Could the LN be the cause of the incentive's dead end?

[BlackHatCoiner]

Self-moderated just in case.
I'm currently using Lightning for every purchase I make, fortunately most of my merchants accept it. It's really satisfying buying products without broadcasting any transaction. I've opened a channel weeks now and I've saved thousands of sats in fees. I'm not planning to ever close it, unless my lightning node stops cooperating or if I'm out of sending capacity.

The lightning network seems to be the only “savior” of Bitcoin assuming that it'll be globally adopted. Even if it doesn't, it already has a great adoption and the fee part along with the confirmation time are the only downsides in my opinion.

While the block reward stills gives a fair amount of bitcoins, it won't do in one or two decades. The miners will have to arrange their business based on the transaction fees. And now I'm asking; how will the system work if we all move to the LN? Sure, by opening and closing channels we broadcast transactions to the main layer, but if the majority behaved just like how I did, the mempool won't ever full. If it doesn't full, there will be less competition of who will get their transaction confirmed first and thus, less fee. I'm afraid that, overtime, there will be less incentive which is also translated to less security.

I'm generally trying to find drawbacks of this system, but not because I hate it. On the contrary; I just want to ensure that it'll remain.

[Charles-Tim]

And now I'm asking; how will the system work if we all move to the LN?

If lightning network is well adopted, it will reduce the on-chain fee dependency to certain extent but may not likely be significantly, many people will still rely on on-chain transactions. Miners are also very important to maintain the networking, keeping it safe from 51% attack. Many people will just not use lightning network because it is not as safe as on-chain transactions, while many people will use it for low bitcoin amount. Lightning network is for daily spendings in which only small amount amount of Bitcoin will be enough while on-chain transactions will be required to open and close a channel. But for large amount of Bitcoin holding, holders will not even want to make use of lightning network for larger amount of Bitcoin, while making transaction of high amount of Bitcoin will be through on-chain transactions for security sake. No matter how adopted lightning network is, it will not be good for large amount of Bitcoin.

[titular]

Self-moderated just in case.

While the block reward stills gives a fair amount of bitcoins, it won't do in one or two decades. The miners will have to arrange their business based on the transaction fees. And now I'm asking; how will the system work if we all move to the LN? Sure, by opening and closing channels we broadcast transactions to the main layer, but if the majority behaved just like how I did, the mempool won't ever full. If it doesn't full, there will be less competition of who will get their transaction confirmed first and thus, less fee. I'm afraid that, overtime, there will be less incentive which is also translated to less security.

There will always be a block reward, until the very last bitcoin is mined. The Mempool will remain full, assuming the scale of the LN reaches certain levels. The sheer amount of channels being opened and closed will surely keep the Mempool quite active. Not to mention, on-chain transactions will always have their place.

On the other hand, I am curious to how miners will react after a few more halving when the block reward is smaller. Then again, the value of bitcoin may be much larger, thus incentivizing still.

[hatshepsut93]

While the block reward stills gives a fair amount of bitcoins, it won't do in one or two decades. The miners will have to arrange their business based on the transaction fees. And now I'm asking; how will the system work if we all move to the LN? Sure, by opening and closing channels we broadcast transactions to the main layer, but if the majority behaved just like how I did, the mempool won't ever full.

If all on-chain transactions were LN channel opening/closing and a significant part of the population tried to switch to Bitcoin, the mempool would instantly be full and fees would skyrocket. If more LN adoption will mean more Bitcoin adoption, there won't be any problems. Another thing is, people would still be doing on-chain transactions, simply because they are more reliable (not that LN transactions are unsecure, but on-chain ones with enough confirmations are 100% solid). People won't be buying cars or houses through LN.

[pooya87]

There is a reason Lightning Network is referred to as second layer instead of stand-alone network. It relies on "first layer" that is the on-chain transactions and not only LN will always rely on first layer but also it will create more on-chain transactions as it is used more since the coins in a LN channel come from on-chain transactions and those channels need to be settled on chain at some point.

I've opened a channel weeks now and I've saved thousands of sats in fees. I'm not planning to ever close it, unless my lightning node stops cooperating or if I'm out of sending capacity.

Are you running a LN node yourself? Which implementation? (out of curiosity).

[brainactive]

If lightning network is well adopted, it will reduce the on-chain fee dependency to certain extent but may not likely be significantly, many people will still rely on on-chain transactions. Miners are also very important to maintain the networking, keeping it safe from 51% attack. Many people will just not use lightning network because it is not as safe as on-chain transactions, while many people will use it for low bitcoin amount. Lightning network is for daily spendings in which only small amount amount of Bitcoin will be enough while on-chain transactions will be required to open and close a channel. But for large amount of Bitcoin holding, holders will not even want to make use of lightning network for larger amount of Bitcoin, while making transaction of high amount of Bitcoin will be through on-chain transactions for security sake. No matter how adopted lightning network is, it will not be good for large amount of Bitcoin.

If Lightning and off-chain transactions are not that secure, what's the advantage of Lightning over just converting BTC to fiat for transactions?

[pooya87]

If Lightning and off-chain transactions are not that secure, what's the advantage of Lightning over just converting BTC to fiat for transactions?

LN transactions are secure and when you are using LN you are still using bitcoin which is decentralized, cheap and secure. It also doesn't have the limitations of fiat such as the need for a middle man (eg banks) to transfer your money and since cost is based on byte size not amount value the cost is going to be a lot less specially for larger amounts. You also have a much higher privacy compared to using centralized fiat.

[odolvlobo]

... And now I'm asking; how will the system work if we all move to the LN? Sure, by opening and closing channels we broadcast transactions to the main layer, but if the majority behaved just like how I did, the mempool won't ever full.

Bitcoin does not have enough capacity to support worldwide adoption of LN, so it is more likely that with greater adoption of Bitcoin and/or LN, the blocks will be full.

[mk4]

Layer-2s like Lightning is definitely the way to go with retail day-to-day transactions. But let's not forget that there will always be transactions that will consists of amounts that probably would be too big for layer-2s. e.g. Business-to-business transactions, the bigger end of business-to-consumer transactions, remittance, and the like.

This is just my rough guess though.

[ndalliard]

I'm generally trying to find drawbacks of this system, but not because I hate it. On the contrary; I just want to ensure that it'll remain.

i like how you think - don't ever take anything for granted and stay vigilant

While the block reward stills gives a fair amount of bitcoins, it won't do in one or two decades. The miners will have to arrange their business based on the transaction fees. And now I'm asking; how will the system work if we all move to the LN? Sure, by opening and closing channels we broadcast transactions to the main layer, but if the majority behaved just like how I did, the mempool won't ever full. If it doesn't full, there will be less competition of who will get their transaction confirmed first and thus, less fee. I'm afraid that, overtime, there will be less incentive which is also translated to less security.

the rewards will get smaller, but even if the rewards are small in the future, a bitcoin will be much more valuable than today (if everything goes as "planned"). it's hard to imagine what a satoshi will be worth when the rewards are really small

as other already have mentioned, the second layer is called the second layer cause the security of it depends on the first layer, there will always be an incentive also for second layer users to look out for the first layer if necessary

[BlackHatCoiner]

No matter how adopted lightning network is, it will not be good for large amount of Bitcoin.

People won't be buying cars or houses through LN.

I don't get that. Why wouldn't it be good for large amounts? Let's say that I have 1000 BTC in an address. Why would it be bad to open a channel depositing 100 BTC and use it for buying cars, houses etc? It's designed for micro-payments, but I'll avoid the mining fees whether I deposit 0.01 or 100 BTC. Someone may want to send and receive huge amounts everyday. He'll find it cheaper if he uses the LN to avoid the mining fees.

There is a reason Lightning Network is referred to as second layer instead of stand-alone network. It relies on "first layer" that is the on-chain transactions

Correct, but I observe a paradox. The first layer requires transactions to operate securely, at least overtime, due to the reward's halvings. The second layer tries to reduce the transactions of the first by having a personal ledger for each user.

So while the second layer makes transactions more private and cheaper, it digs the pit of the first one.

it will create more on-chain transactions as it is used more since the coins in a LN channel come from on-chain transactions and those channels need to be settled on chain at some point.

The problem isn't that the first layer becomes useless; obviously, it is completely required for the LN. The problem is that it'll decrease the on-chain fees.

Are you running a LN node yourself?

No, but I'm planning to work on it. It seems very interesting.

the rewards will get smaller, but even if the rewards are small in the future, a bitcoin will be much more valuable than today (if everything goes as "planned").

This is a very false thought. The whole system shouldn't rely on the belief that it'll have a greater value in the future. It's important to know what will happen if the value remained the same.

[ndalliard]

the rewards will get smaller, but even if the rewards are small in the future, a bitcoin will be much more valuable than today (if everything goes as "planned").

This is a very false thought. The whole system shouldn't rely on the belief that it'll have a greater value in the future. It's important to know what will happen if the value remained the same.

well, you will not know until it happens - and imo it is highly unlikely the value will remain the same

every system "relies" on the unpredictable future

Are you running a LN node yourself?

No, but I'm planning to work on it. It seems very interesting.

get in touch if you want to open a channel

[Charles-Tim]

I don't get that. Why wouldn't it be good for large amounts? Let's say that I have 1000 BTC in an address. Why would it be bad to open a channel depositing 100 BTC and use it for buying cars, houses etc? It's designed for micro-payments, but I'll avoid the mining fees whether I deposit 0.01 or 100 BTC. Someone may want to send and receive huge amounts everyday. He'll find it cheaper if he uses the LN to avoid the mining fees.

The best I think is to keep Bitcoin on offline wallet, lightning network is not offline (2-of-2 multisig) and are still in the stage of testing while many vulnerabilities have been fixed even on wombo. Although, with the release of wombo which makes lightning network channel size to be more than 0.1677 BTC, but yet at the stage of testing too, which means it is not advisable to hold high amount of bitcoin on lightning channel for now. I am only commenting about myself not company, I will prefer to buy cars paying the on-chain transaction fee with my Bitcoin on hardware wallet which will make me feel secure than opening a channel of large Bitcoin amount, only few amount of on-chain fee is needed if compared to the car I wimant to buy. If people make use of lightning network for daily transactions, like buying from shopping mall, eatery and the likes will be better, because I can not afford to be paying on-chain fee for such small amount with such frequent transactions and this can reduce the mempool congestion. If taproot has been activated and supported by many wallets that support lightning network, it will also help in fund recovery while lightning network will also be more safe to use in the future with more coming implementions, but I will rather prefer to have just small amount of Bitcoin which can serve me for a month if people are using lighting network actively, I think this is better, this is just my opinion.

It is not about the safety alone, transactions of high amount of Bitcoin is not frequent, but low amount transfers will be frequent as I implied above which I believe lightning network is suitable for.

[franky1]

No matter how adopted lightning network is, it will not be good for large amount of Bitcoin.

People won't be buying cars or houses through LN.

I don't get that. Why wouldn't it be good for large amounts? Let's say that I have 1000 BTC in an address. Why would it be bad to open a channel depositing 100 BTC and use it for buying cars, houses etc? It's designed for micro-payments, but I'll avoid the mining fees whether I deposit 0.01 or 100 BTC. Someone may want to send and receive huge amounts everyday. He'll find it cheaper if he uses the LN to avoid the mining fees.

the problem is right
                                                     here          and              here
                                                       v                                  v
blackhat [100btc><0.1btc] partner [0.1btc><0.1btc] friend [0.1btc><0.1btc] car dealer

they cant push 100btc to the car dealership via routing from you.. because partner and his friend dont have 100btc for them to be used as a go-between

LN only works if everyone had more balance than the payment needing to be routed
LN is promoted for "great for coffees" ($4) when average balance of routers in-line is over $4 to allow the payment

oh and then there is this issue
richguy [2btc><0.1btc] blackhat [100btc><0.1btc] partner [0.1btc><0.1btc] friend [0.1btc><0.1btc] car dealer

richguy decides he wants to pay 'partner' 2btc minutes before you want to buy a car
richguy [0btc><2.1btc] blackhat [98btc><2.1btc] partner [0.1btc><0.1btc] friend [0.1btc><0.1btc] car dealer

now you dont have 100btc for your own 100btc payment via 'partner' friend to car dealer

[ndalliard]

No matter how adopted lightning network is, it will not be good for large amount of Bitcoin.

People won't be buying cars or houses through LN.

I don't get that. Why wouldn't it be good for large amounts? Let's say that I have 1000 BTC in an address. Why would it be bad to open a channel depositing 100 BTC and use it for buying cars, houses etc? It's designed for micro-payments, but I'll avoid the mining fees whether I deposit 0.01 or 100 BTC. Someone may want to send and receive huge amounts everyday. He'll find it cheaper if he uses the LN to avoid the mining fees.

the problem is right
                                                     here          and              here
                                                       v                                  v
blackhat [100btc><0.1btc] partner [0.1btc><0.1btc] friend [0.1btc><0.1btc] car dealer

they cant push 100btc to the car dealership via routing from you.. because partner and his friend dont have 100btc for them to be used as a go-between

LN only works if everyone had more balance than the payment needing to be routed
LN is promoted for "great for coffees" ($4) when average balance of routers in-line is over $4 to allow the payment

oh and then there is this issue
richguy [2btc><0.1btc] blackhat [100btc><0.1btc] partner [0.1btc><0.1btc] friend [0.1btc><0.1btc] car dealer

richguy decides he wants to pay 'partner' 2btc minutes before you want to buy a car
richguy [0btc><2.1btc] blackhat [98btc><2.1btc] partner [0.1btc><0.1btc] friend [0.1btc><0.1btc] car dealer

now you dont have 100btc for your own 100btc payment via 'partner' friend to car dealer

aren't payments in lightning split (or can be split)?

[Charles-Tim]

aren't payments in lightning split (or can be split)?

Assuming Alice and Bob wants to make use of lightning network, Bod is the owner of one coffee shop, Alice is the customer. Both of them will have to open a channel, the channel is just a 2-of-2 multisig, which means both of them will have the knowledge the transfer of any particular amount they both agreed upon.

If they both agree to put 0.005 btc each on the channel

Alice: 0.005 btc
Bod: 0.005 btc

That means they both have 0.005 btc + 0.005 btc = 0.01 btc on the channel. Assuming Alice went to Bob's shop for coffee and he or she paid 0.0001 btc, the money will be deducted from Alice btc to Bob Btc on the channel. Which means Alice will have 0.0049 btc as 0.0001 btc is transferred by her on the channel while Bob will have 0.0051 btc for the coffee Alice paid for and so on until anyone of them closes the channel.

To know more about lightning network:
A Beginner's guideline to Bitcoin Lightning Network
The Lightning Network FAQ
Electrum Lightning Network walkthrough

[franky1]

if you are only going to have channels direct with the retailer. and avoid routing
then you are going to have a channel PER retailer

meaning your say $2k monthly salary is split over say 20 channels
where you have to pre plan how much each channel deserves based on guess of next months spending habits
landlord $1k
electric $60
water $20
gas $60
internet $40
fast food retailer #1 $40
                         #2 $40
                         #3 $40
grocery store #1 $200
                    #2 $200
coffee shop $80
sweet treat shop $40
clothes shop #1 $30
                   #2 $30
diy shop $40
hobby shop $40
games/entertainment $40
computer gadget shop $100
ebay $50
amazon $50

then yea. you can pay them direct..  as you are only relying on your liquidity direct to the retailer
so now your at the point of, well setting up 2 transactions per channel (open and eventual close)
so your paying 40 onchain fee's each month

but remember in this scenario, each allotment of fund is then locked into that utility partner. (if avoiding routing)
costing you alot of onchain fee's
meaning you better make it cost effective by having enough for multiple purchases within the month to dilute against the onchain fees

so under the premiss of splitting value over channels to pay direct and avoid route liquidity bottlenecks, you cant really change your mind midflow and guarantee to be able to decide you would want your clothes budget to be used to buy coffee or the opposite
because before you set up the channels. you have no clue if the 2 shops even have a partnership
(cough sarcasm lightning privacy promotion)
..
the other idea is if you want to avoid liquidity stalls/bottlenecks of a 'independent decentralised' route. and you want to avoid the 40 channel 'split funds direct' channels

that leads into the game of depositing funds into custodians which have the liquidity and let them manages the routes on your behalf

which then leads to a hierarchy network. with the inner circle being the high elitist serves/exchanges the outer rings retailers the outter outter rings hubs and the outmost rings users
with liquidity descending out (ascending in)
which has already begun where elite exchanges refuse channel openings of less than x value

meaning people cant exactly just connect direct to an exchange to deposit their small penny investments direct, but have to connect to a local hub several hops back

EG          min channel xxbtc                    min channel 0.xbtc              min channel 0.00xbtc
exchange[xxbtc><xxbtc]regionalhub[0.xbtc><0.xbtc]localhub[0.00xbtc><0.00xbtc]you