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I've read and watched as many presentations as I could about the lightning network. I have a few questions about the economic model of the network.

  1. What would happen when a large hub turns nefarious and change the transaction state dishonestly? I understand that everyone who has an open channel with that hub can revert and back out of the channel on their own accords. I assume the software will send the last good state of the channel back to layer 1 - bitcoin to settle. Wouldn't that flood the blockchain with settlement transactions? Same thing could happen if a software glitch happen to one of the hub rendering it dishonest/buggy output (like what happened with parity in Ethereum).

  2. Since bitcoin fee is dynamic and blocksize is limited, what happen if the fee to settle a channel exceed the value of the channel itself? Wouldn't that mean a huge amount of fund would be deadlocked?

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What would happen when a large hub turns nefarious and change the transaction state dishonestly?

They can't do that. In order to change the channel state, both parties in the channel MUST sign the commitment transaction that does so. A hub is not some centralized node that has full power over all of their open channels. In order for any actions to occur in a payment channel, both parties must agree to it and sign the transactions.

Since bitcoin fee is dynamic and blocksize is limited, what happen if the fee to settle a channel exceed the value of the channel itself? Wouldn't that mean a huge amount of fund would be deadlocked?

The fee rate paid in the commitment transactions are decided beforehand and locked into place before any transactions are made. If the fee rate were to change, then the parties in the channel can agree to increase the fee rate by using the update_fee message.

  • Of course when the hub turns dishonest, it doesn't need to successfully alter the channel state. It just has to broadcast the wrong information about the channel state, which results in everyone sending the claim transaction based on the previous state of the channel to the settlement layer. – curiousmonkey Nov 11 '17 at 18:06
  • I assume that once it was flagged as a dishonest node, everyone would like to default and back out of the channel. Or the node can consistently broadcasting the wrong channel state information (ie. everything is mine). Of course it can't claim them, but it would cause a mass exodus of all its channels. Regarding the fees, a good fee today does not mean it's a good fee for next week. A 200 satoshi/byte fee 3 weeks ago was called excessive, but it would be extremely inadequate today. How would you accelerate the settlement transaction before the Hashed Time-lock contract time expires? – curiousmonkey Nov 11 '17 at 18:14
  • A node does not broadcast its channel state except when it closes the channel. What do you mean by "claim transaction"? There is no such thing in Lightning. – Andrew Chow Nov 11 '17 at 18:33

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