How will miners’ profits be solved if the Lightning Network becomes widely popular?

On December 7, 2018, Bitcoinist reported that the number of Lightning Network nodes exceeded 4,000, the number of channels exceeded 16,500, and the network capacity increased from 122 BTC in early November 2018 to 460 BTC, an increase of nearly 4 times in one month.

On January 7, CCN reported that the number of Lightning Network nodes exceeded 5,150, the number of channels exceeded 18,500, and the network capacity exceeded 557 BTC. Due to the Lightning Network, Bitcoin transaction fees have dropped to a three-year low.

On February 10, the latest statistics from 1ML showed that the number of lightning network nodes was 6,088, an increase of 14.61% from the previous month; the number of channels was 24,660, an increase of 27.3% from the previous month; and the network capacity reached 657 BTC, an increase of 15% from the previous month.

The Lightning Network has received a lot of attention since the beginning of the year, and the media has been hyping it up, which seems to have brought about a small bull market. Let’s not talk about the overall market situation, but from an objective perspective, let’s look at the operation of the Lightning Network and the questionable miners’ income.

What is Lightning Network

First, let's explain what the Lightning Network is. Before Bitcoin became a currency, the first thing it solved was undoubtedly the payment problem. Currently, the Bitcoin block size is only 1M, with 7 transactions per second, while VISA's transaction volume is 70,000 per second and Alipay's transaction volume is 80,000 per second. The Lightning Network solution was proposed in the Bitcoin community to achieve capacity expansion while avoiding Bitcoin hard forks.

The Lightning Network is an off-chain expansion solution. It places small payments off-chain through state channels, and large transactions are generally traded on-chain to ensure absolute security. The two parties to the transaction establish a contract account on the chain through a smart contract and transfer a certain amount of Bitcoin as collateral (which can also be understood as a temporary freeze). In the off-chain transaction channel, there will be "numbers" of the same value as on the chain available for transactions. All transactions between the two parties in the channel are additions and subtractions between numbers. This has the advantage of no mining fees and fast transaction speeds.

The Lightning Network allows all participants in the network to find connections between different channels, such as: Alice/Bob and Bob/Carl each have an independent state channel, then Alice and Carl can establish a transaction connection through Bob and then trade directly. This enables nearly instant and cheap transactions in all directions.

When the user exits the state channel, the smart contract will settle all off-chain transactions and return the unspent BTC. The miners will confirm and package the final transaction and broadcast it to the entire network to prove the validity of the transaction. For example, Alice transfers 1BTC to the contract account, and the off-chain transaction consumes 0.3BTC, then the amount returned from the contract account is 0.7BTC.

The relationship between the state channel and the main chain is similar to the relationship between Alipay and the bank. A certain amount of funds in the bank card is "transferred" to Alipay, and after a certain amount of consumption, the remaining amount is automatically deducted from the bank card by cashing it in.

miner

As mentioned above, off-chain transactions do not require the participation of miners and are not recorded on the main chain, which will greatly reduce the income of miners. If miners cannot obtain sufficient income from bookkeeping rewards, then who will maintain the security of the entire network?

But is this really the case?

Here are two examples from the Internet to explain why the Lightning Network will not reduce miners' income but will increase miners' income?

Case 1: Shenzhen had only one main road, Shennan Avenue, a long time ago. Later, many roads, various branch roads and forked roads were built. Will this lead to the diversion of traffic on the main road, and will all the cars on Shennan Avenue go to the branch roads? On the contrary, there are more cars in Shenzhen, and Shennan Avenue is more congested than before.

Lightning Network is such a branch line, and the main chain of Bitcoin is Shennan Avenue. More and more merchants use Lightning Network to connect to Bitcoin. The transaction volume of the Bitcoin main chain will reach a new height as the number of users on the entire network increases, and the income of miners will continue to grow.

Case 2: The British do not like Chinese people coming to travel, study, or immigrate. Because more and more Chinese people are coming to London, the rent and prices have been pushed up, and the locals can no longer afford to rent a house.

If we look at this issue in detail, there are two types of local British people: those who do international business and those who do local business. For British people who do international business, such as factories that produce batteries for Apple phones, their income has not increased due to the influx of Chinese people, but their expenses have increased, including rent and daily necessities prices.

But for the British who do local business, their daily expenses have increased, but their income has also increased. And the income has increased first. If the economy does not grow and the income does not increase, how can the rent increase?

Income growth comes first, and rent growth comes later. So income growth is greater than expenditure growth. Even if rent growth occurs, most of the rent collectors are local Londoners. The rent income goes into the pockets of British people, so the British people also make money.

For the British in London as a whole, the gains are definitely greater than the losses. For a small number of British people, there are indeed only losses and no gains.

The Lightning Network is a technology that increases the overall value of the Bitcoin network. If the Lightning Network is used commercially on a large scale, many merchants will accept Bitcoin as payment, which will increase the profits of everyone in the upstream and downstream of the Bitcoin industry chain. Therefore, miners will also benefit from it.

On the other hand, if Bitcoin transfers are very slow and stuck, it will hinder the promotion and large-scale commercial use of Bitcoin, and the miners' income will also be affected.