In light of the recent LN weaknesses discussion, this is a reminder that even when it works, being a “bank” as a hub is a requirement and is part of the LN specs.

From the LN blog:

“...there will be times when funds will happen to be moving in the same direction (e.g. more spending than receiving). In these situations, a routing node must maintain enough “buffer capital” to be able to wait until the flow of funds reverses and channels return to a more balanced state. Routing nodes that don’t contribute enough capital to handle periods of imbalance will experience channel exhaustion (when a node has no funds remaining in a channel) and routing failures.

This type of failure should happen relatively infrequently, because nodes that produce these routing failures will be routed around and eventually disconnected by other nodes. Thus, node operators have a strong incentive to provide enough buffer capital for the number and volume of inbound channels they’ve accepted (and implicity agreed to support).”

In other words, if they fail to provide such capital, I.e., liquidity, they’ll be routed around and eventually kicked out of the network (but muh decentralizatioshpongle!).

Now, we already know two things:

1. Lightning Network hubs are going to operate on a for-profit basis, generating revenue from routing transactions at the expense of miners.

This of course butchers the delicate Nash-equilibrium which Satoshi designed in bitcoin and renders BTC an alt-coin with a skewed incentive and value-stream model.

1. Lightning Network hubs are money processors.

Onion routing or not, since they need to stake large amounts of BTC in what’s always-online and employ watch-towers, it will be easy to coerce them into KYC/AML regulations or otherwise they’ll be literally disconnected off the internet, or worst, swatted.

With net neutrality almost dead, we know how easy it will be for ISPs to disconnect such hubs at the man’s whim.

What we still don’t know is, how large do these hubs need to be? How much bitcoin do they need to own and stake in order to operate as liquidity providing hubs without being routed around then kicked-out?

Are we talking DeutscheBank and JP Morgan scale eventually? Or is it more of the Coinbase scale? Or is it Luke-jr’s basement-fridge node?

Will Carol who is featured in the Lightning Network blog linked below really get to operate her Lightning Network hub for much longer, Ms. Stark?

https://blog.lightning.engineering/posts/2018/05/30/routing.html

“Be a bank or GTFO.” -The Lightning Network

submitted by /u/wisequote
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source https://www.reddit.com/r/btc/comments/aa9cf1/in_light_of_the_recent_ln_weaknesses_discussion/