Rational Economic Behaviours in the Bitcoin Lightning Network

TL;DR

This paper empirically analyzes the economic incentives and fee revenue of major nodes in the Bitcoin Lightning Network, assessing the impact of rational behavior on network centralization and topology.

Contribution

It provides the first empirical evaluation of LN's fee revenue, routing incentives, and the effects of rational participant behavior on network structure.

Findings

Major routing nodes generate significant fee revenue.

Rational behavior may lead to increased centralization.

Long-term topology is affected by participants' economic incentives.

Abstract

The Bitcoin Lightning Network (LN) is designed to improve the scalability of blockchain systems by using off-chain payment paths to settle transactions in a faster, cheaper, and more private manner. This work aims to empirically study LN's fee revenue for network participants. Under realistic assumptions on payment amounts, routing algorithms and traffic distribution, we analyze the economic returns of the network's largest routing nodes which currently hold the network together, and assess whether the centralizing tendency is incentive-compatible from an economic viewpoint. Moreover, since recent literature has proved that participation is economically irrational for the majority of large nodes, we evaluate the long-term impact on the network topology when participants start behaving rationally.