Abstract
Lightning Network (LN) is designed to amend the scalability and privacy issues of Bitcoin. It is a payment channel network where Bitcoin transactions are issued off the blockchain and onion routed through a private payment path with the aim to settle transactions in a faster, cheaper, and more private manner, as they are not recorded in a costly-to-maintain, slow, and public ledger. In this work, we design a traffic simulator to empirically study LN’s transaction fees and privacy provisions. The simulator relies only on publicly available data of the network structure and capacities, and generates transactions under assumptions that we attempt to validate based on information spread by certain blog posts of LN node owners.Our findings on the estimated revenue from transaction fees are in line with the widespread opinion that participation is economically irrational for the majority of the large routing nodes who currently hold the network together. Either traffic or transaction fees must increase by orders of magnitude to make payment routing economically viable. We give worst-case estimates for the potential fee increase by assuming strong price competition among the routers. We also estimate how current channel structures and pricing policies respond to a potential increase in traffic, how reduction in locked funds on channels would affect the network, and show examples of nodes who are estimated to operate with economically feasible revenue.Our second set of findings considers privacy. Even if transactions are onion routed, strong statistical evidence on payment source and destination can be inferred, as many transaction paths only consist of a single intermediary by the side effect of LN’s small-world nature. Based on our simulation experiments, we (1) quantitatively characterize the privacy shortcomings of current LN operation, and (2) propose a method to inject additional hops in routing paths to demonstrate how privacy can be strengthened with very little additional transactional cost.
Highlights
Bitcoin is a peer-to-peer, decentralized cryptographic currency [1]
We provide an open source tool for nodes to experimentally design their channels, capacities, and fees by incorporating all possible information that they privately infer from the traffic over their channels
Lightning Network (LN) as a payment channel networks (PCNs) consists of nodes representing users and undirected, weighted edges representing payment channels
Summary
Bitcoin is a peer-to-peer, decentralized cryptographic currency [1]. It is a censorship-resistant, permissionless, digital payment system. A major line of research is focused on amending existing currencies without modifying the consensus layer by introducing a new layer, i.e., off-chain transactions [5][6][7] These proposals are called Layer-2 protocols: they allow parties to exchange transactions locally, without broadcasting them to the blockchain network, updating a local balance sheet instead and only utilizSyntax Error (7241010): Dictionary key must be a name object. Our traffic simulator opens the possibility for addressing questions of transaction routes, amounts, fees, and other measures otherwise depending upon strictly private information, based solely on the observable network structure. We provide an open source tool for nodes to experimentally design their channels, capacities, and fees by incorporating all possible information that they privately infer from the traffic over their channels.
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