Is centralization in the Lightning network inevitable? Why (not)?

Question

Especially keeping in mind the possibility of single-funded channels (see Tadge's Google Doc Slides), buying from an exchange and concurrently opening a payment channel on the Lightning network would seem a particularly simple entry to the LN.

Exchanges and payment-providers would therefore seem to be in a natural position to become well-connected.

• Is it fair to expect emergence of a network topology strongly centered around well-connected nodes such as the aforementioned and other liquidity providers?
• What incentives are there for establishing additional connections with less well-connected nodes?
• Is it reasonable to expect the network to "flesh out" with alternative connections around the center nodes?

Answer 1

“Centralization” is now a word constantly repeated but is one that, generally speaking, no one tries to define accurately. ---Alexis de Tocqueville, Democracy in America, Vol.1, Part 1, ch.5.

Lightning Network channels will naturally tend to form along the paths of economic activity. If you assume (as I do) that most economic activity in Bitcoin today is from individuals to large Bitcoin businesses (mostly exchanges), then you should further assume that most channels will be between users and those very same large businesses.

You can call the centralization if you wish---but it is not a centralization of Lightning's making; it is a centralization that already exists for Bitcoin users.

Moreover, even though Bitcoin commerce and trading is dominated by large businesses, there are quite a few of those large business. I haven't looked up figures, but I would suspect that Bitcoin commerce has a much less centralized distribution than mining at the present time---and with new businesses offering Bitcoin-payable services all the time, Bitcoin commerce would seem to be in a steady of progressively becoming more decentralized.

Answer 2

The "centralization" that most people talk about is really about limiting who can effectively (and profitably) participate.

If we're talking about the blocksize debate, the idea is that larger block sizes require faster internet connections to remain competitive and at a certain point this might make it infeasible for any but a few large companies to be profitable mining blocks. If this is true, because bitcoin is essentially controlled by miners, this could lead to a different group of people controlling bitcoin than do now (ie perhaps a group we don't want controlling bitcoin).

If we're talking about the lightning network, the idea is that larger hubs would have the advantage over smaller hubs because they'd be more likely to have a route to whoever you want to pay and those routes are likely to have fewer hops. The thing is, if this is true it doesn't really affect Bitcoin. Even if the result is that everyone is connected to one single hub, that hub has 0 power to influence miners. If that megahub ends up being a bad actor, someone can easily switch to another hub. There might be some privacy issues with a megahub, and they could censor transactions, and that kind of thing, but it wouldn't be able to steal your bitcoins nor would it be able to hijack the consensus rules of bitcoin for its own gain.

My opinion is that the advantage of having fewer network hops isn't really much of an advantage. Its much more likely that many medium-sized hubs will be created, not the least reason being that people are going to want to connect to multiple different hubs in the case that one of them goes down for some reason.

So tl;dr, the LN doesn't really have a major centralization pressure, and even if it did, the centralization wouldn't cause any major problems.

Answer 3

Sad to see people downvoting this question.

Contrary to Harding's statement that "Lightning Network channels will naturally tend to form along the paths of economic activity", in LN channels... there are no such paths, there is no routing.. there are only channels with btc stuck between 2 parties.

So, yes, if one party is Amazon, you may be able to get an enormous amount of different goods. And if it's your local tomato-farmer, you can only get tomatoes from them.

So centralisation becomes a certainty in LN, be it coinbase, bitpay, amazon, of whomever is big enough to attract inflows of btc... the only incentive is to get big, and get big fast.