Will Large Miners Operate Lightning Routing Nodes? \ stacker news ~bitcoin

Will Large Miners Operate Lightning Routing Nodes?

2646 sats \ 37 comments \ @kr 18 Oct 2023 bitcoin

Many Bitcoin mining companies have large Bitcoin holdings, and as far as I know, none of them have found really compelling ways to earn a return on those assets yet (counterpoint: they may not ever need to).

However, as more transaction activity moves to Lightning, miners may become increasingly dependent on channel open/close fees, and in turn may miss out on all the fees which accrue to routing nodes on the Lightning Network.

Is it possible that one day a majority of all fees paid for Bitcoin transactions are paid to LN routing nodes rather than Bitcoin miners?

If so, wouldn’t it make sense for large miners to put some of their Bitcoin to use on the Lightning Network and earn some fees in return while neutralizing a threat to their future revenue?

I understand that it’s difficult to be a profitable routing node operator today, but miners have both the capital necessary to take a shot at it, and the threat of revenue shortfalls if they don’t.

They also have such slim margins that little improvements can make big differences in the sustainability of their business.

One final data point which gives me hope that miners could be profitable is that River has earned ~$100k to date (from their Lightning report) for routing payments through their nodes without even prioritizing revenue (they prioritize payment reliability).

I wouldn’t be surprised if a miner could earn an extra $100k/year right now… and a few orders of magnitude more as Lightning activity scales.

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442 sats \ 21 replies \ @petertodd 18 Oct 2023

There is nothing about mining that gives you an advantage in operating a lightning node as long as Bitcoin itself is working properly, and mempools are competitive. Yes miners have slim margins. And yes, lightning nodes might end up taking away fee revenue from miners.

But the correct question to ask is why would a miner have an advantage over someone else when running a lightning node? The answer is, they don't.

551 sats \ 4 replies \ @andy 18 Oct 2023

If you pair bitcoin mining with Distributed Charge - GRID (http://andyschroder.com/DistributedCharge/GRID/Overview/) and a lightning enabled mining pool payout, the miner can collect their revenue and pay for their expenses directly with lightning without needing to make extra on chain transactions. Mining pools can afford to make much more rapid payouts with off chain transactions. Making much faster payments for your expenses with Distributed Charge - GRID allows a miner to operate a bit leaner than they otherwise (they will collect revenue and pay their main expense nearly instantly) would and will allow them to take part in the future where we have a truly decentralized energy grid where instantaneous pricing is based on the price your neighbors are willing to buy and sell energy at right now.

I'd say that will be a big incentive to run a lightning node as a miner, but not necessarily an advantage over players in the marketplace. In a bitcoin only economy, everyone should be collecting their revenue and paying their expenses with lightning, but right now, miners can only collect their revenue in bitcoin, so the will be early adopters

221 sats \ 2 replies \ @WeAreAllSatoshi 18 Oct 2023

Have you considered enabling TLS on your website?

0 sats \ 1 reply \ @DarthCoin 19 Oct 2023

is just reading a text not shopping mall...

0 sats \ 0 replies \ @WeAreAllSatoshi 19 Oct 2023

True. I just had a discussion about this the other day which is what prompted me to ask: #286619

101 sats \ 0 replies \ @petertodd 19 Oct 2023

Yes, using lightning for payouts makes sense for mining pools.

But I'm talking about running a lightning node with the aim of earning non-trivial money from routing. Not running a lightning node because it's useful for payments.

0 sats \ 1 reply \ @kr OP 19 Oct 2023

do you think it’s likely that a majority of all bitcoin tx fees are collected by LN routing nodes at some point in the future?

111 sats \ 0 replies \ @petertodd 19 Oct 2023

Maybe? But it's likely that for quite awhile on-chain txs will be necessary for rebalancing LN channels, which means LN fees will be flowing to miners.

0 sats \ 12 replies \ @sime 18 Oct 2023

They can open channels for free. Only tiny advantage I can imagine

1 sat \ 1 reply \ @petertodd 19 Oct 2023

Self-mined transactions are generally not free. The space could have been used for other, paying, transactions.

0 sats \ 0 replies \ @sime 19 Oct 2023

Ooh. Nice way of putting it.

0 sats \ 9 replies \ @bzzzt 18 Oct 2023

How do they open channels for free ?

242 sats \ 8 replies \ @ek 18 Oct 2023

by mining them

0 sats \ 7 replies \ @freetx 18 Oct 2023

Electricity is free?

0 sats \ 6 replies \ @ek 18 Oct 2023

no but miners don't pay mining fees

0 sats \ 5 replies \ @025738dda8 18 Oct 2023

They do. Everybody does. Miner A pays to the miner B who wins the mining race for the block with A's transaction.

Sometimes, it might happen that a miner mines a block with its own transactions. But that's nothing you can rely on.

0 sats \ 4 replies \ @ek 18 Oct 2023

But that's nothing you can rely on.

You can. You just don't broadcast the transaction. So the transaction will only be included in a block when you mined a block. Then you can do it for free. You just need patience.

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67 sats \ 0 replies \ @brandonsbytes 18 Oct 2023

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321 sats \ 5 replies \ @TonyGiorgio 19 Oct 2023

With what money? Customer funds? How is it audited? How is it secured? What individual is going to manage it?

Miners do one thing well and they centralize the coordination of it. They aren't whales looking to gamble all of their hard work trying to be a profitable miner by throwing away money at a poor chance for more. Most of it either goes back to individual miners, electricity bills, or expansion of their successful business if they are doing decent.

Agreed with @petertodd - there's nothing special about being a miner, and being a non lightning product trying to "get yeild" is a pipedream. Especially given how calculated and conservative mining typically is.

Also it's a security concern for LN.

10 sats \ 1 reply \ @elvismercury 19 Oct 2023

I've often thought that entities with a lot of capex invested in btc would do well to pursue some higher-order strategies. In other words, if your entire existence depends on btc being worth something -- and in particular, if it depends on it being worth more than it is now, to deal with things like halvings, etc. -- then it would behoove you to try to grow the pie in whatever way you could. Swan seems to do a nice job of this, spending some of their efforts on education, proselytizing, etc.

With that as context, is there any regard in which miners would have a competitive advantage in the lightning ecosystem?

57 sats \ 0 replies \ @TonyGiorgio 19 Oct 2023

Diversification is good for any business, I just don't think there's anything that transfers over specifically from mining operations to lightning node routing yeild.

0 sats \ 2 replies \ @kr OP 19 Oct 2023

in this case i was thinking about public miners that hold bitcoin on their balance sheets, lots of companies with 100s or 1000s of BTC sitting idle right now.

that being said, i hear the concerns about lightning distracting miners from their core business and the lack of a competitive advantage.

76 sats \ 1 reply \ @TonyGiorgio 19 Oct 2023

Yeah if the only thing there is having a lot of Bitcoin, then no I don't think anyone in that position should be going out deploying it on lightning expecting any yeild. At those numbers it is more a liability than it is a wise investment.

I don't think routing profits should be expected by anyone that isn't building products or services on top of lightning specifically around their node which is also routing. Can't just insert yourself into the network and expect anything.

0 sats \ 0 replies \ @kr OP 19 Oct 2023

yeah that’s fair

119 sats \ 8 replies \ @benthecarman 18 Oct 2023

I hope not

10 sats \ 7 replies \ @WeAreAllSatoshi 18 Oct 2023

I’m curious as to why?

86 sats \ 6 replies \ @benthecarman 18 Oct 2023

miners break the incentive model of lightning. if they can prevent your force close txs from getting mined then you lose all your money.

10 sats \ 5 replies \ @WeAreAllSatoshi 18 Oct 2023

trying to make sure I am following what you’re saying

In that scenario, all miners would have to exclude your force close tx from getting mined, right? Even if some of the major pools excluded them, these miners would need total control of the mined blocks to effectively enforce it indefinitely? If I’m understanding correctly, this emphasizes the importance of distributed mining, and not allowing the big pools to take over

220 sats \ 2 replies \ @benthecarman 18 Oct 2023

yes which we are extremely far from

0 sats \ 1 reply \ @ek 19 Oct 2023

So StratumV2 is still far out or it won't solve these problems?

I thought with StratumV2, block templates are no longer pushed by the pool but every miner can choose the block they want to mine on their own. Wouldn't that help?

0 sats \ 0 replies \ @benthecarman 19 Oct 2023

stratumv2 would help a lot, however, it is far out and then still needs to get adoption

0 sats \ 1 reply \ @ek 19 Oct 2023

these miners would need total control of the mined blocks to effectively enforce it indefinitely?

I don't think they need to do it indefinitely. The problem is just timing of transactions, like justice transactions. If the other side force closed the channel with an earlier state which favors them, you need to broadcast a justice transaction and this one needs to be mined fast enough (1-2 weeks) iirc what I read in Mastering the Lightning Network.

Not sure why @benthecarma said force txs. I thought it's about justice txs.

Or am I missing something?

0 sats \ 0 replies \ @benthecarman 19 Oct 2023

yeah i just meant the force close txs in general