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How will people be able to buy and sell their BTC if all of it is locked inside Lightning channels?

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Lightning Network payment channels are not really "locking up funds". Your funds are not locked, you can still send money to people and transact over the Lightning Network, even if you don't have a direct payment channel with those people. LN lets you route payments through others. So if you wanted to sell some Bitcoin and you have an open LN channel, then you can route your money to an exchange that supports LN and thereby deposit your coins. Then you can sell them. In your LN channel, you would have 0 Bitcoin, so you have actually sent your Bitcoin elsewhere.

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    "LN lets you route payments through others" only if the route between your node and the recipient node has enough capacity. This relies on every channel in the route between your node and the recipient's node to have enough capacity to carry your coins through the network to their destination. If the capacity is used-up OR the route doesn't exist then your funds are locked up in the channel. – bvpx Jan 13 '18 at 2:18
  • There isn't necessarily just one route between two nodes. It is very likely that there will be multiple routes between nodes with each node (note that all users of LN are nodes) having multiple channels. So it's very likely that a route will be found that can allow you to transact with the other person. – Andrew Chow Jan 13 '18 at 2:20
  • I don't see how that's possible or probable - for what reason would a node have an open channel to a random person with capacity more than the amount they need to send to that person once? – bvpx Jan 16 '18 at 17:35
  • The node may be running in autopilot mode where it opens and closes channels automatically and as it needs to without the operator having to do anything. Autopilot mode in LND maintains several open channels which the operator does not necessarily know about so that when they want to make a payment, there will be at least one route it can use. It also lets more people route through that node. Furthermore, payment channels are not for one time use, so it is reasonable that you would put more funds than just one payment's worth into a channel for future use. – Andrew Chow Jan 16 '18 at 18:02
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    Pre-funding is exactly the issue I have: channels must be funded with more BTC than the amount I'm sending at the time, but funding those channels with more BTC than I'm sending at the time means my coins are sitting in a channel waiting to be used. The set of payments possible on LN is a subset of the payments possible on the blockchain because it requires not only a route to my destination but also a route with enough capacity for my payment to go through it. Let's be clear about the trade-off: LN increases scalability at the cost of locking up funds in a smaller potential spending pool. – bvpx Jan 17 '18 at 16:30

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