Published on: 2015-10-15T03:35:59+00:00
The Lightning Network is an off-chain solution for Bitcoin transactions that can be used for smaller, predictable transactions. It makes economic sense to use the Lightning Network for transactions where the fee to include the transaction on the blockchain is more than the Time Value of Money of the encumbered funds on the Lightning Nodes. By minimizing the set of costs/externalities to the minimum necessary to conduct a series of transactions, there will be less transactions on the mainchain, which means less fees collected by the miners.The effect of the Lightning Network on fees is hard to predict, as it depends on user behavior around the dynamics of bid-side demand of fees. New classes of transactions will be possible that aren't possible today, and the market effect of 'instant' transactions after a network-joining-intro period will have on Bitcoin's utility/price/adoption is yet to be seen. Blockchain data scientists could study the effect of the fee market when high-volume exchanges unexpectedly halted trading.Regarding the block reward, idle hashing power becomes more of a threat in market scenarios where chain-extending PoW is scarce. If there isn't a convincing economic reason for a large majority of hashing power to be bolstering PoW defense on the main blockchain, the necessary number of block confirmation will go up, and there will be non-negligible mining power idle ready to defend actors' preferred chain. Large-value transactions that will be on the blockchain have more flexible time-settlement tolerance, and Lightning Network hot wallets are not an ideal place to store large quantities of BTC. Users that don't expect to be actively using the Lightning Network should prefer confirmed UTXOs for long-term cold storage.Paul Sztorc discusses how Lightning Network (LN) transactions are a substitute for on-chain transactions, leading to lower demand and fees for on-chain transactions. However, LN transactions cannot happen without periodic on-chain transactions. The demand for all Bitcoin transactions is influenced by various factors, including the form of money that trading partners will use. Supporting a higher rate of high-quality Bitcoin transactions is uncertain but will likely increase trading fees. If Bitcoin transactions' demand grows so high that we need the lightning network, there should be plenty of on-chain transactions for miners to collect fees from. The incentives of everyone involved in the lightning network are not clear, and it is unclear whether enforcing a percentage of fees collected by payment hubs to be spent as miner fees would make sense. There is a debate about whether the Lightning Network (LN) will lower fees for on-chain transactions or not. Paul Sztorc believes that LN transactions are a substitute good for on-chain transactions, so demand for on-chain transactions will decrease, leading to lower fees. On the other hand, LN transactions cannot take place without periodic on-chain transactions, so they are also perfect complements. The demand for all Bitcoin transactions, including LN and others, is affected by innumerable factors, one of which is the question of which form of money trading partners will use. Supporting a higher rate of higher-quality Bitcoin transactions may increase trading fees.S7r agrees with this theory that if Bitcoin transactions demand grows high enough to need the lightning network, there should be plenty of on-chain transactions for miners to collect fees from. However, the incentives of everyone involved in the lightning network, such as payment channel endpoints, hub operators, and miners, have not been fully seen yet. It might make sense to enforce a percentage of the fees collected by payment hubs to be spent as miner fees, regardless of whether the transactions from that hub go on the main chain or not.Paul Sztorc argues that Lightning Network (LN) transactions are a substitute for on-chain transactions. Therefore, the demand for on-chain transactions will decrease as a result of LN, leading to lower fees. However, LN and on-chain transactions are also perfect complements since LN transactions cannot take place without periodic on-chain transactions. The demand for all Bitcoin transactions is a function of various factors, including which form of money trading partners will use. By supporting a higher rate of higher-quality Bitcoin transactions, the net result is highly uncertain but may increase trading fees.The hashing power of Bitcoin is not related to scalability and decentralization but rather security. Having less decentralized big hashing power is preferable to having less hashing power. If Bitcoin transactions demand grows so high that we require the lightning network, there should be plenty of on-chain transactions for miners to collect fees from. However, the incentives of everyone involved in the lightning network are unknown at this point. It might make sense to enforce a percentage of the fees collected by payment hubs to be spent as miner fees, regardless of whether the transactions from that hub go on the main chain or not.In a discussion on the Bitcoin-dev mailing list, Paul Sztorc pointed out that Lightning Network (LN) transactions cannot take place without periodic on-chain transactions. As such, while LN is a complementary technology to Bitcoin, it still relies on the underlying blockchain to function.
Updated on: 2023-08-01T16:36:58.573115+00:00