It’s possible bitcoin’s Lightning Network will fall short of its lofty ambition – at least, that’s what a group of researchers is arguing.
Lightning's specific twist on payment platforms, frequently trumpeted as the future of bitcoin, has served as one of the basic principles for scaling all public blockchains. It is assumed by many developers to be the best way to increase the number of transactions the network can accommodate by proposing to force transactions off the bitcoin blockchain, but maintaining strict cryptographic guarantees intact.
But the pressure for Lightning may be on. With bitcoin’s debate over its own scaling roadmap now paused, some businesses, upset by the decision, are watching and waiting to see how Lightning develops. Others are packing bags – threatening to migrate to alternative blockchains with fewer users (and thus less expensive transactions).
Specifically, computer science researchers Simina Brânzei and Eral Segal-Halevi, and assistant professor Aviv Zohar explored what an economy could look like in the Lightning Network. The question is whether individuals are really going to use it, or whether they are merely going to submit regular Bitcoin transactions.
In this way, Zohar enthusiastically argues that while much of the scaling debate in Bitcoin focused on technical theory (whether Lightning transactions could be accomplished), not much has been done to decide how customers and businesses would actually respond to it.
“Sometimes people talk about Lightning as if it’s a done deal. They point out there are early implementations and all the work that’s been done so far. But I think the fate of it will be determined partly by economic forces.”
But Zohar and his colleagues are also making assumptions. As part of their research, yet to be formalized in a white paper, they are building off of a generalization that there are two main types of transactions.
The first is small purchases, which are done on a regular basis by most people, such as buying a cup of coffee on the way to work. The second category is made up of larger purchases, such as investing in a hot-air balloon or a laptop. Such transactions are made less regularly but are still important.
With this in mind, the researchers believe that Lightning will be used for smaller transactions, while on-chain transactions will be used for larger ones, which come with the reliability of having been finalized and registered on the global ledger of bitcoin.
In other words, it is likely that users would pick the cheapest choice. And the cheapest alternative does differ.
As such, Zohar believes there could be some competition between Lightning transactions and on-chain transactions. Notably, that’s directly related to bitcoin’s limited block size.
Only those that pay enough in fees will be able to get their transaction in the blockchain, and that’s significant since users (and businesses) are already complaining about fees today.
So, will one form of the transaction be cheaper overall and thus crowd the other out? Or are the two forms going to coexist? In other words, how well does Lightning equate to on-chain transactions?
With economic experiments, that's the question the group is trying to address.
The researchers used the above assumptions to create two basic models of the Bitcoin economy. Zohar claimed that the first "toy model" was skewed towards Lightning. There is a Lightning Network for the economy, where consumers prefer to make smaller transactions.
“What we want to see is how many Lightning transactions would happen and how many big transactions. What’s the fraction of each?” he asked.
What they found, in this case, is that most transactions are conducted using the Lightning Network. An overwhelming percentage, in fact. Yet, as far as the transaction volume goes, roughly two-thirds still occur on the blockchain.
The results of these volumes may seem "disappointing" in that some Bitcoin developers aim to replace most, if not all, bitcoin transactions with Lightning Network, Zohar noted.
The second simple model, another "extreme" case that Zohar said does not model what people actually do, sees if this changes at all when any economic transaction is the same size: for all, users just pay 1 BTC.
The takeaway, said Zohar, is that the results look different in each model. Lightning thrives in the first model, while it’s “destroyed” in the second because users would rather pay the on-chain fees.
But models are not reality; they are simply the best guess at the outcome available.
"In 10 years, I have to say, this is not the Lightning Network world," Zohar said, adding that there are several variables that researchers could not capture in their model, such as spending habits among various groups of people.
Plus, better wallet user experiences might one day hide these sorts of questions. Just like most internet users don’t think twice about their tweets are sent across the web, users won’t think about how exactly their payments are routed over the bitcoin network, whether it be on a top or bottom part of the stack.
In other words, it’s impossible to predict the future. “Our model is very naive,” he said. “Don’t take these numbers too seriously.”
Other Lightning Network developers argued similarly. Fabrice Drouin, the CTO of Paris-based Lightning startup ACINQ, thinks the research could be “very important,” even while he doubts that these models will be very accurate at such an early stage.
“Lightning is not live yet and it is impossible to predict how it will be used and what the network will look like,” Drouin said. “[Because] there is no real money involved, [the models’] behavior cannot really help when it comes to predicting what will happen on [the bitcoin blockchain].”
But even if the research can’t capture everything, Zohar is asking questions to set more appropriate expectations for the technology.
He told CoinDesk: “Our main message is not whether Lightning succeeds or fails. But that there are economic effects based on who wants to pay who and how.”
Now, Zohar and other researchers are working on yet another model that falls in between the two “extremes” described above, with plans to release their full findings in a paper soon.