I watched the 2015 presentation of LN, and I've read a portion of the paper - so I understand basically how the channels work (I think). However, I'm not sure I've fully grasped how this will help scalability in practice.

If Bob and Alice want to transact (let's say Alice is a random internet retailer - not Amazon - and Bob wants to buy waaaaaay too many tattoo stickers for his daughters for Christmas, not realizing that each little package has like 40 sheets of the things). Bob would then have to open a channel with Alice, transfer the balance required to complete the purchase, and then the channel would be closed.

For pretty much all economic relationships except for a few enormous ones (Amazon, eBay, Walmart, etc), you won't (and wouldn't be able to) keep open channels all the time.

From these two observations, I wonder: wouldn't the process of opening / closing a channel actually create two transactions to be processed on the blockchain? If most transactions are between actors who don't maintain channels between themselves, then how does LN actually help?

If the answer is "you keep open channels with a small number of other actors and then route payments through open channels", doesn't that encourage a very high degree of centralization due to the prohibitively large capital requirements for main hub nodes?

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You would not open and close a channel for each transaction. Instead, you would have one or more open channels at all times and find routes to the places yours want to send money.

doesn't that encourage a very high degree of centralization due to the prohibitively large capital requirements for main hub nodes?

No. If you make a transaction of about 50 USD, any route from Bob to Alice where all channels are greater than or equal to 50 USD (in the right direction) will do. It does not have to go through a central hub. 50 USD is not a "prohibitively large capital requirement". If you make a 50,000 USD transaction, it's a different story. With lightning, the network is more centralized with larger transactions because you have fewer routes to choose from. However, the vast majority of transactions aren't going to be very large, and therefore will have a very low degree of centralization. They can use more routes.

Because small transactions will no longer require space in blocks, this will take significant load off the main chain.

  • If LN requires actors to keep one or more open channels, aren't they going to keep those open channels with the actor with whom they transact most frequently? In a mass-adoption scenario, my open channel is going to be with either Walmart or Amazon - I understand in theory how centralized hubs aren't required, but how in practice can they be avoided? Jan 2, 2018 at 13:40
  • If you transact with a single node frequently, then yes, it's beneficial for you to have a direct channel open with them. However, this is your choice, and it is by no means required for the network to function. Also, centralization is not the problem on LN that it is on the main network. Centralization in a POW system means those who own hashing power can censor transactions. In LN, where there are always alternate routes, how does the existence of large central hubs allow for the censoring of transactions? Since there are alternate routes...it doesn't.
    – Jestin
    Jan 2, 2018 at 16:04

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