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Another Research Paper Finds Flaws With the Lightning Network

On November 21, researchers from Hungary and Institute for Computer Science and Control published a critical examination of the Lightning Network, the protocol intended to amend BTC’s scalability issues. The researchers’ simulation findings indicate the Lightning Network is “economically irrational for the majority of the large routing nodes who currently hold the network together.”

Also Read: Report: Lightning Network Still Way off Being Ready for Commercial Use

Current Lightning Network Routing Is Not Economically Viable

Many BTC supporters have long believed that the Lightning Network (LN) will be a solution to the Bitcoin blockchain’s scaling problems. Since then the LN protocol has yet to live up to the promises and the network has been plagued with issues. For instance, during the last week of October, one user lost 4 BTC after force-closing an LN channel using an older invalid state. In June, a bug was discovered by developers that allowed LN-based BTC to be spent that was not officially backed by legitimate BTC reserves. LN has been heralded by crypto proponents even though it has been heavily criticized for UX unfriendliness, centralization, and routing issues. Now another study details that the LN project is “economically irrational” while the network also has problems with privacy. The paper’s authors Ferenc Beres, Istvan Seres, and Andras Benczur work at the Institute for Computer Science and Control (SZTAKI) in Hungary alongside Eötvös Loránd and Szechenyi University.

Another Research Paper Finds Flaws With the Lightning Network

The researchers used a simulator that relies only on publicly available data of the LN framework such as capacity and network structure. The simulation also “generates transactions under assumptions” that the researchers attempted to validate based on information stemming from “LN node owners.” The findings estimate that data deriving from transaction fees shows the LN infrastructure is “economically irrational.”

“Either traffic or transaction fees must increase by orders of magnitude to make payment routing economically viable,” the Hungarian researchers’ paper notes. “We give worst-case estimates for the potential fee increase by assuming strong price competition among the routers. We also estimate how current channel structures and pricing policies respond to a potential increase in traffic and show examples of nodes who are estimated to operate with economically feasible revenue.”

Another Research Paper Finds Flaws With the Lightning Network
“Figure 19: Average simulated daily routing income per transaction for some LN router entities as the function of the transaction value α.”

Privacy Shortcomings of Lightning Network Operations

The 21-page study also highlights there are privacy implications that are tethered to using the LN system. “Our second set of findings considers privacy — Even if transactions are onion routed, strong statistical evidence on payment source and destination can be inferred, as many transaction paths only consist of a single intermediary by the side effect of LN’s small-world nature,” the research paper emphasizes. “Based on our simulation experiments, we quantitatively characterize the privacy shortcomings of current LN operation, and propose a method to inject additional hops in routing paths to demonstrate how privacy can be strengthened with very little additional transactional cost.” The researchers have also published the team’s simulator on Github so others can review the study’s process.

Another Research Paper Finds Flaws With the Lightning Network
“Figure 24: Plausible deniability in LN. Alice can plausibly deny being the source of a payment. Similarly, a router cannot be sure whether Bob is the recipient of the payment or one of Bob’s neighbors.”

The study concludes that the LN simulator provided two key insights. The first and foremost is that a majority of the participation of LN-based router nodes is “economically irrational with the present fee structure.” However, increased overall traffic volume over the network provides possible signs of sustainability. “By contrast, at the present level of usage, if routers start acting rationally, payment fees will rise significantly, which might harm one of LN’s core value propositions, namely, negligible fees,” the paper highlights. Lastly, the topological properties of the current LN framework make “a considerable fraction of payments easily de-anonymizable.”

The proposed solution that the LN provides has been controversial since BTC’s transaction congestion and rising fees. More recently a few Lightning Network proponents have been cheering for higher network fees and those who hope forcefully pushing for LN adoption will be key to the network’s growth. To many skeptics, the current lack of growth, in-depth research papers like the one from Hungary, and seething critiques from business owners suggest that staunch supporters may wish to temper their expectations for the Lightning Network.

If you want to read the researchers’ paper in its entirety you can check it out here.

What do you think about the latest research paper that simulated the Lightning Network? Do you think LN will evolve enough to help support scaling in the future? Or do you agree with the researchers that the LN solution is economically irrational? Let us know in the comments section below.

Disclaimer: This article is for informational purposes only. It is not an offer or solicitation of an offer to buy or sell, or as a recommendation, endorsement, or sponsorship of any products, services, or companies. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.


Image credits: Shutterstock and the research paper: “A Cryptoeconomic Traffic Analysis of Bitcoin’s Lightning Network.”


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Jamie Redman

Jamie Redman is a financial tech journalist living in Florida. Redman has been an active member of the cryptocurrency community since 2011. He has a passion for Bitcoin, open source code, and decentralized applications. Redman has written thousands of articles for news.Bitcoin.com about the disruptive protocols emerging today.

Jamie Redman , 2019-11-26 22:15:06 ,

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NewsBlock © 2019 - 2020. All rights reserved.


While Bitcoin’s price seemingly moves without rhyme or reason — collapsing by dozens of percent and embarking on face-melting rallies on a whim — the cryptocurrency market is filled to the brim with fractals.

Related Reading: Analyst: Bitcoin Price Likely to Fall to Low-$8,000s as Chart Remains Weak

A brief aside: A fractal, in the context of technical analysis and financial markets anyway, is when an asset’s price action is seen during a different time. This form of analysis isn’t that popular, but it has proven to be somewhat valuable in analyzing Bitcoin.

One recent fractal popularized by a well-known cryptocurrency trader is implying that BTC is going to return to the low-$7,000s in the coming days.

Bitcoin Fractal Implies Retracement to Low-$7,000s

A well-known crypto trader going by “Tyler Durden” on Twitter recently posted the chart below, which shows that a Bitcoin price fractal may be playing out. The fractal has four phases: horizontal consolidation marked by one fakeout, a surge above the consolidation phase, a distribution, then a strong drop to fresh lows.

If the fractal plays out in full, BTC could reach the low-$7,000s again, potentially as low as $7,100. This would represent a 20-odd percent collapse from the current price point of $8,800.

It isn’t only a fractal that is hinting Bitcoin has the potential to visit its lows. As we reported on Saturday, Bloomberg believes that if the GTI Vera Convergence Divergence Indicator flips red, a downtrend could push the cryptocurrency back to $7,300.

Related Reading: Stephen Colbert Pokes Fun at Bitcoin in Monologue: Mainstream Gone Wrong?

Can Bulls Step In?

But again, many believe it is irrational to have such bearish interpretations of the cryptocurrency’s chart at the moment. As reported by NewsBTC earlier, Popular crypto trader Mayne recently noted that the “people waiting for $6,000” are irrational. He quipped that Bitcoin retracing and consolidating after its fourth-biggest bull move in history ($7,300 to $10,500, a 42% gain) is perfectly par for the course, but noted that it’s totally possible we can go lower from $8,800.

The medium-term technicals support this.

Trader and CoinTelegraph contributor FilbFilb found that by the end of November or start of December, the 50-week and 100-week moving averages will see a “golden cross,” which he claims is far more significant” for the Bitcoin market that other technical crosses.

Also, a Bitcoin price model created using Facebook Prophet machine learning found that the leading cryptocurrency is likely to end the year at just over $12,000. What’s notable about this model is that it called the price drop to $8,000 months in advance, and forecasted a ~$7,500 price bottom for BTC.

To put a cherry on the cryptocurrency cake, Crypto Thies observed that when Bitcoin bottomed at $7,300, it bounced decisively off the 0.618 Fibonacci Retracement of the move from $3,000 to $14,000, which correlates with the two-week volume-weighted moving average. He added that summer 2019’s consolidation was marked by Bitcoin flipping major resistances into support levels, implying that a bullish reversal and subsequent continuation is likely possible in the coming weeks.

Featured Image from Shutterstock


Nick Chong , 2019-11-10 12:00:38

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