Topic: Can Lightning Network Hubs be owned by banks? (Read 715 times)

well you might want to check the title of this topic and have a few words with the topic creator..
...

the answer to the question is.. banks wont need or want to have LN hubs.. they are fiat businesses
it will be retailers and silberts factories as the hubs(LN banks)


look at the topic title incase you forgot that i did not pose the question of banks and LN

it was me that just told you and the topic creator that banks wont use LN.
i even done a lil drawing to make that point clear.

node liquidity is not the same as network liquidity

if the network cant use it. its not network liquidity. its just node liquidity

anyway back to the topic

exchanges dont actually have money moving from banks to exchanges. so banks dont need LN for their fiat reasons
banks also have to do things legit. so they wont use a funky network with vulnerabilities. instead they use officially regulated OTC platforms
the banks just use their own bank website API to display deposits in exchange accounts(held at bank) separately from the exchange server.

so the main hubs will be exchanges. retailers and things like blockstream factories.

eventually the network will look like this:(dumbed down diagram)
                                                                            /-users 0001-1000
       |-------- [walmart]<-|        |-----> [BS factory1]-users 1001-2000
       |                             |        |                 ^         \-users 2001-3000
       v                            v        v                  v         /-users 3001-4000
[exchange]<-------> [BS greyscale]<->[BS Factory2]-users 4001-5000
       ^                          ^        ^                 ^          \-users 5001-6000
       |                            |        |                  v          /-users 6001-7000
       |------[starbucks]<-|        |------->[BS factory3]- users8001-9000
                                                                            \-users 9001-10000

if you think nodes just open and close channels randomly and continuously..
if you think nodes need to be bilateral
maybe you forgot a few of the flaws and features of LN...
(onchain fees.penalties.lock times)
again the
A-B-C     H
   |         |
   D-E-F-G

B does not need to do a 'uncooperative close' early on A or C
G does not need to do a 'uncooperative close' early on H

again if you use LN or run scenarios. the AB channel can just be
A<100:0>B with B not putting any funds into his side.
many LN devs have a special buzzword term for this.. a unilateral channel
(sounds sciency right. gotta love their buzzword play..but i hope i explained it as it seemed to have escaped you)

yes if it was a bilateral channel(route) because B sees AC as a potential routes then B would put funds in..
but remember we are dealing with nodes in unilateral concept.
let me map it out better
A<10:0>\
              B<10:10>D<10:10>E<10:10>F<10:10>G<0:10>H  
C<10:0>/
now you can see the bilateral channels BDEFG and unilateral channels ACH

now ask yourself if B has no funds locked to AC why would B close early and risk a penalty
especially if he has no funds to cover his fee to even do so. .. (no funds.. no fee.. no way)
same question for G it has no funds locked to H so why would G close early and risk a penalty

anyway..
now we have covered the humanising of the bilateral/unilateral buzzwords.. ACH can stay partnered and cause mischief bouncing and cancelling payments or delayed cancelling to cause issues with BDEFG liquidity without costs ACH anything

to clarify in case its still misinterpreted

a LN node will only provide liquidity if it opens channels between more than one partner and contingent on allowing routes
not allowing routes=no extra liquidity
eg i can have 50 channels.. no routing=no liquidity

again many many reasons to put channels on the network not for route liquidity.
network analysis being one.

once you realise the hop model cant scale and the hub model prospers. you will drop all debate about 'users purpose on the network is to provide liquidity' and realise users purpose on the network is self serving their own interests
anyone teaching your purpose is to serve others. just wants to use/abuse you for their purpose

Get the context. You’re not listening.


Who said they need LN for anything? You? Isn’t LN’s main purpose to increase utility for small payments IN Bitcoin?


Why are you so bothered about banks and LN? The banks WILL NOT use LN, but the exchanges, merchants accepting Bitcoin might, and attracted towards an off-chain layer if it becomes more convenient for them and their users.

I know that, but the point being made is that for each node to START somehwhere in providing liquidity in the Lightning Network, is for nodes to connect, and open channels with its peers. How would you bootstrap the network without opening at least one channel? Or, why run a Lightning node at all?

This was created during December 2017 the timer were Bitcoin first reach 19,000$ and his assumptions was based on the scaling solution (LN) as the alternative for sending and receiving Bitcoin as the fees on the normal Blockchain transactions were ridiculously high which he pointed out earlier in the video. Now Almost 4 years have passed and I think it is safe to assume that he may have overreacted with the situation Bitcoin had during December 2017, Banks have not monopolize Bitcoin in any kind of Lightning Hubs and on-chain transactions aren't 20-30$ ever since SegWit and LN has been applied for Bitcoin. Also why not to worry about Banks creating their own Lightning Network is most probably is they heavily enforced by AML and KYC regulations as obviously they will always be under the surveillance of the authorities, before you can use this Bank-run LN hubs all users will need to submit KYC which I don't think a lot of people will like especially if there are other non-KYC alternatives.

I think in the first world countries, large Exchanges will dominate with their LN hubs.... but in third world countries a bunch of smaller operators will dominate at first and then as the technology become more popular, the bigger companies will get in on the action and they will start dominating too.

The people using the LN hubs will not even worry about who are behind these hubs as long as their tx's are fast and cheap. Banks will definitely fund hubs, when they start losing income. (This is still very early and no threat to them now)  

If you have 50 open channels and are not allowing transactions, it will not be long before you have 0 open channels because other nodes will close their channels with you in favor of opening channels with other peers who are willing to allow transactions to flow through the channel.

A LN node will actually need to have at least two open channels to provide liquidity. In order to provide liquidity, one of your open channels is sending a transaction to another of your open channels through your node.

I think what franky1 is saying is that an adversary could open many LN channels to monitor the balances of as many LN nodes as possible while not providing liquidity. If there is someone who is constantly refusing to sign new transactions, a LN node operator would probably close the channel. If an adversary were to provide liquidity while trying to figure out the balance of each side of each open channel while providing liquidity, they would need to make many transactions (if they attempted to make transactions they don't sign, they would run into the same problem of having their channels closed). The solution to this is simple, have a user-configurable minimum and maximum amount they will allow to be on their side of their channel, and a maximum individual transaction size they will be willing to sign.

Not entirely true. A Lightning node that has at least an open channel does provide liquidity, doesn’t matter if it can refuse some routes. IF it refuses ALL routes, then why open a channel, or why run a Lightning node at all? To participate in Lightning as a node, is to provide liquidity.

That is the beauty of it, being a permission-less network anybody can jump in/off at will and do actually whatever with it. This applies to Bitcoin and the LN too. Therefore, I completely agree with the above and that is what I am witnessing in the real world outside of bitcointalk.
For the above reasons I still do not feel confident to use the LN on a daily basis.
 

For a non-technical person like me, and after reading so many of your posts, that when researched were discovered to be mostly disinformation, gas-lighting, and FUD, would you expect that person to trust and listen to you? Actually, I hope they do. To make them learn the HARD WAY.

LN node isn't equal liquidity. You still need to run LN node and make a channel to try possible routes, but you can refuse to route any transaction or actually make payment.


Chainalysis already suspected doing it on Bitcoin network when they caught run lots of full nodes, so it's possible they do same thing for LN watchtower and server for SPV wallet (such as Electrum).

https://www.consumeraffairs.com/news/irs-offers-625000-reward-to-anyone-who-can-create-tracing-tool-for-monero-cryptocurrency-or-the-lightning-network-091120.html

https://www.reddit.com/r/Monero/comments/j2qm42/chainalysis_and_integra_fec_have_won_the_recent/

https://blockonomi.com/watchtowers-bitcoin-lightning-network/

https://www.coindesk.com/blockstreams-watchtowers-will-bring-a-new-justice-system-to-the-lightning-network

Just a guess on my part, but I imagine that using Chainalysis secret tool in addition to running a WatchTower would allow for forensics to be observed on the Lightning Network Payment Channels. Their is no locking bitcoin requirement for WatchTowers operators to provide liquidity, it could be done at a minimal cost and may even earn some payment for the watchtower service.

That’s the point of the post. To monitor all transactions in Lightning, the government will need to be a liquidity provider in Lightning, helping the network scale.


Is this true? I don’t want to ask Bitcoin Stack Exchange, and prove another franky1 post wrong again.

- gmax, achow,

You make a compelling argument, but I suspect many exchanges are hesitant to do this because it would create a customer service/support nightmare. When a LN transaction fails, it could be because of the current topography of the network, or it could be a problem with one or both of the participants.

The exchanges also would not be able to open channels with all of their customers for their entire balance because doing so would prevent the exchange from having any of their coin in cold storage. If you have 1 BTC on an exchange, and you want to receive a LN transaction from the exchange in the amount of 1 BTC, the exchange will need to either have an open channel with you with sending capacity of at least 1 BTC, or for there to be a path of channels between the exchange and you with capacity of the same amount. An exchange could have a very well-connected node that many customers can receive withdrawals from and make deposits to, however, some deposits/withdrawals may fail.

Pools could fund a new LN channel with coinbase transactions. This channel would generally immediately be spent in its entirety in order to pay the miners, and the miners have bills to pay, so they would generally need to send the entire amount they receive to an exchange. This means there is a lot of one-way transactions on LN, instead of back and forth transactions that LN is really designed for.

---

I think it would be more likely for exchanges to operate very well connected LN nodes, and act somewhat like "banks". I can see major exchanges opening large LN channels amongst themselves in order to facilitate transfers between exchanges.

What’s funnier are the people who spread FUD that the government will monitor all Lightning transactions, just as they’re doing with onchain transactions. OK, then government will run Lightning nodes, buy Bitcoin, and then open payment channels? Thanks for the liquidity.

Those two (Eclair and Zap - and to a lesser extent Blue LN are the only wallets (as an end user) that I am familiar with.  I'm sure there are some/many LN wallets for back of house applications.


Banks may have been slowly buying up bitcoin - a little at a time (as low as one bitcoin per week) so as not to draw attention to themselves.

After writing the above, it also occurred that multiple nodes/hubs could be set up by a person or organisation with deep enough pockets in various parts of the globe to have not just one mammoth node/hub, but a dozen/dozens of smaller niche nodes interconnected between themselves, and also to a slew of much smaller nodes/hubs with minute channels, thus having two or more steps in the link from sender to receiver.

Sorry I cannot help myself stop smiling on this one as it would be awesomely funny to see a banker connected to the Lightning Network via Eclair or Zap.
Jokes apart, I agree with you and I believe banks could be the ones benefiting the most from a widespread and increasingly adopted Lightning Network.
They first offer bitcoin to their clients (eating on fees like exchanges do) and then they could re-direct their clients on their hubs to offer them both their own services and access to the network to freely transact with other peers.
Bank hubs will be the future of LN, whether we like it or not.
Look at what happened with the bitcoin treasuries, it is only about time.

There is a great article on the topic of LN vulnerabilities. I don't know if you have read it, but if you are interested, here is the link > https://www.coindesk.com/bitcoin-lightning-network-vulnerabilities-not-exploited-yet.

One of the most severe threats is called a Time-dilation eclipse. The article mentions that light clients, such as Blue Wallet or Phoenix Wallet are particularly vulnerable to this attack vector. To carry out such an attack the scammer would have to create a whole network of nodes that the victim would be connected to. The victim is then only connected to malicious nodes. The scammer can deliberately slow down the process of sharing transaction data with his victim. He can close the channel and steal the coins before this data is received by the victim. That's the idea anyway.       
If this article can be trusted, and it seems to be up-to-date, the list of exchanges that accept LN payments is slowly on the rise. Besides Bitfinex, there is OKCoin and OKEx. Paxful has declared intention to integrate the LN...etc. 

I think most people are over thinking the issue of banks setting up their own hubs within the Lightning Network Framework...

Anyone (including banks) can buy bitcoins, install a Lightning Network program such as Eclair or Zap (or others) and create channels to any-other node they want to without anyone's permission.

Elon Musk could set up channels worth one bitcoin to each of about the first thirty-thousand nodes on the 1ml.com list as a means of perma-storing his bitcoins into perpetuity.  Need a bitcoin to pay a bill? close the channel at the bottom of the list and one bitcoin awaits in a few short hours of confirmation time.

Even BTC 0.01 (worth about $ 500 at the moment) would be enough of a channel to capture traffic and would enable Musk to create channels to close to Three Million other nodes.  (Cornering the traffic/market?)

Although it might be debatable if Lightning Node Operators will keep fees very low. To provide the Lightning Network with liquidity, it needs a finite “commodity”, which also is your “capital”, Bitcoin. I don’t believe the more specialized/connected and more “professional” nodes will provide the lowest close-to-zero/almost-free fees.

I think it is the fear of losing money to a bug. I don't follow LN closely but I hear the LN devs warn people about possibility of bugs and how they shouldn't use it with large amounts. It is understandable that an exchange doesn't want to bother with the technology until it is matured.
I only know one exchange (Bitfinex) that has an LN channel and they started it with a very small capacity for this very risk, then increased it after some time passed but it is still a small capacity.

I don't think it works for pools unless they change their withdrawal setup and pay every time they find a block. Not to mention that the miners may not want to keep their coins in a channel (maybe want to sell it on an exchange, move to cold storage,...) which means they would have to pay another on-chain fee themselves to move the coins to their final destination.

The way the Lightning Network is set up, I think that is already happening. Your wallet will try to find a route from point A to point B which is the cheapest one. Therefore If I offer a cheaper routing fee to the same destination compared to you, there is no reason why someone would use your route instead of mine. Actually, one reason would be if I didn't have enough liquidity in my channel. Someone who has used LN can correct me, but I think the payment routes are chosen automatically by the wallet, based on what is the most cost-effective choice. The sender can't select the route his payment will take or can it? 

Pmalek is correct, my thoughts was exactly that.

IMO, you need 100s or more of transaction between you and whomever you are transacting with on LN, to make it worthwhile to use LN instead of just sending it normally.

You mentioned earlier, why does coinbase not use LN hubs,
Since they are an exchange, they use their internal accounting system to perform offchain transactions without needing to bother with the complexity of runing LN or Liquid 3rd party software.
https://help.coinbase.com/en/coinbase/trading-and-funding/cryptocurrency-trading-pairs/how-to-send-and-receive-cryptocurrency
So any coinbase user can send funds offchain instantly to another coinbase user and incur no transaction fees at all,
while LN or Liquid users, pay the initial onchain transaction fee, LN hubs fees, and final onchain withdrawal transaction fee.


  

My assumption is that there will eventually mostly be channels established with the main sources of acquiring bitcoin for the average person.  Places such as exchanges, mining pools, or payroll companies.  In that way, the fee will be paid once to set up the channel to get the bitcoins to you in the first place.  You then, as you use your bitcoin with people that you don't have a direct channel with, they'll typically only require 1 or 2 intermediaries.  Additionally, the competition will drive down the LN fees. If I don't like my exchange's (or payroll company's) LN fees, I'll switch to an exchange (or payroll company) that has lower fees. If thee fees are too high everywhere, then it creates an opportunity for someone else to start a service that with lower fees and still earn a living.

I posted about this a while ago. I mentioned it being a support issue. Coinbase / Kraken move a ton of BTC each and every day.
The capacity of the ENTIRE lightning network at the moment is a bit under 1200 BTC

It's a loop. Till they know there are enough channels with enough capacity to move the amount of BTC to and from their customers it's pointless to do it since it's just going to generate more support issues. Till we get more big places on lightning it's pointless to have large channels open since it's locking funds and they may or may not be used.

For mining pools, at least the larger ones, lightning would just cost them money in terms of needing more back end servers and support. A lot of them send their payments only in their own blocks (or at least they used to) so although there is a cost in "we could have had the fees from someone else" it's really not a cost to them.

-Dave

You don't need a direct channel with the person you send your coins to. The network will find a way over 1 or more intermediaries (let's call them that way) before it reaches you. But the longer the route, the bigger the transaction fees will be. Each node charges a base fee and a fee rate (percentage of the transaction being routed). These fees are small compared to on on-chain transactions, but still.

I think what TangentC was trying to say is that it doesn't make sense opening a payment channel with someone just to send 1 or 2 transactions. You pay regular fees for opening and closing the channel, so if you send fees only once, you would actually pay more than for an on-chain transaction. There are custodial wallets though where you don't pay any opening/closing channel fees because you will be using their own payment channels. 

Yes, it's very possible.
I don't know LN very well, but it has occurred to me that banks and other institutions may actually set low or no fee to route as many transactions as possible and analyze them.
User info may bring them more money (in a way or another) than the fees you'd save.


That's probably (in) the future. But since they are leading exchanges, they won't lose easily their chance to become hubs. And until then - as late as possible - they can still ask for hefty withdrawal fees to discourage people from moving their money out.
I think that only strong (and many) voices from the community and their customers could make them change their current practices.

Affordable is a relative term.  If I'm sending the equivalent of a few million dollars, then a few hundred dollars in fees might be "affordable".  If I'm trying to buy a piece of candy that's worth about $0.10, then a $0.05 fee is ridiculous. If I've worked hard and saved for decades so I can finally buy that "thing" that I've always wanted, an extra few dollars might be more than I can "afford" at that moment.


Pay a competitive fee and your transaction will be timely.


Small point, if everyone in the world were to start to use bitcoin for EVERY transaction they engage in every day, you won't be able to create a block big enough for them all to be confirmed "quickly".  Some transactions MUST be off-chain. It simply won't work any other way.  The more transactions that are moved off chain, the faster (and cheaper) the remaining on-chain transactions will be (for ANY given block size).


I don't think LN works the way you seem to think it works. Perhaps I'm the one misunderstanding it, but shouldn't you be able to send bitcoins to someone over LN that you don't have a direct channel with?  I haven't kept up with the developments over the past 18 months or so, but the last time I looked at it there's no need to "transact multiple times between the same people" for LN to work well.

It really surprises me that Exchanges (such as Coinbase and Kraken) don't set up LN and strongly encourage their customers to receive most of their withdrawals in the form of a LN channel.  Wouldn't that effectively turn the exchange into a hub?  If I want to transact with ANYONE that ALSO has an account at the same exchange, then my transaction would just need 2 hops (one from me to the exchange, and a second from the exchange to the person I'm transacting with).  If the big exchanges then set up a few large channels between each other, I could transact with any of the millions of customers that acquire most of their bitcoins at exchanges.

Same thing with mining pools.  If each of the largest pools were to set up LN and strongly encourage their miners to all take their withdrawals over LN, then the pools would become yet another hub. The pools can even set up their channels in the blocks that they create (which reduces the "cost" of setting up the channels to the lost opportunity of including some other fee-paying transaction in that block instead).  If they try to do it mostly when the blocks aren't full, then they can effectively open and/or close their own channels for free.

My personal opinion,
You increase onchain transaction capacity
1. To keep the blockchain fees affordable  
2. To keep transaction process timely so you are not waiting days for a transaction to complete

Small point, no matter how fast an offchain solution is, if the onchain capacity fails so too will the offchain.
As their are known dangers to offchain , if the onchain does not broadcast withdrawal info in a timely fashion.
So at some point onchain must be improved or even offchain faces failure.

Also using LN only makes sense if you are transacting multiple times between the same people.
The normal way people pay for gas or food or rent, is weekly, daily, or monthly, but not the 100s of times needed to make LN worth it.
Only Banks process thousands to millions of transactions per day between other banks that would really be advantageous to use LN.
 

More importantly, there isn't a specific size that is the "right size".  It could be smaller, it could be bigger.

It already IS bigger than it would be if it was smaller. You might want it bigger than that, but no matter what size you pick, there will probably be someone else that wants it even bigger than that.

In the end, the issue of transaction volume isn't solvable by increasing block size, so why bother increasing it at all? It's already working just fine at the current size.  To scale the quantity of transaction it is better to look to alternative solutions such as Lightning Network and/or off-chain transactions for those cases where such transactions make sense.

If all of that is true then how come Bitcoin doesn't have a larger block size?

It is possible.  However, users of the Lightning Network will configure their software to search for the cheapest path available. As such, competition will keep those fees low. If someone chooses to run a node with a high fee, then nobody will create a path using that node, and the node owner won't generate any revenue.


Sure. If they want to, and if the laws in their jurisdiction allow them to. Anyone can run a hub, even you.


That is not true. The block is limited in size to PREVENT a monopoly.

The following 2017 youtube video says the lightning network hubs will charge money similar to banks (about 6.5 minutes into the video):

https://www.youtube.com/watch?v=UYHFrf5ci_g

1. Is it true and may the banks start owning hubs?

2. The same video later-on (6.5 minutes into the video)says the block was limited in size to create a monopoly: is it true or will larger blocks produce a problem such as more processing power and therefore even longer transaction time/fees?