Saturday, July 10, 2021

Is the low economic incentives to run a lightning node a risk to long term LN infrastructure?

I’ve been running a lightning node now for about three months. It was fun, and I learned a lot about the technicals behind the network, and it was cool (yet sometimes frustrating) to manually open triangles and rings with others. I’ve committed a healthy amount of btc to open about 40 channels. The ROI, objectively speaking, is pretty abysmal. But I justify it the same way I think most of us do: it's fun, I like supporting the network, and adoption will move up earnings, hopefully. I wanted to discuss a few of my main concerns in a constructive way and am wondering what others think about them:

  1. The first major pain point is how difficult and manual it is to open and maintain balance in the channels. I was hoping to just leave the channels be, manage the fees, and let it naturally rebalance through that. But there are inevitably some nodes that just go one way and never back. Unfortunately it usually costs a lot of sats to rebalance, and is also pretty much impossible to rebalance using umbrel. RTL and Thunderhub rebalance features fail every time.

There needs to be some way to make this a somewhat automated process that also doesn't require node operators to spend so much of their hard earned sats to rebalance.

2.) Node operators take a decent amount risk: a.) technical risk of node failure n power outage ruining things. Most people have no idea what will happen in the event of a power outage or if the rpi dies for another reason. b.) the risk of force closing all channels if the node can’t be salvaged. c.) trust the other nodes around them to have good up time, and trust that they also keep channel balances D.) if you are a ringleader, you must take even more time and spend some of your own sats to be the one who does the circular rebalance.

3.) which takes me to my main concern: the lack of economic incentives of being an operator.

Let’s be real, bitcoin is all about economic incentives. It is a beautiful invention because bitcoin gets stronger when every participant seeks to maximize their own greedy interest of wanting to make more money. But LN is not that aligned with that ethos. At this point, it is unprofitable for most node operators, or at best, the profitable nodes are incurring opportunity cost of earning higher returns in other yield generating methods (which are probably more passive)

I am not saying it is bad that we are all willing to do this now, but being essentially a hobbyist and volunteer community can get old quick. I am concerned that the LN relies on volunteers rather than people who are actually compensated for doing this work and taking on this risk. We expect miners to behave according to incentives, and that's a good thing because then we can expect them to secure the network as long as there is profit to be made in mining. But a large network of volunteers is a big risk if we expect LN to support worldwide micro transactions. I personally don't think larger LN adoption will be able to increase the sats earned to surpass other forms of yield, but I guess we can keep hoping.

Crypto is extremely competitive and we rightfully should expect adoption to go where the yields are. The more passive, secure, and high ROI yields will get the adoption. What if, for example DeFi for bitcoin becomes more popular and offers much higher passive yields?

Anyway, I'm still running my node and appreciate the community, but tbh my other btc is earning so much more daily sats with me doing nothing, I'm basically using those sats to fund this LN node hobby.

Would appreciate all your thoughts on this. Do you think the low economic incentives of being a node operator is concerning for the long term adoption of LN?


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