A group of users who call themselves LNBIG holds almost half of the entire capacity of the Bitcoin Lightning Network (LN) although the earnings do not cover the expenses.
The Lightning Network is a payment protocol designed to facilitate transactions between users. These transactions are recorded off-chain in order to drastically reduce the cost of fees, while ensuring an almost instantaneous transfer compared to traditional on-chain transactions. The aim is to make the Bitcoin network more scalable.
LNBIG and the poor earnings with Bitcoin LN
LNBIG incurred expenses to open the LN channels, about $1000. It manages 1800 channels for a total of about 336 BTC. This is 40% of the entire capacity of the network which, to date, is equal to 832 BTC (source: 1ML).
Currently, it handles only 200-300 transactions per day, rarely reaching 600 on the luckiest days. This means that the profit is about one dollar a day, often it does not even reach 20 dollars a month despite having frozen millions of dollars in bitcoin to ensure this service.
Compared to the beginning of the year, the growth of the Lightning Network is evident. The number of nodes has risen from just over 2000 to the current 9600 and also the capacity has increased significantly. However, when looking at the statistics from April onwards, the capacity has dropped from 1080 bitcoins to the current 832 mainly because of LNBIG, which, as they themselves confirmed, have reallocated part of their funds by closing channels that were rarely used.
I will close OLD (>=80 days) NOT USED OFFLINE channels (force-closing).Released bitcoins will serve the free inbound channel service of LNBIG ;-). #LightningNetwork will drop to 900 BTC 🙁
— ⚡️LNBIG⚡️ (@lnbig_com) July 16, 2019
Bitcoin Lightning Network transactions
Another problem preventing the generation of revenue is that the fees to be paid for an LN transaction do not cover the costs necessary to generate the transaction on-chain. LNBIG should increase the fees that users have to pay to start earning. Considering an average of 300 transactions per day, 9000 transactions per month, with fees equal to 10 cents per transaction, LNBIG would get $900 per month, just enough to cover the fees for putting the transactions on-chain.
If in the near future on-chain transactions cost less than 10 cents, as has happened in the past, there would be a paradox: LN transactions would cost as much as on-chain transactions in order to allow network operators to make a profit. There is no shortage of costs: it is necessary to secure the nodes, the channels and keep the system in place. It should also be borne in mind that the LN network is currently small, but as the network grows, so will the costs.
Another issue to be addressed is centralisation. If a single entity manages 40% of the network, it can easily make it unusable if it decides to close its channels.