The Lightning Network FAQ

[ChiBitCTy]

Great thread!!

This post  ( or maybe more so the medium article ) would make for a nice addition to the OP IMO.  At the very least I’ve never seen LN explained so simply so I wanted to share here.. https://bitcointalk.org/index.php?topic=2852931.msg29271658#msg29271658 . 

Cheers

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[Wind_FURY]

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The coins you collect from routing fees can support the expenses/costs of running your Lightning node? Hard to believe, but that's good.

It's not hard to believe that the fees you collect from forwarding can support your paying fees. You just need to not connect to 4999ppm fees charging peers...
Moreover I've no infrastructure cost. And not doing altruistically takes the service or instant non-censurable payments into account .

Plus do you think that Lightning's fee-structure now is in its final form? It won't increase depending on demand? Because it's very hard to assume that it won't if the economic cost is scarce.

I'm not sure so.. I don't know.

Visualize this. Bitcoin's adoption rate reached 10% of the world's population, the Lightning Network is the standard for instant payment, demand for inbound capacity has increased exponentially, economic cost for it is a scarce/valuable asset.

Ok, I think (/hope?) that at some point the demand will switch from inbound to outbound capacity.

This statement, straight from Alex Bosworth. He is Lightning Lab's lead developer of infrastructure for those of you who don't know.

Lightning fees will not be consistently low?

https://twitter.com/alexbosworth/status/1223999520532463617

I'm glad a lot of routing nodes have wound up setting their fees to high rates. When LN was first launching I worried that we'd see a repeat of the magical thinking from the on-chain days that no fees would exist. A realistic future fee market will include low fees and high fees.

[fillippone]

This statement, straight from Alex Bosworth. He is Lightning Lab's lead developer of infrastructure for those of you who don't know.

Lightning fees will not be consistently low?

https://twitter.com/alexbosworth/status/1223999520532463617

I'm glad a lot of routing nodes have wound up setting their fees to high rates. When LN was first launching I worried that we'd see a repeat of the magical thinking from the on-chain days that no fees would exist. A realistic future fee market will include low fees and high fees.

On chain fees are the result of a market for the space in the block.
Off chain fees are the result of a market for fast confirmations and UTXO privacy.

I have no problem with fees (on or off chain) being significantly away from zero.
I have problems with someone "setting" fees (on or off chain) high (or low, for what it is worth).

[Wind_FURY]

This statement, straight from Alex Bosworth. He is Lightning Lab's lead developer of infrastructure for those of you who don't know.

Lightning fees will not be consistently low?

https://twitter.com/alexbosworth/status/1223999520532463617

I'm glad a lot of routing nodes have wound up setting their fees to high rates. When LN was first launching I worried that we'd see a repeat of the magical thinking from the on-chain days that no fees would exist. A realistic future fee market will include low fees and high fees.

On chain fees are the result of a market for the space in the block.
Off chain fees are the result of a market for fast confirmations and UTXO privacy.

I have no problem with fees (on or off chain) being significantly away from zero.
I have problems with someone "setting" fees (on or off chain) high (or low, for what it is worth).

Off-chain fees are a result of Bitcoins, a scarce asset, staked/locked in channels to provide liquidity in Lightning. There's an opportunity cost for staking/locking the asset, which is also your capital. You HAVE to earn something.

[fillippone]

This statement, straight from Alex Bosworth. He is Lightning Lab's lead developer of infrastructure for those of you who don't know.

Lightning fees will not be consistently low?

https://twitter.com/alexbosworth/status/1223999520532463617

I'm glad a lot of routing nodes have wound up setting their fees to high rates. When LN was first launching I worried that we'd see a repeat of the magical thinking from the on-chain days that no fees would exist. A realistic future fee market will include low fees and high fees.

On chain fees are the result of a market for the space in the block.
Off chain fees are the result of a market for fast confirmations and UTXO privacy.

I have no problem with fees (on or off chain) being significantly away from zero.
I have problems with someone "setting" fees (on or off chain) high (or low, for what it is worth).

Off-chain fees are a result of Bitcoins, a scarce asset, staked/locked in channels to provide liquidity in Lightning. There's an opportunity cost.

Not sure where is the opportunity cost. Which one are you referring to? lending bitcoins? this is something very risky. Opportunity cost has to do with risk-free (or near-risk free) alternatives.

[Wind_FURY]

I edited my post to make the point clearer. Opportunity costs are missed occasions to earn more for your working capital, your Bitcoins, because they are commited somewhere else, staked/locked in Lightning.

[Carlton Banks]

You HAVE to earn something.

no


please listen, I am telling you the following for the second time:

some people will happily eat the opportunity cost as a way to pay for the privacy benefits lightning channels can offer.


please stop beating this horse, it was dead before you began (although perhaps you could explain why you don't want to listen to anyone?)

[fillippone]

You HAVE to earn something.

no


please listen, I am telling you the following for the second time:

some people will happily eat the opportunity cost as a way to pay for the privacy benefits lightning channels can offer.


please stop beating this horse, it was dead before you began (although perhaps you could explain why you don't want to listen to anyone?)

My point is indeed that isn’t even an opportunity cost.
Staking reward is something that is completely orthogonal to bitcoin protocol.

[LoyceV]

Lightning fees will not be consistently low?

It makes sense: Bitcoin fees only went up because there were more transactions than the blockchain can process. With LN, that shouldn't be a problem. If there's a free market, nodes can charge whatever they want. And if fees get too high, others will join the market to compete with lower fees.
If the LN networks works well, wallets should take the cheapest possible route, which incentivizes nodes to be compatitive.

[Wind_FURY]

You HAVE to earn something.

no


please listen, I am telling you the following for the second time:

some people will happily eat the opportunity cost as a way to pay for the privacy benefits lightning channels can offer.

We don't know that. The asset used for opening channels are scarce, and when the demand for inbound capacity increases, the fee market will play out.

please stop beating this horse, it was dead before you began (although perhaps you could explain why you don't want to listen to anyone?)

Alex Bosworth's fault, https://bitcointalk.org/index.php?topic=5158920.msg53762201#msg53762201

My point is indeed that isn’t even an opportunity cost.
Staking reward is something that is completely orthogonal to bitcoin protocol.

Opportunity cost definition, https://en.m.wikipedia.org/wiki/Opportunity_cost

When an option is chosen from alternatives, the opportunity cost is the "cost" incurred by not enjoying the benefit associated with the best alternative choice.[1] The New Oxford American Dictionary defines it as "the loss of potential gain from other alternatives when one alternative is chosen."[2] In simple terms, opportunity cost is the benefit not received as a result of not selecting the next best option.

Lightning fees will not be consistently low?

It makes sense: Bitcoin fees only went up because there were more transactions than the blockchain can process. With LN, that shouldn't be a problem. If there's a free market, nodes can charge whatever they want. And if fees get too high, others will join the market to compete with lower fees.

But the asset for opening channels is scarce. No one will, or can, "just join".

[Carlton Banks]

some people will happily eat the opportunity cost as a way to pay for the privacy benefits lightning channels can offer.

We don't know that. The asset used for opening channels are scarce, and when the demand for inbound capacity increases, the fee market will play out.

correction: _you_ don't know it, but only because you're mindlessly repeating your original (frankly, superficial) point without attempting to understand a subtler counterpoint


I will be quite happy to undercut prevailing relay fee levels precisely in order to attract inbound capacity to Lightning nodes I operate, and the aggregation of all channel owners behaving the same way will distort the fee market downwards, pushing possible profit margins for all other node operators as close to zero as they can withstand. even just regular differentiation of operating costs will cause such an effect. even just the plain utility of cheap fees to send BTC will cause regular people to run nodes without profiting from relaying, the alternative is to pay far more in on-chain fees.
 
it's very simple, this is how all free markets play out, a race to the bottom. Your conception is that of a controlled market for Lightning channels, not of a free market.



why are you focusing on just 1 dimension of this issue, and the only dimension that can lead you to such a pessimistic overview? you're oversimplifying in a way that leads to a very poorly defined analysis. Are you ok? you're normally quite good at balancing positive and negative perspectives

[fillippone]

My point is indeed that isn’t even an opportunity cost.
Staking reward is something that is completely orthogonal to bitcoin protocol.

Opportunity cost definition, https://en.m.wikipedia.org/wiki/Opportunity_cost

When an option is chosen from alternatives, the opportunity cost is the "cost" incurred by not enjoying the benefit associated with the best alternative choice.[1] The New Oxford American Dictionary defines it as "the loss of potential gain from other alternatives when one alternative is chosen."[2] In simple terms, opportunity cost is the benefit not received as a result of not selecting the next best option.

If only you read the actual content of your links instead of posting them mindlessly:

It is important to compare investment options that have a similar risk. Comparing a Treasury bill, which is virtually risk-free, to investment in a highly volatile stock can cause a misleading calculation. Both options may have expected returns of 5%, but the U.S. Government backs the rate of return of the T-bill, while there is no such guarantee in the stock market. While the opportunity cost of either option is 0 percent, the T-bill is the safer bet when you consider the relative risk of each investment.

https://www.investopedia.com/terms/o/opportunitycost.asp


Hodling is significantly less risky than giving your Bitcoin to a third subject, using those bitcoin to do leverage investments, only to be paid a tiny amount.
So staking reward is not an opportuiniy cost.

why are you focusing on just 1 dimension of this issue

Sorry, I couldn't resist.

[Carlton Banks]

why are you focusing on just 1 dimension of this issue

Sorry, couldn' resist.

[ABCbits]

Pardon my ignorance guys, But any of you heard about this so called: LSATs: Pseudonymous Authentication using Bitcoin Lightning Payments? What's your thoughts about this one? Good idea or what?

https://medium.com/tierion/lsats-pseudonymous-authentication-using-bitcoin-lightning-payments-459e209b4b36

The idea is a bit weird, but quite interesting. But there are 2 things that hinder this idea
1. The cost to open/close LN channel to perform authentication, low on-chain transaction (1 sat/byte) condition doesn't happen all the time. While you could route the transaction to lower the cost, it's not always possible.
2. If user is being careless, the service could collect some metadata which reduce overall privacy

[LoyceV]

But the asset for opening channels is scarce. No one will, or can, "just join".

People "HODL" millions of Bitcoins. I wouldn't call that scarce in the sense that there are no people who can create a LN node, but it will depend on the risk/reward ratio LN can provide.
At the moment I'd say the rewards aren't worth the risk of taking funds out of cold storage.

[TheBeardedBaby]

After ruining some time my bitcoin full node came the moment to install the Lightning node as well. I had to restart the bitcoin Node to find the new bitcoin.conf file, then I noticed in the debug.log that there are some refused connections.

Code:

2020-02-04T12:19:08Z socket send error An existing connection was forcibly closed by the remote host.  (10054)
2020-02-04T12:21:12Z socket recv error An existing connection was forcibly closed by the remote host.  (10054)
2020-02-04T12:21:17Z socket recv error An existing connection was forcibly closed by the remote host.  (10054)
2020-02-04T12:22:36Z socket recv error An existing connection was forcibly closed by the remote host.  (10054)
2020-02-04T12:23:02Z Potential stale tip detected, will try using extra outbound peer (last tip update: 1900 seconds ago)
2020-02-04T12:23:03Z New outbound peer connected: version: 70015, blocks=615939, peer=211 (full-relay)
2020-02-04T12:23:16Z UpdateTip: new best=000000000000000000104e54097ea27b2e9ab9f897bba9c077e347fd9c027f5f height=615940 version=0x20000000 log2_work=91.629188 tx=499712358 date='2020-02-04T12:23:13Z' progress=1.000000 cache=4.3MiB(31691txo) warning='61 of last 100 blocks have unexpected version'
2020-02-04T12:27:15Z Syncing txindex with block chain from height 293458
2020-02-04T12:27:29Z socket recv error An existing connection was forcibly closed by the remote host.  (10054)

The internet connection is stable, there should be no issues there. If this keeps going like this I'll route the node trough another ISP to see if those errors still persist.

The node is still syncing transactions with the blockchain after the restart (thanks to txindex=1 option)so I guess this is why I'm getting a Eclair error.

Code:

No such mempool transaction eclair blockchain transactions are still in the progress of being indexed,.. bla bla

Saw in the Eclair.conf that there's a port 8332, I guess i have to open the port in firewall, like for the bitcoin port 8333, right?

Code:

eclair.bitcoind.rpcport=8332

Running the last version of Eclair-  0.3.3

[Wind_FURY]

some people will happily eat the opportunity cost as a way to pay for the privacy benefits lightning channels can offer.

We don't know that. The asset used for opening channels are scarce, and when the demand for inbound capacity increases, the fee market will play out.

correction: _you_ don't know it, but only because you're mindlessly repeating your original (frankly, superficial) point without attempting to understand a subtler counterpoint

Excuse me, it's not a franky1 point. He misinforms, I learn. As annoying as I can be sometimes, sorry.

I will be quite happy to undercut a prevailing relay fee levels precisely in order to attract inbound capacity to Lightning nodes I operate, and the aggregation of all channel owners behaving the same way will distort the fee market downwards, pushing possible profit margins for all other node operators as close to zero as they can withstand. even just regular differentiation of operating costs will cause such an effect. even just the plain utility of cheap fees to send BTC will cause regular people to run nodes without profiting from relaying, the alternative is to pay far more in on-chain fees.
 
it's very simple, this is how all free markets play out, a race to the bottom. Your conception is that of a controlled market for Lightning channels, not of a free market.

There's my debate. When there's high-demand for inbound capacity, how much liquidity can anyone provide/willing to lock? I believe it won't be the same for everyone. Some people might elect to set fees higher for providing more liquidity, and the "specialized labor" of rebalancing channels.  

why are you focusing on just 1 dimension of this issue, and the only dimension that can lead you to such a pessimistic overview? you're oversimplifying in a way that leads to a very poorly defined analysis. Are you ok? you're normally quite good at balancing positive and negative perspectives

Because I'm the stupid one?

My point is indeed that isn’t even an opportunity cost.
Staking reward is something that is completely orthogonal to bitcoin protocol.

Opportunity cost definition, https://en.m.wikipedia.org/wiki/Opportunity_cost

When an option is chosen from alternatives, the opportunity cost is the "cost" incurred by not enjoying the benefit associated with the best alternative choice.[1] The New Oxford American Dictionary defines it as "the loss of potential gain from other alternatives when one alternative is chosen."[2] In simple terms, opportunity cost is the benefit not received as a result of not selecting the next best option.

If only you read the actual content of your links instead of posting them mindlessly:

It is important to compare investment options that have a similar risk. Comparing a Treasury bill, which is virtually risk-free, to investment in a highly volatile stock can cause a misleading calculation. Both options may have expected returns of 5%, but the U.S. Government backs the rate of return of the T-bill, while there is no such guarantee in the stock market. While the opportunity cost of either option is 0 percent, the T-bill is the safer bet when you consider the relative risk of each investment.

https://www.investopedia.com/terms/o/opportunitycost.asp


Hodling is significantly less risky than giving your Bitcoin to a third subject, using those bitcoin to do leverage investments, only to be paid a tiny amount.
So staking reward is not an opportuiniy cost.

But there's always an opportunity cost. It's impossible that there's none. Plus it's not about HODLING. Bitcoins in your wallet is devoid of opportunity costs because it's free working capital. I'm talking about Bitcoins staked/locked in Lightning payment channels.

Plus that quote from Investopedia? It's not about that there's no opportunity cost, it's about making misleading calculations. Don't get it out of context.

[Farul]

My point is indeed that isn’t even an opportunity cost.
Staking reward is something that is completely orthogonal to bitcoin protocol.

Opportunity cost Is Literally The Best What You Can't Get If You Are Choosing An Option
@Wind_fury Point Is Kinda Valid tho.
Instead Of Putting Our Bitcoin In Lightning Channel. We Can Use That Bitcoin For Something Better.(i.e buying Government bonds(ceteris paribus))
But, Some People Maybe Value The Advantage Of Running LN Nodes More Than The Opportunity Cost.
Implicit Benefit Exist, And It Varies On People. Running LN Nodes Doesn't Need To Be Profitable In Terms Of Money.
You Need To Differentiate Between accounting Profit And Economic Profit.
We Include Implicit Benefit On Economic Profit

no

please listen, I am telling you the following for the second time:

some people will happily eat the opportunity cost as a way to pay for the privacy benefits lightning channels can offer.

We don't know that. The asset used for opening channels are scarce, and when the demand for inbound capacity increases, the fee market will play out.

LN Fee Market Is Kinda Like Perfect Competition Market, Since There Are Very Little Barriers To Entry.(The Cost Of Hosting LN Nodes Is Pretty Small)
Unlike The Bitcoin Fee Market Where The Number Of Transactions Per Block are Limited, There are No Transaction Limit  On LN.
If Opening Channels Is Economically Profitable, Then Other People Will Open Their Channel.
If Opening Channels Is Economically Unprofitable, Then People Would Start Shutdown Their Channels.
At The End It Will Reach An Equilibrium Where The Economic Profit Of Opening LN Channels Is 0.
So The Fee Price Would Be Almost Constant(Regardless Of The Transaction In The Network)

[TheBeardedBaby]

Ok guys my lightning node is up and running. Any strategies while opening channels? I'm not doing it for profit (i guess you can't make any significant profits with that low fees anyway) so wonder how much to put in a channel. I won't have any transactions from my side in the beginning, it will be only to interconnect different nodes and create better routes, later i may open some channels for transactions as well?

How about paying for campaigns trough LN? What you think, opening a channel with the campaign manager and close it when the campaign is over, just to boost a bit the LN?

[LoyceV]

How about paying for campaigns trough LN? What you think, opening a channel with the campaign manager and close it when the campaign is over, just to boost a bit the LN?

From a campaign manager's perspective, this is going to be annoying A "pay all" from a spreadsheet is much easier.

If LN would allow payments without first sending a payment request (I'm hoping future versions will allow this), it could be a very cool feature for a campaign that pays for every post. Combined with a scraper, you could literally be paid a few seconds after each post!