Is The Lightning Network Becoming More Centralized? 10% Of Nodes Hold 80% Bitcoin
The Lightning Network has been touted as the possible solution for the Bitcoin scalability concerns. However, various researches have indicated that there is a small percentage of nodes that handle most of the funds in the network. Is the decentralized finance product becoming more centralized?
The widespread adoption of the Bitcoin has now come with the scalability of the technology the BTC is built on. With reports indicating that the Bitcoin has the ability to process only a specific number of transactions per second proportional to the size of a block and its release frequency.
The Bitcoin Lightning Network (LN) has been touted as the solution to the scalability concerns. It is a “Layer 2” protocol that operates on top of Blockchain-based cryptocurrencies. An attempt to create a payment platform that overlaps over a cryptocurrency such as Bitcoin affording users cheaper and faster transactions.
A research paper points out that there is unequal distribution of wealth in the Lightning Network with some nodes holding most of the funds. Notably 10% of the nodes are controlling 80% of the funds in the Network. This exposes the vulnerability as they cannot afford to lose the nodes as they are too essential to operations.
“As only about 10% (50%) of the nodes hold 80% (99%) of the bitcoins at stake in the BLN… Removing hubs leads to the collapse of the network into many components… suggesting that this network may be a target for the so-called split attacks.”
This could be solved by lowering the barriers which may incentivize individuals such as hobbyists to take up running routing nodes. Meaning they could setup infrastructure at reduced costs as Christian Decker lightning engineer at bitcoin tech startup Blockstream explained.
Quick thread addressing some of the concerns caused by our recent publication on the centralization in the Lightning Networkhttps://t.co/pgGRZzeN0h
— Christian Decker (@Snyke) February 15, 2020
After detailed analysis by researchers on the evolution of the global nodes that carry out transactions in different geographical locations they were able to determine the various nodes transactions pass through.
The end nodes are mostly passive as they just await to send and receive. However, it was the center (routing) nodes that picked up the slack by directing transactions throughout the network. This has resulted to some of them overcharging a little for their services.
In a report by Hebrew University researchers demonstrated how to exploit vulnerabilities and carry out a congestion attack that would render some routes locked for up to days. The results were damning as they proved they could effectively lock up most of lightning’s liquidity causing instability to the network.
Mr. Decker was not worried as he explained that criticizing their model could only lead to progress.