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does LN represent a risk for the Bitcoin ecosystem since it will reduce miner fees (the only income they'll have in a post-btc-minting world) and displace them into second layers?

I couldn't find any analysis that addresses this concern (the reduction of hashrate).

If fees are reduced for miners it will centralize even more mining, since even less organizations could support mining operations in a profitable way.

Will it centralize mining even more and reduce hashrate, thus reducing Bitcoin decentralization?

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The idea that Lightning will reduce the amount of fees going to miners is very common, and we probably won't know for sure until we actually try it. However, I'll try to provide some arguments as to why I don't believe it'll result in a drop in fees for miners, let alone a drop in hashrate.

I think the idea that Lightning will drain transaction fees from the Bitcoin network is wrong. First of all Lightning will enable completely new use-cases for Bitcoin, increasing its reach and resulting in a vast increase in the transaction rate and tapping into markets that are currently simply too expensive to serve. Every single one of these transfers will result in some (small) fees for the channel operator, which she can then use to pay for the on-chain transaction for the maintenance of the channel. The fees can be much higher than a classical Bitcoin transfer since the utility the operator derived from the coins in the channel are much higher, since they have been sent back and forth an arbitrary number of times.

Think of Lightning as an aggregation layer for Bitcoin: it processes transfers that the current Bitcoin cannot process itself, accumulates fees and then releases some of those fees back to the Bitcoin layer.

Secondly, Lightning shifts the security model from a model where we broadcast a transaction and eventually it'll confirm, to a model in which the confirmation time becomes time-critical. There are transactions in Lightning, which we need to get confirmed before a timeout, otherwise we risk losing some coins, due to an old state being committed to the blockchain. This time-critical confirmation encourages channel operators to attach larger than usual fees to these settlement transactions. Fees that end up with the miners.

Finally, on-chain Bitcoin and off-Chain Lightning transactions have different tradeoffs, I don't see the world becoming Lightning only, but I do hope that Lightning is a useful tool for some use-cases. In the end Lightning is a system that is built on Bitcoin, and thus can only be as secure as Bitcoin itself.

(disclaimer: I am one of the developers working on Lightning)

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    thanks for the detailed reply. It'd be great if lightning ious implemented some miner fee amount that increases with each new tx (along with sharing the secrets). – joe.js Mar 2 '17 at 19:11
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    We'll certainly do all we can to support the ecosystem, we're deeply reliant on Bitcoin :-) – cdecker Mar 2 '17 at 20:51
  • "Every single one of these transfers will result in some (small) fees for the channel operator" This is one big assumption. In my worldview, If LN works, I see big players the size of Amazon, Google, Facebook, or financial institutions operating hubs and waving the fees completely to kill smaller would be operators that won't afford the on-chain costs. More centralization. – Gubatron Aug 2 '17 at 17:09
  • That might work as a short term strategy to push out smaller operators, however in the long run they'd be making losses. In your argument there is the implicit assumption that there is something to be gained in being a large hub operator, and I wouldn't be so sure about that. Ultimately we can only provide the tools and hope that a healthy network emerges. The important thing is that everybody gets the same tools, allowing them to participate on a level playing field. – cdecker Aug 3 '17 at 13:03
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Lightning Network doesn't necessarily reduce fees, it increases the number of transactions processed in one block. So each tranx costs less but total fees in the block add up due to more number of tranx. As adoption increases, so will no. of tranx. Its similar to increasing block size but better, because it needs less storage on full nodes, so more decentralization than block size increase.

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I'm a miner and I can tell you that mining revenue is now only 28% of what it was before lightning. Its killing miners.

  • Does anyone know how miners can bypass the lightning network? Reward for info resulting in success. – JRainalt Feb 5 '18 at 8:09
  • Welcome to the bitcoin SE! Please note that Answers/comments are not the place to ask questions. You can try searching to see if anyone has asked a similar question in the past, and if not feel free to create a new question yourself :) – chytrik Feb 5 '18 at 8:26

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