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Many Bitcoin mining companies have large Bitcoin holdings, and as far as I know, none of them have found really compelling ways to earn a return on those assets yet (counterpoint: they may not ever need to).
However, as more transaction activity moves to Lightning, miners may become increasingly dependent on channel open/close fees, and in turn may miss out on all the fees which accrue to routing nodes on the Lightning Network.
Is it possible that one day a majority of all fees paid for Bitcoin transactions are paid to LN routing nodes rather than Bitcoin miners?
If so, wouldn’t it make sense for large miners to put some of their Bitcoin to use on the Lightning Network and earn some fees in return while neutralizing a threat to their future revenue?
I understand that it’s difficult to be a profitable routing node operator today, but miners have both the capital necessary to take a shot at it, and the threat of revenue shortfalls if they don’t.
They also have such slim margins that little improvements can make big differences in the sustainability of their business.
One final data point which gives me hope that miners could be profitable is that River has earned ~$100k to date (from their Lightning report) for routing payments through their nodes without even prioritizing revenue (they prioritize payment reliability).
I wouldn’t be surprised if a miner could earn an extra $100k/year right now… and a few orders of magnitude more as Lightning activity scales.
There is nothing about mining that gives you an advantage in operating a lightning node as long as Bitcoin itself is working properly, and mempools are competitive. Yes miners have slim margins. And yes, lightning nodes might end up taking away fee revenue from miners.
But the correct question to ask is why would a miner have an advantage over someone else when running a lightning node? The answer is, they don't.
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If you pair bitcoin mining with Distributed Charge - GRID (http://andyschroder.com/DistributedCharge/GRID/Overview/) and a lightning enabled mining pool payout, the miner can collect their revenue and pay for their expenses directly with lightning without needing to make extra on chain transactions. Mining pools can afford to make much more rapid payouts with off chain transactions. Making much faster payments for your expenses with Distributed Charge - GRID allows a miner to operate a bit leaner than they otherwise (they will collect revenue and pay their main expense nearly instantly) would and will allow them to take part in the future where we have a truly decentralized energy grid where instantaneous pricing is based on the price your neighbors are willing to buy and sell energy at right now.
I'd say that will be a big incentive to run a lightning node as a miner, but not necessarily an advantage over players in the marketplace. In a bitcoin only economy, everyone should be collecting their revenue and paying their expenses with lightning, but right now, miners can only collect their revenue in bitcoin, so the will be early adopters
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Have you considered enabling TLS on your website?
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is just reading a text not shopping mall...
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True. I just had a discussion about this the other day which is what prompted me to ask: #286619
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Yes, using lightning for payouts makes sense for mining pools.
But I'm talking about running a lightning node with the aim of earning non-trivial money from routing. Not running a lightning node because it's useful for payments.
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do you think it’s likely that a majority of all bitcoin tx fees are collected by LN routing nodes at some point in the future?
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Maybe? But it's likely that for quite awhile on-chain txs will be necessary for rebalancing LN channels, which means LN fees will be flowing to miners.
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They can open channels for free. Only tiny advantage I can imagine
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Self-mined transactions are generally not free. The space could have been used for other, paying, transactions.
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Ooh. Nice way of putting it.
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How do they open channels for free ?
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by mining them
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Electricity is free?
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no but miners don't pay mining fees
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They do. Everybody does. Miner A pays to the miner B who wins the mining race for the block with A's transaction.
Sometimes, it might happen that a miner mines a block with its own transactions. But that's nothing you can rely on.
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But that's nothing you can rely on.
You can. You just don't broadcast the transaction. So the transaction will only be included in a block when you mined a block. Then you can do it for free. You just need patience.
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With what money? Customer funds? How is it audited? How is it secured? What individual is going to manage it?
Miners do one thing well and they centralize the coordination of it. They aren't whales looking to gamble all of their hard work trying to be a profitable miner by throwing away money at a poor chance for more. Most of it either goes back to individual miners, electricity bills, or expansion of their successful business if they are doing decent.
Agreed with @petertodd - there's nothing special about being a miner, and being a non lightning product trying to "get yeild" is a pipedream. Especially given how calculated and conservative mining typically is.
Also it's a security concern for LN.
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I've often thought that entities with a lot of capex invested in btc would do well to pursue some higher-order strategies. In other words, if your entire existence depends on btc being worth something -- and in particular, if it depends on it being worth more than it is now, to deal with things like halvings, etc. -- then it would behoove you to try to grow the pie in whatever way you could. Swan seems to do a nice job of this, spending some of their efforts on education, proselytizing, etc.
With that as context, is there any regard in which miners would have a competitive advantage in the lightning ecosystem?
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Diversification is good for any business, I just don't think there's anything that transfers over specifically from mining operations to lightning node routing yeild.
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in this case i was thinking about public miners that hold bitcoin on their balance sheets, lots of companies with 100s or 1000s of BTC sitting idle right now.
that being said, i hear the concerns about lightning distracting miners from their core business and the lack of a competitive advantage.
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Yeah if the only thing there is having a lot of Bitcoin, then no I don't think anyone in that position should be going out deploying it on lightning expecting any yeild. At those numbers it is more a liability than it is a wise investment.
I don't think routing profits should be expected by anyone that isn't building products or services on top of lightning specifically around their node which is also routing. Can't just insert yourself into the network and expect anything.
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yeah that’s fair
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I hope not
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I’m curious as to why?
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miners break the incentive model of lightning. if they can prevent your force close txs from getting mined then you lose all your money.
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trying to make sure I am following what you’re saying
In that scenario, all miners would have to exclude your force close tx from getting mined, right? Even if some of the major pools excluded them, these miners would need total control of the mined blocks to effectively enforce it indefinitely? If I’m understanding correctly, this emphasizes the importance of distributed mining, and not allowing the big pools to take over
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yes which we are extremely far from
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So StratumV2 is still far out or it won't solve these problems?
I thought with StratumV2, block templates are no longer pushed by the pool but every miner can choose the block they want to mine on their own. Wouldn't that help?
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stratumv2 would help a lot, however, it is far out and then still needs to get adoption
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these miners would need total control of the mined blocks to effectively enforce it indefinitely?
I don't think they need to do it indefinitely. The problem is just timing of transactions, like justice transactions. If the other side force closed the channel with an earlier state which favors them, you need to broadcast a justice transaction and this one needs to be mined fast enough (1-2 weeks) iirc what I read in Mastering the Lightning Network.
Not sure why @benthecarma said force txs. I thought it's about justice txs.
Or am I missing something?
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yeah i just meant the force close txs in general
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