the liquidity
think about it. they cant just give people funds on a whim, without pre-planning/notice.. they have to pre-arrange locking up value BEFORE people even get or spend via LN.
this means bitpay would have to lock up alot of reserves just to give outbound balance to others and receive inbound balance from others.
if they estimate they will receive 5000btc a day from 500,000 customers. they will need either
a few large hubs with channels to bitpay that total 5000btc*30(150,000btc)
or 500,000 channels direct connected to bitpay for each merchant(500,000x3.3btc channels)
just to supply bitpay with liquidity to biypay for a month
bitpay would also need to have reserves in another channel with an exchange to supply 150,000btc with their (otc exchange) partners so that the partner can convert that coin to fiat for bitpay to offer the fiat withdrawals to merchants that want to cash out
heres how it would look if the merchants linked to a large hub that then linked to bitpay
small
amounts
eachmerchants \
large largemerchants \\
amounts amountsmerchants --- large hub --
bitpay -- otc fiatswap partner
merchants //
regular session closing to get coin outmerchants /
..
take bitfinex..
just to be able to offer bitfinex customers a way to withdraw bitfinex balance to LN, bitfinex has had to lock up 10% of the entire LN network "capacity" just to be able to be ready to have LN balance if people wanted (in the future) to get routed some msats from bitfinex
(sidenote bitfinex luckily doesnt have millions of customers all wanting LN withdrawals. luckily for them only 0.00x% of there customers(under 1000 channels) want to give LN a shot. so bitfinex only has to lock up ~400btc)
time of posting -
https://i.imgur.com/oagW6Z2.pnghttps://1ml.com/node/033d8656219478701227199cbd6f670335c8d408a92ae88b962c49d4dc0e83e025but imagine a service that processes more. . more needs to be locked up to facilitate that processing before the processing can even happen
research liquidity bottlenecks.. and allocating reserves.. and think of the issues where lots of customers are all directing flow towards central points or central points are directing flows outbound to lots of decentralised points..
the liquidity required nearer the central point becomes the points of failure
yea also research central points of failure
el salvador learned this quickly in the last few months of 2021 and changed from the LN hub/liquidity model. and instead used a CEX exchange to be custodians of userbalance of btc to do internal database balance swaps inside alphapoint. rather than have the liquidity issues of LN where hubs run out alot.
..
everyone reading this could and should run some scenarios of not just best case scenario.. but worse case scenario too (dont just live the utopian dream)
you dont even need to use LN to run worse case scenarios. you can play out scenarios with a pen or a spreadsheet.
..
heres some scenarios..
coinbase has ~100million users. imagine just 5% wanted to convert their fiat deposits into btc and then withdraw via LN msat.. lets say each customer was only depositing $5000 a month(converts to ~0.25btc) each
before playing scenarios of how coinbase arranges channels/routes.. coinbase has to lock up and set aside 1.25million BTC in reserve. thats 1.25m btc it cant have on the exchange market order books as it has to be separated and locked up a month before..
next coinbase would have to manage either 5million channels of directly connected users LN channels. or have a large hub partner that it has a 1.25m btc lock with. where that hub then has the customers linked to.
meaning that hub also needs extra reserves of its own on its end to supply the customers.
so thats 2.5m btc locked up just to facilitate payments of upto 1.25m btc converted balance of msats
imagine all customers were not 1 hopor 2 hops but 3 hops..
even more btc would need to be locked up just to facilitate each hops liquidity to pass it on. now thats 3.75m btc locked up just to facilitye all customers withdrawals 3 hops away where total payments cn only be 1.25m liquidity before bottleneck
..
so go have fun use a pen or a spreadsheet and play out some scenarios. realise how much liquidity needs to be locked up to facilitate payments.
(unrelated to the question asked in quote above.. but worth people actually thinking about in the case of the wider utility of LN and issues)
heres some other scenarios to think about
even if there are only 5% of just coinbase customers of just 1.25m btc on coinbase balance leaving coinbase to customers via LN..
guess how many hops the customers cant be further than before all 19mill btc needs to be locked up to facilitate hop routing to just those customers 1.25m btc locks of msat..
(i wont give final answer. but i will give some hinty examples of things to think about)
remember this physical world problem(the 21m supply cap(19m available circulation) of btc)
ill make it easy for you for a easy hint using small numbers
if 3 customers of just 0.1 each wanted to pay someone 7 hops away
0.1\
0.1- H1(0.3)- H2(0.3)- H3(0.3)- H4(0.3)- H5(0.3)- H6(0.3)- H7
0.1/
requires (to facilitate just 3x 0.1).. a complete lock up of 2.1btc (7x lockup to facilitate a 1x payment)
note the problem .. more btc needs to be locked up to facilitate less coin actually moving..
note the problem when 4million customers of 1btc want to pay someone just 7 hops away
(4m)- H1(4m)- H2(4m)- H3(4m)- H4(4m)- H5(4m)- H6(4m)- H7
28m btc needs to be locked up to facilitate 4m of payments.. um.. yea see the problem
..
now work out how many hops people cant be distanced away from destination/source of a payment, before the 1.25m coins of the coinbase example of just 5% of customers end up causing liquidity issues and bottlenecks and not enough coin in the entire blockchain to facilitate payments of just 1.25m coins