How come the lightning network creators believe the fees will be zero?

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In this article, Joseph Poon and Tadge Dryja say that they believe the lightning-network-fees would be less than 1 satoshi per node you transmit through, in practice.

As far as I understand, you need to put two transactions on the blockchain in order to set up a single payment channel (one for opening and one for closing it), you need atleast two payment-channels to route a payment. That's four writes to the blockchain in total.

According to, this and this page, you need somewhere atleast 300 satoshis per byte or 76k satoshis per standard transaction, we all expect this to rise with increased adoption. That means that for running a node you need to make atleast 76*4=304k transactions just to break even.

I have seen suggestions that you might want to close your paymentchannels atleast once per month, I feel that 304k transactions per month in every single node is very much if we believe lightning network will be very distributed. However, I believe the Joseph and Tadge are smarter and more knowledgable than me, so what am I missing here?

Kristoffer Nolgren

Posted 2017-11-09T09:54:39.800

Reputation: 537

Answers

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For each payment channel there will be two transactions sent to the blockchain, as you say, for opening and closing it. I'm not sure of the exact specifics of the lightning network, but I don't know where you are getting four writes to the blockchain. It should just be two: open a channel, close a channel, and do as many LN transactions as you want in between.

The LN fee they are talking about is not the opening and closing writes to the blockchain. Those are just normal Bitcoin transaction fees, separate from LN fees.

From what I understand the LN will be a somewhat decentralized system of large nodes that process the transactions. Every time you send a transaction inside of a payment channel on the LN you have to pay a fee to these nodes that route the transactions through the LN, this is how the nodes make money. But because the LN is a more centralized network than the bitcoin network, and it doesn't involve computing incredibly expensive hashes to confirm transactions, the cost of routing payments through the LN is very cheap. It won't be free, but it should be very cheap. Credit Card companies take usually around 3% fee, I read Joseph Poon say at some point that LN transaction fee will be percent based (instead of data size based like blockchain) but the fee will be less than 1%, maybe even as cheap as 0.1%.

Additional thoughts:

Assuming merchants eat the transaction fee as they do for credit card fees, it will save merchants a lot of money (>2%). Note however that for large Bitcoin purchases just doing a standard blockchain transaction will be cheaper than using the LN. Even with current transaction fees, if you pay $1000 for something with Bitcoin with a $5 fee, if LN has a 0.5% fee then it'd also be a $5 LN fee, so using those hypothetical numbers that would be the break even point where $1000 use normal bitcoin transaction. LN is meant for many small purchases and will be much cheaper than Bitcoin when you use it for many small everyday purchases.

theCodeBear

Posted 2017-11-09T09:54:39.800

Reputation: 11

Here is my thinking: if the transactions are to be free, the nodes providing routing must provide this for free aswell, that means that routing nodes can't have any costs. But a routing node must set up atleast two payment-channels and must include the costs of opening and setteling their payments. – Kristoffer Nolgren – 2017-12-07T11:59:46.803

They will absolutely not be free. They provide a service so there will be a fee for that service. The point is that operating a LN node should be cheap enough and have enough transactions passing through it (perhaps millions of txs/day) that the fee should be a very low % of the transaction - much lower than credit card fees. Essentially LN will make Bitcoin a direct competitor to credit cards, and it will be cheaper and faster and has fewer middlemen to go through (just LN nodes compared to multiple middlemen layers for CCs). We'll just have to wait to see exactly how cheap it will be. – theCodeBear – 2017-12-08T12:41:44.247

Asked: 2017-11-09T09:54:39.800

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Active: 2018-02-07T19:38:41.200