Them Lightning Network Nodes Sure Do Look Centralized To Me! What Gives?
Tags: Blockchain, Lightning Network, Crypto, Bitcoin, Cryptocurrency

— — — —

At some point when the network has matured and is sufficiently large enough, any reasonable person has to give in and finally say “okay fine, there’s a ridiculous amount of nodes with many channels”. If you’re a bit keen you might ask: But how many of those channels have an amount of funds worth considering? What about wealth centralization? Is the Lightning Network susceptible to being controlled by the wealthy?

Firstly: At least you’re now dismissing the silly “look see!” arguments.

Secondly: No. Wealth distribution among nodes is going to look very similar to channel distribution. If you’re unfamiliar with the Pareto distribution, let me start by showing you some charts.

This tweet circulated a bit on Twitter recently, and I think it does a really good job at highlighting the problem with highlighting (I fell for it like an idiot). Complaints made about distributions tend to appeal to the minority groups within that distribution (or outside and feel excluded) that believe the distribution is unfair. There’s two sides to situations like this. On one end sometimes the distributions are unfair, like when the gap in the middle class keeps widening due to bad economic policies, or when the barrier-to-entry into a market is artificially high due to regulations imposed by the government. On the other end, sometimes the distributions are entirely natural, and there’s absolutely nothing wrong with natural distributions. The problem arises when people have an agenda or a fundamental misunderstanding of the way things are, and they try to make natural distributions, and the people who are okay with them, seem like the villain. Typically this is done by appealing to those who don’t know what they’re looking at. Much like circling arbitrary nodes that happen to stand out on a network graph, pie charts that don’t include 100% of the data are extremely misleading. It’s like having a good economy, but then hiding the middle class from your data and saying “look at the huge gap in the middle class”.

This is what a Pareto distribution looks like, but to make my point we need to go over some fundamental things about Lightning technology first.

Lightning wallets are not Lightning nodes, they don’t route.

Every route is encrypted. Routing can’t selectively censor. No government can make “Facebook” not route just your payment.

No government can make “Facebook” not route just your payment. Your wallet can open a channel with any node on the network, not just the top 5. You’ll never be dependent on the nodes at the top.

If “Apple” dropped off, the Lightning Network doesn’t care. There will be thousands of other nodes routing payments around.

There are no regulatory barriers-to-entry for running a Lightning node. If you want to run one and route payments, you can.

Here’s a hypothetical. Let’s say I want to run a Lightning node, fund it with $500, and start routing payments. I am by no means the Apple of the Lightning network. I’m a small fry. That S&P distribution chart above? If you made a pie chart of all the Lightning network nodes channel funds, I’d be way down in the bottom percentiles. But here’s the kicker, all I have to do is find the two most distant nodes on the network and connect them. Now I have an in-demand route and I’m collecting micro-fees.

Let’s say someone else comes along and does the same thing. They find the next two most distant nodes on the network and they connect them. How long does this process get repeated by individuals? Anyone can come along and start up a “low-funded” node, find the two most distant nodes on the network, and connect them by opening channels with both of them.

You can’t criticize a Pareto distribution of wealth (unless it’s unnatural due to external factors, kind of like what Bitcoin tries to solve by being sound money), but you can try and criticize what it will imply for the Lightning Network. When people point to “hubs” (which we’ve already determined there will be thousands of) in a critical manner, they try to somehow argue that we will be dependent on them to route our money around. Even that “failed route chart” above focuses on this by trying to show how many routes fail when removing the “top nodes” from the network. If there is demand to route payments between two non-connected nodes, someone will connect them.

I mean let’s be real here…do you think I wouldn’t connect them? There’s multiple benefits in it for me. I can collect fees and simultaneously help the Lightning Network become more interconnected. Why wouldn’t I do that? Granted, I can’t go around connecting every node, but I’m certainly not the only person on this planet looking for a financial opportunity. This network is going to grow like a plague and only become more interconnected with time. The incentives are essentially built in and there’s nothing anyone can do to stop it. They see a few economic hubs of wealth, and I see thousands of them:

*not made from real data*

/end

Here’s a variety of updated Lightning Network graphs as of 7/30/2018.

I challenge you to circle the hubs.