CMSA Computer Science for Mathematicians: Lightning Network Economics: Cost-minimal channels and their implications for network structure
Clara Shikhelman - Chaincode Labs
The Lightning Network is a second-layer solution built above Bitcoin, aimed to solve Bitcoin's scalability and immediacy problems. A channel in the Lightning Network allows two parties to secure bitcoin payments and escrow holdings between them. Designed to increase transaction immediacy and reduce blockchain congestion, this has the potential to solve many issues associated with Bitcoin.
In this talk, we study the economics of the Lightning Network. We present conditions under which two parties optimally establish a channel and give explicit formulas for channels’ costs. Using these, we derive implications for the network’s structure under cooperation assumptions among small sets of users. We show both local implications, such as the wastefulness of certain structures, and global implications, such as a (low) upper bound on the Lightning Network's average degree.