University of Illinois at Chicago
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CAROTTI-PRIMARY-2024.pdf (4.62 MB)

Rational Economic Behaviors in the Bitcoin Lightning Network

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posted on 2024-05-01, 00:00 authored by Andrea Carotti
The Lightning Network (LN) was developed to solve Bitcoin’s scalability challenges, yet it faces the inherent issue of payment unreliability. Despite the introduction of advanced routing algorithms aimed at improving payment success rate, our research indicates potential negative impacts on network evolution and user experience. By performing simulations that replicate LN payments under realistic assumptions, we observed a trend towards centralization, with larger routing nodes disproportionately benefiting. In addition to this centralization trend, our findings reveal that nodes continue to exhibit irrational behavior in their participation decisions, so we propose straightforward strategies for nodes to increase their earnings. To conclude our study we examine the long-term effects on network structure when nodes adjust their strategies in response to evolving network conditions through a series of simulated games. We claim that the fees charged on the Layer 1 Bitcoin blockchain will inevitably influence the fee structure within the LN, affecting participant costs and earnings.

History

Advisor

Anastasios Sidiropoulos

Department

Computer Science

Degree Grantor

University of Illinois Chicago

Degree Level

  • Masters

Degree name

Master of Science

Committee Member

Balajee Vamanan Elisabetta Di Nitto

Thesis type

application/pdf

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