The Lightning Network FAQ

[LoyceV]

Unfortunately, you are assuming the most fantastic scenario.

What can I say, I'm an optimist

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).

3% sounds bad if you spend $1000 per month. But if you put $100 in a channel, and spend and receive $10 at a time, but do that 50 times per month, then $3 in fees doesn't sound bad at all! I spent more on my last on-chain Bitcoin transaction (I made a mistake on the fees, my fault).

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

You're probably right here. But I don't really mind, it's not as if Bitcoin nodes are currently making a profit. Some things are just done to support the network, and if an exchange (or casino) runs a LN-node, earning money from transaction routing is only a side-income, and not their core business.

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

I must admit I don't have the time to read it in-depth now. But I like this picture:

(source)

The thing is: I'm okay with the scenario on the left, if that means I can make many small cheap payments using Bitcoin. I'd prefer a fully decentralized system, but I get that won't happen.

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[jackg]

Unfortunately, you are assuming the most fantastic scenario.

What can I say, I'm an optimist

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).

3% sounds bad if you spend $1000 per month. But if you put $100 in a channel, and spend and receive $10 at a time, but do that 50 times per month, then $3 in fees doesn't sound bad at all! I spent more on my last on-chain Bitcoin transaction (I made a mistake on the fees, my fault).

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

You're probably right here. But I don't really mind, it's not as if Bitcoin nodes are currently making a profit. Some things are just done to support the network, and if an exchange (or casino) runs a LN-node, earning money from transaction routing is only a side-income, and not their core business.

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

I must admit I don't have the time to read it in-depth now. But I like this picture:

(source)

The thing is: I'm okay with the scenario on the left, if that means I can make many small cheap payments using Bitcoin. I'd prefer a fully decentralized system, but I get that won't happen.

Dont eos have around 22 trusted nodes mining everything in a decentralised style way? Id be happy with something like that, or just with the idea that you make a payment regularly with and have a channel open to a local store who would want the fee for processing your transaction...

If santander charged €30 for a transfer I see no reason Deutsche or Lloyd's wouldn't want to try to bring it down to €25 if they can..

3% fees are high - i wouldn't want to pay that much compared to if I could make a bank transfer.

[GGUL]

[

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).

3% sounds bad if you spend $1000 per month. But if you put $100 in a channel, and spend and receive $10 at a time, but do that 50 times per month, then $3 in fees doesn't sound bad at all! I spent more on my last on-chain Bitcoin transaction (I made a mistake on the fees, my fault).

Again, an unrealistic scenario.

 I (like most users) don't get paid$ 10 many times over the course of a month. I usually only pay$10. After 10 payments, my channel  will be reset to zero. And you will need to either re-create the channel, or replenish it using a third-party service. And this is the fee for an additional  on-chain transaction.

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

You're probably right here. But I don't really mind, it's not as if Bitcoin nodes are currently making a profit. Some things are just done to support the network, and if an exchange (or casino) runs a LN-node, earning money from transaction routing is only a side-income, and not their core business.

Is it unprofitable to keep an LN node? This means that there will be few nodes, and their number will not grow. What we have now.

[LoyceV]

Again, an unrealistic scenario.

 I (like most users) don't get paid$ 10 many times over the course of a month. I usually only pay$10. After 10 payments, my channel  will be reset to zero. And you will need to either re-create the channel, or replenish it using a third-party service. And this is the fee for an additional  on-chain transaction.

I'll try a more realistic one: how about you get $1000 salary once a month, and pay your normal bills with it? Bills will go from high amounts like your rent to daily small amounts for coffee. Then you indeed can't use the same funds several times. It becomes slightly better if you receive your salary every week. You probably don't want an open channel with your employer (I wouldn't want them to know my remaining balance), so you'll still need a third party.

[d5000]

Is it unprofitable to keep an LN node? This means that there will be few nodes, and their number will not grow. What we have now.

There are several entities which would benefit from a LN node even if their income from LN fees is tiny. The most obvious examples are exchanges and other custodial wallet providers. But there are others, like arbitrageurs (we discussed that some pages ago), but also online merchants (from a certain size upwards).

This would lead, if we take the graphics above, to a scenario closer to the middle one from Fyookball's blog post, but I would argue that these "indirectly profitting nodes" would try to be more well connected than in this example where each one has only 2-3 connections to nearby nodes. So we would have, at the end, a network between the "decentralized" and the "distributed" model, with clearly identifiable hubs, but which would be much better connected than in the example.

This however depends again from popularity of the LN itself (only a few of these entities do not depend from incentives which are related to the size/network effect of LN), which brings us back to the chicken-and-egg problem we discussed in the pages before. Clearly, exchanges could be the "boosters" of LN if they bring the arbitrage business "on board", and this already could mean a significant growth. But for now afaik Bitfinex is the only larger exchange which supports LN fully, so arbitrage via LN still doesn't make sense.

Fyookball isn't an "independent researcher", he's clearly a big blocker and probably a Bitcoin Cash supporter. That's ok for me but his postings (on his blog and here) shouldn't be considered neutral science.

[Timelord2067]

Again, an unrealistic scenario.

 I (like most users) don't get paid$ 10 many times over the course of a month. I usually only pay$10. After 10 payments, my channel  will be reset to zero. And you will need to either re-create the channel, or replenish it using a third-party service. And this is the fee for an additional  on-chain transaction.

I'll try a more realistic one: how about you get $1000 salary once a month, and pay your normal bills with it? Bills will go from high amounts like your rent to daily small amounts for coffee. Then you indeed can't use the same funds several times. It becomes slightly better if you receive your salary every week. You probably don't want an open channel with your employer (I wouldn't want them to know my remaining balance), so you'll still need a third party.

I have some funds in a Blue wallet that I don't mind exchanging 1:1 for on-chain funds - (you) pay the TX fees on your end and I do likewise.  Having no funds on your end is good as it enables you to have inbound capacity when you open a new channel.


Just an aside for a previous comment in the thread:

If you have 1 BTC, wouldn't it be better to open 10 X 0.1 channels, or even 100 X 0.01 channels which would make you a mini-hub that others could then start connecting to?

[GGUL]

I'll try a more realistic one: how about you get $1000 salary once a month, and pay your normal bills with it? Bills will go from high amounts like your rent to daily small amounts for coffee. Then you indeed can't use the same funds several times. It becomes slightly better if you receive your salary every week. You probably don't want an open channel with your employer (I wouldn't want them to know my remaining balance), so you'll still need a third party.

This is more like a real scenario. A $ 1000 channel means that you have to pay the hub $30 per year.
If you make an average of 1 transaction per day, 360 per year, then you will get an average of $30/360 - 8 cents per transaction.
If there are 10 transactions every day, then 0.8 cents. But this is unlikely. After all, if we are considering the option with a single hub, then all your counterparties must be connected to this hub.
8 cents per transaction-this is already comparable to transactions in another blockchain. For example, take dash. There are instant payments that can be made for ~10 cents per transaction. And at the same time, you don't need any centralized hub, you don't need channels, you don't need a third party to replenish the channel. The question is, what will users prefer?

Is it unprofitable to keep an LN node? This means that there will be few nodes, and their number will not grow. What we have now.

There are SEVERAL entities which would benefit from a LN node even if their income from LN fees is tiny.

If we want to objectively assess the prospects for LN, we should not look at atypical cases. They don't make the weather.
We need to see how 90% of the standard participants will behave.

For example, how will 90% of customers use LN? How will 90% of sellers use LN?

What will be 90% of the LN network nodes? Is it profitable for these 90% to keep an LN node?

Fyookball isn't an "independent researcher", he's clearly a big blocker and probably a Bitcoin Cash supporter. That's ok for me but his postings (on his blog and here) shouldn't be considered neutral science.

Don't believe the math in the article, because the author is a big block proponent.   Funny.
Unfortunately for you, mathematics is a neutral science.

[DooMAD]

Fyookball isn't an "independent researcher", he's clearly a big blocker and probably a Bitcoin Cash supporter. That's ok for me but his postings (on his blog and here) shouldn't be considered neutral science.

Don't believe the math in the article, because the author is a big block proponent.  Funny.
Unfortunately for you, mathematics is a neutral science.

Contrary to popular belief, numbers can lie if you're clever about it.  How else do you explain companies cooking the books on their accounting or the popular expression "lies, damn lies and statistics".

The question always becomes "what numbers did they deliberately leave out"?

I'm sure a fraud like Faketoshi would insist that his numbers add up too, but we know better.    


//EDIT:  Apologies LoyceV.  I need to stop using my phone when replying to multi-quote posts, heh.  Too easy to select the wrong text on touchscreen devices.

[Wind_FURY]

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.

Was it? Did you read the comments/replies?

One of them cared enough to wrote a blog of his own after reading Jonald Fyookball's blog, https://medium.com/@murchandamus/i-have-just-read-jonald-fyookballs-article-https-medium-com-jonaldfyookball-mathematical-fd112d13737a

There was Bram Cohen in the comments too, and challenged the math, and called Joland Fyookball "stupid".

[GGUL]

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.

Was it? Did you read the comments/replies?

One of them cared enough to wrote a blog of his own after reading Jonald Fyookball's blog, https://medium.com/@murchandamus/i-have-just-read-jonald-fyookballs-article-https-medium-com-jonaldfyookball-mathematical-fd112d13737a

There was Bram Cohen in the comments too, and challenged the math, and called Joland Fyookball "stupid".

Of course I read this blog.

Look carefully at the phrase at the end:

As the model on which Fyookball is basing their calculations is already far-fetched, I will not bother addressing the math.

In fact, the author of this comment just couldn't understand the article.

The article considers a different model ( in the form of a tree), because this model should give the best results. It does not state that LN will have a model in the form of a tree. And if even for the most optimal model we get bad results, then for all other models, the results will be even worse. This is a standard technique in mathematics.

I don't recall Bram Cohen's comment. Could you give a link to this comment. If in addition to the word "stupid" there are real arguments.

[d5000]

If we want to objectively assess the prospects for LN, we should not look at atypical cases. They don't make the weather.
We need to see how 90% of the standard participants will behave. For example, how will 90% of customers use LN? How will 90% of sellers use LN? What will be 90% of the LN network nodes? Is it profitable for these 90% to keep an LN node?

These are not atypical cases. They're the majority of the larger service providers I mentioned - in the case LN is popular and successful. I should have written "there are several categories of entities" instead -  I am sure you also did understand it that way (but my non-native English may have given you the opportunity for this "answer") And no, we don't need 90% to be "profitable" in the sense that they make money charging fees. It is enough if the money they save in comparison to on-chain fees, all costs (opening/closing channels etc.) included, is > 0.

Unfortunately for you, mathematics is a neutral science.

His calculations may be correct but he then tries to "use" them to prove his point (which he has sustained during years here in this forum) that LN is not viable. And this exceeds the field of mathematics but enters the field of politics.

If you had read my post completely, you may have seen that I even agree with him that a completely distributed LN where most participants are well-connected, without hubs, is probably very difficult to achieve (and would also not be necessary, imo). But Fyookball didn't address the point that there are many entities who are incentived to run well-connected mini-hub nodes without having to profit directly from them. Their profits come not primarily from the fees they earn, but from the fees they save.

(I will not continue this discussion cluttering the thread, but leave it again for more technical FAQs.)

[LoyceV]

If you have 1 BTC, wouldn't it be better to open 10 X 0.1 channels, or even 100 X 0.01 channels which would make you a mini-hub that others could then start connecting to?

It depends Opening 100 channels eats up on-chain fees. One large channel with a well-connected node saves those fees.

This is more like a real scenario. A $ 1000 channel means that you have to pay the hub $30 per year.

Maybe it's more realistic the hub won't earn $30 per year from a $1000 investment. It's not as if there's a shortage of people hodling Bitcoin, but the problem (and that may be a much bigger problem) is that LN-nodes can't use cold storage. If you have 1000 Bitcoin and you could safely increase your stash by running a LN-hub, you wouldn't mind if the revenue is small. It's still better than nothing. But switching from cold storage to a hot node isn't going to happen for a small profit.

8 cents per transaction-this is already comparable to transactions in another blockchain. For example, take dash. There are instant payments that can be made for ~10 cents per transaction. And at the same time, you don't need any centralized hub, you don't need channels, you don't need a third party to replenish the channel. The question is, what will users prefer?

People prefer Bitcoin. Almost all altcoins are solely created for the purpose of earning the creator more Bitcoin, just like tokens/ICOs later on and no doubt the whole Defi-hype that's currently being blown up.

For example, how will 90% of customers use LN? How will 90% of sellers use LN?

My guess:
Customers will use custodial wallets, just like many people hold their crypto on exchanges.
Sellers will use payment processors.

~snip~

Please fix your quote, that's not my text.

[GGUL]

This is more like a real scenario. A $ 1000 channel means that you have to pay the hub $30 per year.

Maybe it's more realistic the hub won't earn $30 per year from a $1000 investment. It's not as if there's a shortage of people hodling Bitcoin, but the problem (and that may be a much bigger problem) is that LN-nodes can't use cold storage. If you have 1000 Bitcoin and you could safely increase your stash by running a LN-hub, you wouldn't mind if the revenue is small. It's still better than nothing. But switching from cold storage to a hot node isn't going to happen for a small profit.

You have an interesting way to lead a discussion. First, say that it will be more realistic if the hubs earn less. But then you claim that this will not happen, because few people will risk for a small profit and pull their funds from a cold wallet to a hot wallet that is connected to the Internet, and all the keys on this computer are open .
Either fools or fans will risk their money for a profit of less than 1% per year.

For example, how will 90% of customers use LN? How will 90% of sellers use LN?

My guess:
Customers will use custodial wallets, just like many people hold their crypto on exchanges.
Sellers will use payment processors.

If people use custodial services, they don't need LN.

His calculations may be correct but he then tries to "use" them to prove his point.

What a scoundrel.

[Wind_FURY]

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.

Was it? Did you read the comments/replies?

One of them cared enough to wrote a blog of his own after reading Jonald Fyookball's blog, https://medium.com/@murchandamus/i-have-just-read-jonald-fyookballs-article-https-medium-com-jonaldfyookball-mathematical-fd112d13737a

There was Bram Cohen in the comments too, and challenged the math, and called Joland Fyookball "stupid".

Of course I read this blog.

Look carefully at the phrase at the end:

As the model on which Fyookball is basing their calculations is already far-fetched, I will not bother addressing the math.

In fact, the author of this comment just couldn't understand the article.

The article considers a different model ( in the form of a tree), because this model should give the best results. It does not state that LN will have a model in the form of a tree. And if even for the most optimal model we get bad results, then for all other models, the results will be even worse. This is a standard technique in mathematics.

I don't recall Bram Cohen's comment. Could you give a link to this comment. If in addition to the word "stupid" there are real arguments.

It's there in the responses of the blog. I remember Bram Cohen had something to say about it on Twitter as well. I will try to find it.


I was looking for hardware for Lightning, someone recommended this, https://store.start9labs.com/collections/embassy

Does anyone have reviews?

[LoyceV]

You have an interesting way to lead a discussion.

I'm basically just speculating here. But I do know many people believe in LN. Why else would there already be so many different wallets out there, some with very active development?

Either fools or fans will risk their money for a profit of less than 1% per year.

If fools and fans make LN grow, I'm okay with that

If people use custodial services, they don't need LN.

That's not true. Any exchange, casino or random website can create their own custodial "tipping service". The great thing from making a LN custodial service is that it also works externally. BlueWallet for instance is custodial, if I make a payment to another BlueWallet user, nothing happens on the Lightning Network. But I can use the same wallet to make an external payment too. Without that, there wouldn't be any use for this wallet.

[Carlton Banks]

"profit" is a canard imo.

With Lightning, you have access to cheap, anonymous transactions. If you break even on routing fees, that's a pretty good outcome.

LN routing supply is market driven, because it's an open competition. Therefore, you can expect some people to take the competing part seriously, and so try to be better at routing than others. The key point is that this cannot lead to monopolization while the ability to compete remains open, and so fees will be pushed as low as routing nodes can tolerate. I expect many will figure out some way to run at a marginal loss, and recoup the costs some other way (e.g. miners/pools are well positioned to run loss-making LN nodes, as they're the ones confirming the open/close transactions on chain in the first instance).

[GGUL]

I'm basically just speculating here. But I do know many people believe in LN. Why else would there already be so many different wallets out there, some with very active development?

Just because someone is developing a product doesn't mean that the product will be successful. All developers believe in their product, and all hope that they will be a great success. But only a few out of hundreds achieve success.  
It took me a couple of days to understand how cool Bitcoin is. But I spent about six months intermittently on LN, but I still didn't understand what the optimism of LN developers is based on. There are too many unavoidable design flaws. My experience and my intuition tell me that LN has ~1% chance of great success.

Either fools or fans will risk their money for a profit of less than 1% per year.

If fools and fans make LN grow, I'm okay with that

Do you draw an optimistic conclusion from each fact? The ranks of fools with money and fans with money are not so numerous.

If people use custodial services, they don't need LN.

That's not true. Any exchange, casino or random website can create their own custodial "tipping service". The great thing from making a LN custodial service is that it also works externally. BlueWallet for instance is custodial, if I make a payment to another BlueWallet user, nothing happens on the Lightning Network. But I can use the same wallet to make an external payment too. Without that, there wouldn't be any use for this wallet.

The user doesn't need LN. The custodial service needs LN.  If your external recipient also uses a custodial service, then they don't need LN either. And two custodial services can agree among themselves and without any LN. Why would they invest heavily in a particular channel? The way banks work with each other now.

[LoyceV]

The user doesn't need LN.

I think we can agree to disagree here. I like to be able to buy a coffee with Bitcoin, and it's possible here. Also with LN for much less fees on said coffee.

[Timelord2067]

The user doesn't need LN.

I think we can agree to disagree here. I like to be able to buy a coffee with Bitcoin, and it's possible here. Also with LN for much less fees on said coffee.

You've just reminded me there is/was a small group of takeaway cafes in Fortitude Valley that were trading in Crypto, I went down the Valley a while back (prob two years ago now) and they bamboozled me with wanting me to connect to them *and then* make a purchase with crypto.  I'm wondering now if they were early LN adopters (and I'm also wondering why I haven't been back in all that time??)

Things are almost back to normal with just one or two active cases, so if those shops survived our mini lock-down (some didn't) then I should go check them out and report back.


Also LN related to above I can't envisage rocking up to a coffee shop and creating a channel to said shop to then buy a cup of Joe (giving the shop a small amount of inbound and outbound capacity) - unless of course you were planing on being a regular customer as confirmation time to open a channel will be an initial issue.

[DaveF]

Stupid question. Has anyone written a script or any kind of monitoring that will alert you if your LN node is down?
I have been running around dealing with some family & work stuff all week and only now noticed after 3+ days that my office node was down.
Did not try to spend anything and was not in the office to see it so it has just been sitting there offline.

-Dave