Bitcoin’s Lightning Network Has Signs Of Centralization, But Is Stable

Bitcoin's Lightning Network Has Signs Of Centralization, But Is Stable

Key facts:
  • Some nodes, such as ACINQ, concentrate a large number of payments routed daily.

  • Only 4 nodes of the network concentrate 10% of all open channels in the Lightning Network.

The Lightning network (Bitcoin’s second layer solution specialized in micropayments) shows signs of centralization, but it is not a symptom that compromises its stability. This is shown by a recent study published by Cornell University.

The report of the academic establishment tracks the growth of the nodes of the Lightning network. It is noted that some concentrate a large number of routed payments, which is a possible sign of centralization.

Lightning Network (English name of this network) is a network with a 1 to 1 payment system. Users connect in pairs to send and receive payments. Under this system, routes are created for sending payments between unconnected peers.

If A and B need to send some bitcoins (BTC), but do not have a channel between them, they can use C, which has an open channel between these two nodes. The fewer the number of hops between nodes, the lower the fee to be paid.

Bitcoin's Lightning Network Has Signs Of Centralization, But Is Stable
Each point symbolizes a node on the Lightning network. The largest points are nodes with greater capacity, as is the case with the bfx-lnd that supports up to 252 BTC. Fountain: 1ml.com

Due to this system, nodes such as ACINQ, which have more than two thousand open payment channels, route and concentrate a large number of payments. It turns out to be so because they offer the cheapest routes when sending BTC over the Lightning network. This makes them very large nodes, which generate some centralization.

The problem of centralization

The problem presented by the Cornell University study shows that, due to the low rates that these nodes offer by providing the best routes, dependence on them can cause a problem.

However, the problem of possible centralization is not that the network has a vulnerable point, but rather that if these nodes stop operating, the efficiency of the network could be reduced by up to 20%. To let any of these nodes work, the network will have to re-locate payment routes, which would result in an increase in rates.

Anyway, they clarify that this problem would not affect the stability of the network. If the nodes were completely eliminated, the network would simply mutate to find new and better routes.

More and more nodes are added to the network

In classical economics, the principle of Homo Economicus, dictates that people make decisions based on behaviors that generate the greatest economic benefits. In this sense, the nodes that concentrate the largest number of payments only offer the best rates and the fastest routes. However, any node can route payments.

In the last year, data show that the growth of the nodes that have been added to the network has meant a growth of almost 400%, going from 8,000 nodes at the end of 2020 to almost 32,000 today.

As CriptoNoticias detailed at the end of October, although the growth of the Lightning network was of an important magnitude, it is small in relation to the demand that there is for the use of this network.

Unlike the nodes in the main Bitcoin network, the nodes in the Lightning Network offer benefits and returns to their holders, thanks to the routing of payments. Alex Bosworth, Infrastructure Lead, Lightning Labs, explained recently that thanks to your node generates more than USD 4,500 per month. This is thanks to the fact that it has one of the oldest nodes in the network and that it currently routes a large number of payments.

In short, the centralization of the Lightning network is relative and exists only in terms of dependency. Users want the lowest rates and use the best routes created by large nodes. However, the network is free to create new routes in the future, causing such dependency to take a back seat.

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