How to Charge Lightning: The Economics of Bitcoin Transaction Channels

Simina Branzei, Erel Segal-Halevi, Aviv Zohar

Research output: Chapter in Book/Report/Conference proceedingConference contributionpeer-review

3 Scopus citations

Abstract

Off-chain transaction channels represent one of the leading techniques to scale the transaction throughput in cryptocurrencies. However, the economic effect of transaction channels on the system has not been explored much until now. We study the economics of Bitcoin transaction channels, and present a framework for an economic analysis of the lightning network and its effect on transaction fees on the blockchain. Our framework allows us to reason about different patterns of demand for transactions and different topologies of the lightning network, and to derive the resulting fees for transacting both on and off the blockchain. Our initial results indicate that while the lightning network does allow for a substantially higher number of transactions to pass through the system, it does not necessarily provide higher fees to miners, and as a result may in fact lead to lower participation in mining within the system.

Original languageAmerican English
Title of host publication2022 58th Annual Allerton Conference on Communication, Control, and Computing, Allerton 2022
PublisherInstitute of Electrical and Electronics Engineers Inc.
Pages1-8
Number of pages8
ISBN (Electronic)9798350399981
DOIs
StatePublished - 2022
Event58th Annual Allerton Conference on Communication, Control, and Computing, Allerton 2022 - Monticello, United States
Duration: 27 Sep 202230 Sep 2022

Publication series

Name2022 58th Annual Allerton Conference on Communication, Control, and Computing, Allerton 2022

Conference

Conference58th Annual Allerton Conference on Communication, Control, and Computing, Allerton 2022
Country/TerritoryUnited States
CityMonticello
Period27/09/2230/09/22

Bibliographical note

Publisher Copyright:
© 2022 IEEE.

Keywords

  • blockchain
  • lightning network
  • transaction channels

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