5 msat (0.00000000005 BTC). There's no chance and no need for Bitcoin to compete with this, because it's Bitcoin, and not some altcoin.

[Wind_FURY]

Then if adopted, will the Lightning Network's fees not be "unfairly cheap" forever?

Unlike on-chain transactions, off-chain transactions aren't limited in capacity, so market mechanisms should lead to an equilibrium between cost and profit. If fees go up a lot, new parties can join the LN-routing-market and fees will go down again until there's a new equilibrium.

Isn't that the same as mining, hashing power, and demand? Because offchain channels are also as limited as the amount of capital, the Bitcoins held, the users have.

Is there some truth to what some people said that LN fees might be more than some altcoins' fees, because of limited capital, opportunity cost, and demand?

Yes An XLM transaction for instance costs 0.00001 XLM, which is about $0.0000008 or 5 msat (0.00000000005 BTC). There's no chance and no need for Bitcoin to compete with this, because it's Bitcoin, and not some altcoin.

The "centralized shitcoin, with the broken incentives" comparison, but I understand your point.

[LoyceV]

Unlike on-chain transactions, off-chain transactions aren't limited in capacity, so market mechanisms should lead to an equilibrium between cost and profit. If fees go up a lot, new parties can join the LN-routing-market and fees will go down again until there's a new equilibrium.

Isn't that the same as mining, hashing power, and demand? Because offchain channels are also as limited as the amount of capital, the Bitcoins held, the users have.

No amount of hashing power, capital or earnings per block can increase the number of transactions Bitcoin can process (I'm ignoring small fluctuations until the next difficulty adjustment).
With LN, anyone with some coins can set up a node, which increases the number of available routes. The new node will need to connect to some nodes (or users). I've seen several offers from node-owners that pay to open a channel with them.

[Wind_FURY]

Unlike on-chain transactions, off-chain transactions aren't limited in capacity, so market mechanisms should lead to an equilibrium between cost and profit. If fees go up a lot, new parties can join the LN-routing-market and fees will go down again until there's a new equilibrium.

Isn't that the same as mining, hashing power, and demand? Because offchain channels are also as limited as the amount of capital, the Bitcoins held, the users have.

No amount of hashing power, capital or earnings per block can increase the number of transactions Bitcoin can process (I'm ignoring small fluctuations until the next difficulty adjustment).

With LN, anyone with some coins can set up a node, which increases the number of available routes. The new node will need to connect to some nodes (or users). I've seen several offers from node-owners that pay to open a channel with them.

I was talking more about on-chain, limited block space, if higher tx demand = higher fees. Off-chain, limited capital available, therefore limited payment channels, if higher tx demand = higher fees.

[jackg]

I was talking more about on-chain, limited block space, if higher tx demand = higher fees. Off-chain, limited capital available, therefore limited payment channels, if higher tx demand = higher fees.

I can't decide if this makes sense or if its just me, could you rephrase it?

There isn't a limited number of channels. When you open a channel you make a literal contract between you and the other nodes. If a node ups it's fees you'd just use a different node... Iff a payment processor or merchant charges too much for fees you'd just turn to a different one imo or complain to them and see if they'll reduce it (if your channel is open with them).

This is obviously different when using a custodial wallet but you don't have to use a custodial wallet and I'd the fees become too high then competition will likely increase...

[LoyceV]

I was talking more about on-chain, limited block space, if higher tx demand = higher fees. Off-chain, limited capital available, therefore limited payment channels, if higher tx demand = higher fees.

I can't decide if this makes sense or if its just me, could you rephrase it?

I don't think it makes sense Nodes will always be limited in funds, but they can send the funds they have back and forth many times. Nodes may require balancing at some point, if all their funds are "on one side" of their channels, but that can be done by adjusting fees: if there's a lot of funds on one side, routing could even be free as it helps the node. If there's not much funds left, fees can be high to encourage routes to pass through a node that has a better balance.

More demand will lead to more nodes, which gives more possible routes:

(Source: Visualisers of the Lightning Network)

Maybe it's better to compare LN with for instance mobile phone prices, and not with for instance oil prices. With oil, a higher demand leads to a higher price. With phones, producing a billion of them makes them a lot cheaper than producing only 1000.
I'd love to see how LN performs at a billion transactions per day

[Timelord2067]

I'd love to see how LN performs at a billion transactions per day

I can't shift $25 via LN except in < $1 transactions.  We're not there yet when it comes to capacity.

[LoyceV]

I can't shift $25 via LN except in < $1 transactions.

I don't have that much in one LN wallet, but I've just tested a $6 (37,500 sat) transaction from Phoenix Wallet (non custodial) to BlueWallet (custodial). This worked without problems, and arrived in seconds. I paid 4 sats in fees.

This seems to be a good moment to reopen my Liberated: LoyceV's Legendary Little Lightning Loans for some more testing

[jackg]

edit oops

I'd love to see how LN performs at a billion transactions per day

I can't shift $25 via LN except in < $1 transactions.  We're not there yet when it comes to capacity.

If you pm me or bump any thread (yours or mine in the lending section) with a $25 invoice I can try and test it out (though I might have a maintenance margin thing I have to adhere to with my new channels).

[darkv0rt3x]

Hello,

Do we have any command to check for how long my c-lightning node has been up an running?

Also, if I need to shutdown the node (or restart my laptop), channels remain open and everything keeps working, right?
So, does this off time, counts to kinda break the uptime record?

I mean, my c-lightning node has been running for quite some time now, but sometimes, internet connection goes down because laptop goes to sleep when in battery mode. Or when mains power fails and laptop is not on battery, the node goes down because laptop also shuts down. Does these situations counts as node being offline or what really counts is channels not going offline?

[jackg]

Also, if I need to shutdown the node (or restart my laptop), channels remain open and everything keeps working, right?
So, does this off time, counts to kinda break the uptime record?

If someone wants to close a channel and you're not online, the channel can still be closed anyway.

When not online:
people can't open a channel with you.
people can't cooperatively close a channel with you (so it might take around 14 days for their channels to close unless some sort of override kicks in when you're back online).

I think if an uptime/reliability record is kept, this will be factored into it.

If you stay offline for more than 14 days, someone can technically steal your funds (but I don't think it's likely you'll be offline for 14 consecutive days and you might have bigger problems if that happens).
Other than that, and if i've ever forgot to reload the app within 14 days - the remote node doesn't try to do anything malicious as they're incentivised not to...

[darkv0rt3x]

Also, if I need to shutdown the node (or restart my laptop), channels remain open and everything keeps working, right?
So, does this off time, counts to kinda break the uptime record?

If someone wants to close a channel and you're not online, the channel can still be closed anyway.

When not online:
people can't open a channel with you.
people can't cooperatively close a channel with you (so it might take around 14 days for their channels to close unless some sort of override kicks in when you're back online).

I think if an uptime/reliability record is kept, this will be factored into it.

If you stay offline for more than 14 days, someone can technically steal your funds (but I don't think it's likely you'll be offline for 14 consecutive days and you might have bigger problems if that happens).
Other than that, and if i've ever forgot to reload the app within 14 days - the remote node doesn't try to do anything malicious as they're incentivised not to...

Hum, I think I didn't make my question very clear. I'm sorry for that.

I was not looking to know about what happens if I'm offline and someone tries to open/close channels with me.
My question was rather if these down times count to reset the uptime record. I mean, let's say my node has been online non-stop for 12 days and for some reason, my node goes offline, or because mains power failed or because I needed to reboot the node or an other reason, if that record of 12 days is reset or not. Or if what matters is how long channels have been up and running!

[Wind_FURY]

I was talking more about on-chain, limited block space, if higher tx demand = higher fees. Off-chain, limited capital available, therefore limited payment channels, if higher tx demand = higher fees.

I can't decide if this makes sense or if its just me, could you rephrase it?

There isn't a limited number of channels. When you open a channel you make a literal contract between you and the other nodes. If a node ups it's fees you'd just use a different node... Iff a payment processor or merchant charges too much for fees you'd just turn to a different one imo or complain to them and see if they'll reduce it (if your channel is open with them).

This is obviously different when using a custodial wallet but you don't have to use a custodial wallet and I'd the fees become too high then competition will likely increase...

But payment channels, and their capacity, are actually limited by how much Bitcoin the people who run nodes hold, are limited by how much capital they want to open payment channels with, are limited with their technical-skills in how to maintain the node/balance channels.

That limitation, and increase in demand for LN transactions = higher fees?

[LoyceV]

But payment channels, and their capacity, are actually limited by how much Bitcoin the people who run nodes hold, are limited by how much capital they want to open payment channels with, are limited with their technical-skills in how to maintain the node/balance channels.

That limitation, and increase in demand for LN transactions = higher fees?

Let's compare it to Tether for a moment: it's 24h volume is more than twice it's market cap. Each coin is "used" several times per day. The same will happen for LN-nodes, and the same happens with actual dollar coins and banknotes too.

[Wind_FURY]

But payment channels, and their capacity, are actually limited by how much Bitcoin the people who run nodes hold, are limited by how much capital they want to open payment channels with, are limited with their technical-skills in how to maintain the node/balance channels.

That limitation, and increase in demand for LN transactions = higher fees?

Let's compare it to Tether for a moment: it's 24h volume is more than twice it's market cap. Each coin is "used" several times per day. The same will happen for LN-nodes, and the same happens with actual dollar coins and banknotes too.

I honestly don't understand why that comparison. Plus isn't the 24 hour volume from your link, trading volume, not transaction volume?

[DaveF]

But payment channels, and their capacity, are actually limited by how much Bitcoin the people who run nodes hold, are limited by how much capital they want to open payment channels with, are limited with their technical-skills in how to maintain the node/balance channels.

And if they are a smaller public node, like one of mine. If they have a need for the BTC someplace else.
I just moved all the funds out of one of nodes because I was to tired to deal with moving some funds out of cold storage.

It's part of the reason why commercial businesses are critical here IMO. They have a plan, they put the funds in and leave them there and keep them balanced.
Unlike Dave who puts them in and plays around and then pulls them to get a new laptop because the charging port on this one is wonky and going to fail sooner or later.

-Dave

[LoyceV]

I honestly don't understand why that comparison.

My point is: you don't need a large balance on a node to be able to make many transactions, as long as you have transactions in both directions.

Plus isn't the 24 hour volume from your link, trading volume, not transaction volume?

Yes. It may not have been the best example indeed. Here's another one: I think a node with 1 BTC in LN can process 10 BTC per day in transactions (given the right circumstances). At 0.25% fee that would earn 25 mBTC fees per day. Seeing this numbers makes me think it's not very likely to happen any time soon though, 0.25% is very high. For my last transaction I paid about 0.01% in fee. And that fee is for all nodes involved in the route.
If you can earn 1 mBTC by transfaring 10 BTC per day though a node that holds 1 BTC, it's still a pretty good profit.

[Wind_FURY]

But payment channels, and their capacity, are actually limited by how much Bitcoin the people who run nodes hold, are limited by how much capital they want to open payment channels with, are limited with their technical-skills in how to maintain the node/balance channels.

And if they are a smaller public node, like one of mine. If they have a need for the BTC someplace else.
I just moved all the funds out of one of nodes because I was to tired to deal with moving some funds out of cold storage.

It's part of the reason why commercial businesses are critical here IMO. They have a plan, they put the funds in and leave them there and keep them balanced.
Unlike Dave who puts them in and plays around and then pulls them to get a new laptop because the charging port on this one is wonky and going to fail sooner or later.

-Dave

That's it! That's the point! Because if the capital "invested" in LN payment channels could earn you profit, enough to make it have a feasible rate of "investment", then the more sensible thing to do is, leave the "investment" alone and look for another way to buy the new laptop.

Capital is limited. I believe the altruism that boot-strapped LN would be replaced by participants based on incentives.

[GGUL]

Yes. It may not have been the best example indeed. Here's another one: I think a node with 1 BTC in LN can process 10 BTC per day in transactions (given the right circumstances). At 0.25% fee that would earn 25 mBTC fees per day. Seeing this numbers makes me think it's not very likely to happen any time soon though, 0.25% is very high. For my last transaction I paid about 0.01% in fee. And that fee is for all nodes involved in the route.
If you can earn 1 mBTC by transfaring 10 BTC per day though a node that holds 1 BTC, it's still a pretty good profit.

Unfortunately, you are assuming the most fantastic scenario.

The math of LN Economics is pretty poor.

Let's consider the most efficient option: one LN node and many end users connected to this node.  The node must invest the same amount as all users do. If the node wants to earn 3% of the profit for the year, then all users will have to pay this 3%. That is, on average, each user will pay 3% per year of the amount invested in the channel. (The average route length will be 2).

As for me, this already raises doubts about the economic viability of the LN system.

If we consider a more distributed system of LN nodes, the average route length will increase. Accordingly, the investment efficiency will decrease. In order for nodes to earn 3% a year from their invested funds, users will already have to pay 2*3% or even 3*3% of their funds in the channel. The longer the average route length, the higher the coefficient.

"Super-cheap transactions in LN" and "LN-nodes that make a profit" are mutually exclusive things.

In 2017, there was an article dedicated to this issue.
https://medium.com/@jonaldfyookball/mathematical-proof-that-the-lightning-network-cannot-be-a-decentralized-bitcoin-scaling-solution-1b8147650800

Unfortunately, it was ignored by the Bitcoin community. Partly because they couldn't understand the math in the article. But more because the conclusions made in the article were unpleasant for LN fans.