How to profit from payments channels (1911.08803v2)

Abstract: Payment channel networks like Bitcoin's Lightning network are an auspicious approach for realizing high transaction throughput and almost-instant confirmations in blockchain networks. However, the ability to successfully make payments in such networks relies on the willingness of participants to lock collateral in the network. In Lightning, the key financial incentive is to lock collateral are small fees for routing payments for other participants. While users can choose these fees, currently, they mainly stick to the default fees. By providing insights on beneficial choices for fees, we aim to incentivize users to lock more collateral and improve the effectiveness of the network. In this paper, we consider a node $\mathbf{A}$ that given the network topology and the channel details selects where to establish channels and how much fee to charge such that its financial gain is maximized. We formalize the optimization problem and show that it is NP-hard. We design a greedy algorithm to approximate the optimal solution. In each step, our greedy algorithm selects a node which maximizes the total reward concerning the number of shortest paths passing through $\mathbf{A}$ and channel fees. Our simulation study leverages real-world data set to quantify the impact of our gain optimization and indicates that our strategy is at least a factor two better than other strategies.