How to profit from payments channels.

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Presented at FinancialCryptographyandDataSecurity 2020 by

Zekeriya Erkin

Stefanie Roos

Oguzhan Ersoy

Payment channel networks like Bitcoin’s Lightning networkare an auspicious approach for realizing high transaction throughputand almost-instant confirmations in blockchain networks. However, theability to successfully conduct payments in such networks relies on thewillingness of participants to lock collateral in the network. In Lightning, the key financial incentive to lock collateral are low fees for routingpayments of other participants. While users can choose these fees, realworld data indicates that they mainly stick to default fees. By providinginsights on beneficial choices for fees, we aim to incentivize users to lockmore collateral and improve the effectiveness of the network.In this paper, we consider a node A that given the network topology andthe channel details establishes channels and chooses fees to maximize itsfinancial gain. Our contributions are i) formalization of the optimizationproblem, ii) proving that the problem is NP-hard, and iii) designing andevaluating a greedy algorithm to approximate the optimal solution. Ineach step, our greedy algorithm establishes a channel that maximizesthe increase to A’s total reward, which corresponds to maximizing thenumber of shortest paths passing through A. Our simulation study leveraged real-world data sets to quantify the impact of our gain optimizationand indicates that our strategy is at least a factor two better than otherstrategies.