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Lightning network centralization metrics
2088 sats \ 41 comments \ @shyfire 11 Sep 2022 bitcoin

Disclaimer

I've only been diving into LN since around June, so it's entirely possible there are some major flaws in the below. If you spot any, please let me know!

Overview

In this post I unpack the question "Is the Lightning Network (LN) becoming more or less centralized over time?"
2022 has been a big year for lightning with megacorps like Kraken now running their own nodes, so I think this question bears merit.
Many people believe that the centralization of LN is inevitable. For example, in this big blocker video, the author claims that the lightning network will inevitably become more centralized for a bunch of reasons such as:
  • Nobody has any Bitcoin so only mega corps will run big nodes
  • Mega corps won't open channels with smaller nodes
I'm not going to steel man the entire argument here, you can/should look that up to get the full picture. Anyway, visual summary of the argument:
https://coinyuppie.com/wp-content/uploads/2021/09/5648376_image3.jpg

Metrics

So how do we calculate a number we can track over time to see whether the LN is drifting towards - or away from - centralization over time? One naive option is to look at how many single points of failure there are, formally known as cut edges and cut vertices. If the number of cut edges is low (for some definition of "low"), the network is decentralized.
Cool, so let's just plot that over time? Thankfully someone already has! Check it out here:
Bitcoin Lightning Network Cut Channels Chart - Bitcoin Visuals
The chart shows a big rise in cut edges until around March/April of this year, when the number drops off a cliff. The number is now holding steady, perhaps increasing slightly.

Interpretation

While cut edges / vertices is a simple global measure of absolute centralization, it's not a very effective measure. For example: private spending nodes such as those being championed by the folks over at PLN should be excluded from this metric. In addition, perhaps it makes sense to somehow classify nodes into "spenders", "merchants" and "routers"? My thinking here is that we care about minimizing cut edges between spenders and merchants, since financial censorship usually strikes the merchants and routers connected to those merchants, a la operation choke point. Maybe what matters is redundant paths between the mega nodes, assuming both spenders and merchants will be using these?
In closing, if we care about decentralization of LN to ensure that the network remains financially inclusive, I think we need a measure called "censorship resilience", which measures the number of redundant paths between spenders and merchants and also between the big routing nodes.
p.s. found this previous post on SN that looks useful to start digging deeper into this #20470
p.p.s. For a while I thought this whole topic could be a nothingburger: if part of the network dies, simply open a channel? However the delay involved in doing this due to block confirmation times could be quite detrimental, especially if mempool is congested, in an adversarial environment where time could be of the essence.
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200 sats \ 1 reply \ @lv99_slacker 11 Sep 2022
I have yet to spin up a lightning node (need to do more research), but it's good to see the state of things as they currently stand. Gives me an idea on how I can help contribute to the LN in a way that helps with decentralization.
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20 sats \ 0 replies \ @shyfire OP 11 Sep 2022
Same... My node hardware is arriving this week. I still need to figure out exactly what the anti-centralization heuristics for channel opens are are apart from "join plebnet"
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100 sats \ 38 replies \ @HODL 11 Sep 2022
Thanks for sharing @kobie, haven't came across the cut channels before.
Talking about visuals, a really nice visualisation of the channels right here: https://lnrouter.app/graph
To the haters: we have and always will have large nodes. But we also have thousands of small ones too (hopefully growing into millions/billions one day). And I believe that's all that matters if we're talking about decentralisation.
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0 sats \ 37 replies \ @moneroshill 12 Sep 2022
The government has legal precedent to regulate lightning nodes. Individual bitcoiners will be legally discouraged from setting up nodes with any meaningful amount of liquidity, which is necessary to route funds in an un-censorable way. Even then, what will people be funding those channels with? KYC coins. Eventually there will be no more "Virgin Bitcoin"
In any case, it's the large nodes that profit by recreating the traditional financial system (albeit with fewer steps). The small nodes are useless because they do not have enough liquidity or connections to route transactions.
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1 sat \ 36 replies \ @shyfire OP 12 Sep 2022
I do think that there is legal precedent to regulate lightning nodes, yes.
However I do believe that since LN uses onion routing, it's physically impossible to force KYC requirements onto node operators. This begs the question: what kind of legal requirements would be placed on node operators exactly?
As for funding channels, you could do that with KYC free coins that have been mined, traded P2P, mixed (although that's only semi-KYC-free), atomic swapped, etc. So I do think it's possible to run a decent node with large liquidity and remain anonymous, if you're very very careful.
it's the large nodes that profit by recreating the traditional financial system
This is a bit of a straw man. The payment rails of the traditional financial system operate on future settlement notes, glorified IOUs basically. LN payments are instant and final. It's also built on top of hard money, not fiat.
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0 sats \ 35 replies \ @moneroshill 12 Sep 2022
I'll say this much: the LN is quite cheap (transactions are often 0 sat) and it's not owned by a single company that can hike up the fees, so the fee market is quite competitive. It is not bad compared to PayPal and others (it retains similar privacy characteristics), but it is pretty terrible compared to on-chain cryptocurrency.
As for "hard money", I don't know about that. My theory is that bitcoin mining will collapse in a decade or two, but I've argued this point enough here and I won't waste your time any further.
I also don't know about the finality. The whole LN is just a tradeoff between finality and bandwidth. The reason it costs less is simply because it delays bitcoin's finality. As the network congestion increases (assuming global adoption let's say), I guess that it will not be sustainable because not everyone will be able to reliably close channels in a secure way.
I am pretty skeptical of LN in general. It's already infeasible for me as a non-bitcoiner to open and close my own channels due to on-chain fees. I am forced to use LN custodially.
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201 sats \ 6 replies \ @xz 12 Sep 2022
"as a non-bitcoiner ... I am forced to use LN custodially."
As a person with no coins in my pocket, I'm forced to do x, y, z. Nobody is forced to use LN. Of course, if you do not have the desired currency, you could always resort to asking if other methods of payment are accepted.
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0 sats \ 5 replies \ @moneroshill 12 Sep 2022
I am forced to use LN to access this website.
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200 sats \ 10 replies \ @HODL 12 Sep 2022
Are you blind or spreading misinformation on purpose?
It is not bad compared to PayPal and others (it retains similar privacy characteristics), but it is pretty terrible compared to on-chain cryptocurrency.
Can you send $1 over PayPal without KYC? You don't need KYC to send nor receive on the LN at all. As for the sender, their privacy is at a similar level of the shitcoin in your name. You can't trace back to the sender unless you have open a direct channel.
I also don't know about the finality.
The transaction on LN is final within seconds. If it wasn't, why would any exchange like Kraken or Bitfinex risk their whole businesses just to use it?
My theory is that bitcoin mining will collapse in a decade or two
Something is telling me you don't understand how Bitcoin nor mining works.
It's already infeasible for me as a non-bitcoiner to open and close my own channels due to on-chain fees. I am forced to use LN custodially.
Keep lying to yourself, I linked in another reply to you a recent block transaction cost - $0.03. If you can't open a channel that cost $0.03 for months to use, than avoid Bitcoin as well as your shitcoin completely, please.
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0 sats \ 9 replies \ @moneroshill 12 Sep 2022
Can you send $1 over PayPal without KYC? You don't need KYC to send nor receive on the LN at all. As for the sender, their privacy is at a similar level of the shitcoin in your name. You can't trace back to the sender unless you have open a direct channel.
It is obvious to me that LN will become regulated in the coming years. In order to aquire LN Bitcoin to use this site, I had to use a KYC exchange. Even if you get bitcoin from a non-KYC exchange, it probably was associated with at least one identity at some point, so feds can work backwards to trace who gave coins to who.
The transaction on LN is final within seconds. If it wasn't, why would any exchange like Kraken or Bitfinex risk their whole businesses just to use it?
This is a bold-faced lie. The transaction is not final until your channels are closed. Exchanges prefer LN because the on-chain fees are stupid high, and because they profit as a routing intermediary on the LN. It is in many ways a recreation of the existing financial system.
Something is telling me you don't understand how Bitcoin nor mining works.
The price of bitcoin will need to double every halfening in order for BTC mining to be sustainable. This is obvious to everyone in cryptocurrency with a functioning brain. I've argued this enough here.
Keep lying to yourself, I linked in another reply to you a recent block transaction cost - $0.03. If you can't open a channel that cost $0.03 for months to use, than avoid Bitcoin as well as your shitcoin completely, please.
Let's say I'm a non-bitcoiner and I have a dollar worth of bitcoin on an exchange. How do I put that dollar into a non-custodial LN channel that I control without doing an on-chain withdrawl and having my dollar eaten by fees? Obviously the only thing I can do here is use bitcoin cusodially by sending it directly from my exchange.
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1 sat \ 16 replies \ @shyfire OP 12 Sep 2022
It's already infeasible for me as a non-bitcoiner to open and close my own channels due to on-chain fees.
I recently paid $0.03 to open a channel. If that's prohibitive, then yeah, LN is probably not the right payment tool for you.
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0 sats \ 15 replies \ @moneroshill 12 Sep 2022
The fee will increase dramaticially as more users join the network. I hope 1MB every 10 mins is enough for constantly opening and closing enough LN channel for everyone in the world to use bitcoin.
Will everyone in the world run their own lightning node? The more likely outcome is: either that everyone uses bitcoin custodially or bitcoin just never catches on and dies.
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