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Suppose my website sells emojis for 25 cents a piece. And I get 1000 unique customers that each buy just one. Will lightning network or any other technology allow me to process these transactions without making 1000 separate commits to the blockchain?

I want to avoid paying 1000 transaction fees (and thereby invalidating my business model).

Murch
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Mark Beckwith
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2 Answers2

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First off, yes, the lightning network will not require 1000 on-chain transactions added to the blockchain. The lightning network aggregates off-chain transactions into single on-chain settlements.

Like the Bitcoin network, the lightning network will also operate on a model of market-driven transaction fees. However, these are not the same fees paid to miners on the Bitcoin blockchain.

The lightning network will be a hub and spoke network of bi-directional payment channels. Channels are connections between two nodes on the network, and a single transaction may travel through several channels. Nodes will charge you to use their channels, so you end up paying fees to multiple nodes.

However, these fees are likely going to be very small. Unlike mining, there is no large hardware investment to run a lightning node. Even a cheap computer will be able to do so. The real cost of running a node is that an amount of bitcoin must be tied up in each payment channel that node has open. This also limits the amount of total bitcoin that a channel can transfer in one direction. Because of this, channels will adjust their fees to incentize transactions in different directions.

When a channel has had too much bitcoin travel in one direction, it will either have to close and re-open, or will have to get people to transfer in the opposite direction. The cost of closing and re-opening is an overhead that will be worth avoiding, since that is when on-chain fees will have to be paid. This means that there will always be channels trying to get you to use them...even if it means negative fees (see this answer).

Wallets should be smart enough to route your payment through a series of channels that will minimize your fee. On some channels you will pay higher, some lower, and with negative fees, some may even pay you! Due to the relatively low barrier of entry for running a node, this will likely drive down overall fees. Some have even speculated that fees will be effectively zero.

In short, unlike Bitcoin, the lightning network is poised to be a true micro-payment network.

Jestin
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  • "these fees are likely going to be very small." How small is "very small"? A lot of people would consider that a fee of $0.10 is very small, but it would wipe out the OP's business model. Are there any reliable explicit estimates? – Nate Eldredge Jun 17 '17 at 14:17
  • I usually consider anything less than $0.25 to be a micropayment. That happens to be the price the OP is concerned with. Since fees are market driven, we won't know until it happens, but I suspect fees to be low. The barrier to entry to run a node is the btc you need to tie up on your channels. This means there will be a lot of small channels good for nothing but micropayments, and also lots of competition for transferring them. That should drive fees down very low. – Jestin Jun 17 '17 at 14:35
  • "hub and spoke network" ⇒ that doesn't seem obvious to me. I don't think that a scalefree network will necessarily have such a strict shape. – Murch Aug 26 '20 at 20:17
  • Sorry @Murch, I didn't use that term to imply a single hub system. It was more to imply that each node can be a hub that keeps multiple connections open. Can you think of a better term to describe this? – Jestin Aug 26 '20 at 20:25
  • From what I remember, "hub and spoke" was mostly used to refer to a topology in which end-users only create a single channel to supernodes ("hubs") and only these hubs form multiple channels among each other. However, any node would be free to open channels to multiple other nodes, which would improve their service reliability, and allow the node to gain forwarding fees. Therefore, it's not obvious to me that the network would necessarily turn into a hub and spoke topology. – Murch Aug 27 '20 at 05:26
  • Surely, there are nodes that have many more channels than others. In fact, some nodes now have more than 1,000 channels. Given that "hub" was sort of prejudiced as describing this "two class" network, I'd rather go with supernodes, powerusers, or maybe routing nodes.—I've been out of the loop for Lightning though, so maybe there are more established terms for this sort of distinction by now. – Murch Aug 27 '20 at 05:29
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The lightning network could potentially allow you to do this.

It would not help if each (or many) of your 1000 customers wanted to open a payment channel with you to pay for an emoji. This would result in two transactions (open and close) and 1000 small outputs for you. A payment channel is not particularly useful for one time payments.

However, if all 1000 customers already had payment channels opened with other people, and you have payment channels opened with other people, then the 1000 payments can be done without any on-chain transactions. Your customers can route their payments through other people using lightning so you will get your money without anyone having to create an on-chain transaction just to pay you.

Andrew Chow
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