A Proposed Compromise to the Block Size Limit

Summary:

In a 2015 email exchange, Mark Friedenbach explained that the lightning network solves problems where users have semi-long lived payment endpoints. Recipients benefit from long-lived connections to hubs because if a hub goes away or a user abandons a hub, it generates new on-chain traffic for balance reclaim and new channel establishment. Gavin Andresen responded by saying that very few of his personal Bitcoin transactions fit that use-case. However, he believed that Mark was talking about the one-hop (direct) connection benefits of being long-lived. The payment destination is not restricted in the same way and is more like having a static IP address with your ISP, which doesn't stop you reaching anywhere on the internet. Assuming that the lightning network has an average fan out of 10, now subject to capital and rebalancing flows in the network, users can pay anyone out of a billion people in nine hops. If the fan-out is lumpy, with some bigger hubs, that just serves to reduce the number of hops. There may be some capitalization limits, but negative fees and recirculation or recapitalization on-chain can deal with that. People assume that the hub will run out of capitalization on a given channel; however, if people and hubs retain redundant channels, they can be paid to rebalance channels. Users can also be paid by other users if there is a net flow from some users to a given business, such as Starbucks. Rebalancing would work because the exchange where users buy new BTC would be incentivized to pay Starbucks (or whoever has excess coins on a channel) to send the coins back to the users topping up by paying them negative fees because the fees to do that should be less than using on-chain transactions.Although Gavin Andresen did not think that the lightning network was a scaling solution for the types of payments that the Bitcoin network was handling at the time, Mark Friedenbach believed that it could be a good solution. The network algorithms against usage needed to be tested, but there was good reason to believe that BTC could recirculate and rebalance due to the reversible non-expiring channels. Capitalization requirements could be lower than simple expectation because of higher velocity and redistribution of fees to anyone with excess liquidity and connectivity heading in the right direction.

Updated on: 2023-06-10T01:19:21.567893+00:00