I was talking more about on-chain, limited block space, if higher tx demand = higher fees. Off-chain, limited capital available, therefore limited payment channels, if higher tx demand = higher fees.
I can't decide if this makes sense or if its just me, could you rephrase it?
There isn't a limited number of channels. When you open a channel you make a literal contract between you and the other nodes. If a node ups it's fees you'd just use a different node... Iff a payment processor or merchant charges too much for fees you'd just turn to a different one imo or complain to them and see if they'll reduce it (if your channel is open with them).
This is obviously different when using a custodial wallet but you don't have to use a custodial wallet and I'd the fees become too high then competition will likely increase...
But payment channels, and their capacity, are actually limited by how much Bitcoin the people who run nodes hold, are limited by how much capital they want to open payment channels with, are limited with their technical-skills in how to maintain the node/balance channels.
That limitation, and increase in demand for LN transactions = higher fees?
Nodes will always be limited in funds, but they can send the funds they have back and forth many times. Nodes may require balancing at some point, if all their funds are "on one side" of their channels, but that can be done by adjusting fees: if there's a lot of funds on one side, routing could even be free as it helps the node. If there's not much funds left, fees can be high to encourage routes to pass through a node that has a better balance.
