In this article, we try to summarize what is going on with the core problem related to scaling on-chain fees in Bitcoin’s Lightning Network.
The Fee-Dependent Design in the Lightning Network
The Lightning Network was conceived as a second-layer scaling solution. Its goal is to alleviate congestion on the Bitcoin mainchain by enabling off-chain transactions. But, it was designed assuming that the fees for on-chain transactions would be low, making it cheap to open and close channels. In the following thread, you will discover a critique that brings attention to the LN fees and existing Lightning channels.
This is a really good post from @benthecarman about Lightning. It's good to talk openly about the problems with LN, but it's not just channel liquidity. For new users, Lightning is barely usable.
Ultimately, Lightning may just become an interop gateway. https://t.co/nCC1OL0HcQ
— Samson Mow (@Excellion) January 7, 2024
Nowadays, Bitcoin transaction fees have been on an upward trajectory, challenging the feasibility of Lightning Network’s design. This can make existing LN channels useless due to the excessive reserves required for a single payment. As Bitcoin and dollar fees are sure to rise, we need to address this problem urgently.
Real-World Experiments About Bitcoin’s Lightning Network )LN) Fees
To prove how high the are fees in the LN, Samson made an experiment with three popular Lightning Network wallets: Breez, Phoenix, and Wallet of Satoshi (WoS). The results paint a vivid picture of the challenges users face in the current fee environment.
1) Breez: High Setup Fee Hurdles
In this option, the Brezz wallet has a 1% setup fee. The fee is too high for bringing in new Bitcoin users, making us wonder if Lightning Network is scalable.
I only wanted to test wallets that don't require KYC, so I tried new installs of Breez, Phoenix, and WoS.
I had to pay a 1% setup fee of minimum 25k sats, which is about $11. That's not practical to onboard someone new to BTC.
For testing, I topped up 75k sats and… pic.twitter.com/4BNRiABSo3
— Samson Mow (@Excellion) January 7, 2024
2) Phoenix: Fee Configuration Quandary
Phoenix presented difficulties in sending funds, requiring users to set a maximum fee amount. So, despite attempts to exceed estimated fees, the experiment faced roadblocks. This underscores potential usability issues for new users and the risk of losing a significant portion of incoming payments.
3) WoS: Stuck in Pending Limbo
wallet of Satoshi remains a preferred option for many due to its no-KYC feature. However, not everything is good for this tool. In this experiment, he attempts to remove all funds from the wallet resulting in a persistent “pending” status, raising concerns about the reliability of Lightning Network operations.
This is still likely the go-to option for most people as you don't need to KYC and it works fine where it's available.
I was able to top up WoS and make payments. The only issue was when trying to remove all funds from the wallet, it's just stuck on pending (2 hrs now) pic.twitter.com/K5SNPjRuGW
— Samson Mow (@Excellion) January 7, 2024
The core problem with Lightning Network lies in its fee-dependent design. Ben’s observations and real-world experiments with popular wallets underscore the pressing need for addressing these concerns.
As Bitcoin transaction fees show no signs of abating, a critical reevaluation of Lightning Network’s design and functionality becomes critical to ensure its long-term viability as a scalable solution.
Disclaimer
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