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Lightning Network: A Comparative Review of
Transaction Fees and Data Analysis
Nida Khan1[0000-0003-3096-150X] and Radu State1[0000-0002-4751-9577]
1 University of Luxembourg, 29 Avenue JF Kennedy, Luxembourg
nida.khan@uni.lu
Abstract. Blockchain is a revolutionary, immutable database disrupting the fi-
nance industry with a potential to provide payments in a secure environment,
unhindered by intermediaries. However, scalability and throughput issues
plague the technology and prevent it's mass scale adoption. The paper focusses
on Lightning Network, the off-chain, scalable and high throughput payment so-
lution from Bitcoin. A comparison is conducted to highlight the fee incurred for
payment transactions through Lightning Network, Raiden, Stellar, Bitcoin and
conventional payment systems to assess its viability as a blockchain-based
payment system. The paper also provides an analysis of the data of Lightning
Network, to give a global overview of its usage and reachability.
Keywords: Blockchain, Lightning Network, Data Analysis, Transaction Fees.
1 Introduction
Blockchain is a ledger of transactions comprising of a peer to peer network and a
decentralized distributed database. Bitcoin was the first blockchain platform to be
launched. Other blockchains like Ethereum, Hyperledger and Stellar among others
followed. There is ongoing research to solve the scalability and throughput issues
related to blockchain platforms, while maintaining a decentralized infrastructure.
Lightning Network was launched to solve the scalability and performance issues in
Bitcoin and is an off-chain network that runs parallel to the Bitcoin blockchain.
Bitcoin was conceptualized as a peer to peer payment network in a paper by Satoshi
Nakamoto in 2008 [1]. At present Bitcoin supports 7 transactions per second [2] with
a block size limit of 1 MB and a blockchain size of 235.29 GB [3]. If block size limit
was increased to replace all other global financial transactions through Bitcoin, then
the entire network would collapse or at the most lead to extreme centralization of
Bitcoin nodes to the economically privileged. Further the storage requirements for the
increased block size as well as the bandwidth requirements would be beyond the ca-
pabilities of home computers making Bitcoin lose it's utility for the masses. In order
to scale the Bitcoin network, it was concluded that the transactions need to be off the
Bitcoin blockchain [4]. Thus, the inception of Lightning Network took place to have a
throughput of nearly unlimited number of transactions per second with very low fees.
Lightning Network was developed as a payment solution serving as an alternative
to Bitcoin and seeks to cater to micropayments as well. Micropayments is a domain
that has not been exploited and still remains an area of untapped potential [5]. Light-
ning Network can serve as a payment solution for digital goods and services, where
the costs are very low, ranging in the micropayments domain, and negligible transac-
tion fees can be an advantage. It can also facilitate faster and cheaper cross-border
transaction flows as compared to traditional payment methods. The paper is a pioneer
in conducting both a comparative review of whether Lightning Network is a viable
payment solution or not, using transaction fees as the evaluating parameter, and an
analysis of its data to give an estimate of its usage and reachability. The paper gives
the background and related work in section 2. A comparison of the fee incurred for
payment transactions through conventional and blockchain-based payment solutions
is given in section 3. Analysis of Lightning Network data is given in section 4, while
the conclusion is provided in section 5.
2 Background and Related Work
Lightning Network is a second layer payment network developed on top of the
Bitcoin blockchain platform. Theoretically it consists of an infinite number of bidirec-
tional payment channels between users and can be used with other blockchain plat-
forms too. A payment channel allows two transacting entities to do as many transac-
tions as desired off-chain with only the initial and final transactions being recorded on
the Bitcoin blockchain, incurring transaction fees. Hence, the fee for multiple off-
chain transactions is the same as the fee for two transactions on Bitcoin. A payment
channel is required for two entities to conduct payment transfers, the creation of
which incurs high fee (Table 1). However, Lightning Network also facilitates pay-
ment transfers through an intermediary in the network, who has payment channels
with the two entities. This feature is extended by incorporating multiple intermediar-
ies in the network to conduct a payment transfer from one entity to another leading to
a web of payment channels. The intermediary charges a very low fee for providing the
payment channel (Table 1). The payment channels utilize multisignature [6] technol-
ogy and locktime [7] to ensure a secure payment transaction without the need to trust
the other party and the intermediaries, if involved. Lightning Network employs onion
routing to securely and anonymously route payments within the network [8].
Sampolinsky and Zohar proposed the GHOST rule [9] offering performance bene-
fits over the longest chain rule in Bitcoin. In [10], a brief overview of emerging direc-
tions in scalable blockchains is given with a discussion on the proof of work and Byz-
antine Fault Tolerant consensus mechanisms. Burchert et al. proposed an addition of a
third layer to Bitcoin to function as an enhancement for the second layer, Lightning
Network, as a means to bring about cost reduction and scalability [11]. Prihodko et al.
proposed a new payment routing algorithm for Lightning Network [12]. Roos et al.
proposed a decentralized routing for path-based transaction networks, like Bitcoin and
Ethereum [13]. Pass and Shelat put forward a new lottery-based scheme for micro-
payments for ledger-based transaction systems [14]. Our work involves data analysis
of Lightning Network and a comparative review of the transaction fees to evaluate it’s
potential to become a feasible payment solution.
3 Comparison of Transaction Fees
Lightning Network was released to serve as a scalable low cost payment solution but
it provides less secure transactions than Bitcoin [4]. Hence, the following discussion
evaluates the costs of payment transfers of small amounts of $1 from Alice to Bob
and 50 cents from Alice to David through it. It compares the cost incurred with simi-
lar payment transfers through Raiden, Stellar, Bitcoin, MasterCard, Bank of America
and PayPal. The fees are reflected in US dollars in Table 1 to facilitate an easy com-
parison between the different payment systems. The fee incurred in the relevant cryp-
tocurrency is indicated alongside. The conversion rate used is applicable for a specific
day [15]. The cryptocurrency value and the transaction fee in blockchains is volatile.
Hence, the indicated costs in dollars would change accordingly.
3.1 Lightning Network
Lightning Network functions by registering the transactions to open and close a pay-
ment channel on the Bitcoin blockchain. Alice and Bob need to set up a payment
channel between them to send some BTC, the cryptocurrency of Bitcoin. They depos-
it funds, $3 each in BTC, to open a channel and thereafter broadcast this deposition,
which gets recorded on the Bitcoin blockchain. The payment transfers through the
opened payment channel cannot exceed the deposited funds, which is referred to as
the channel capacity. In our analysis, we consider the transaction fee needed to in-
clude the transaction in the next block of Bitcoin (10 minutes), which is 18 satoshis/
byte (satoshi is the smallest unit of bitcoin cryptocurrency) [15]. Thereafter, Alice can
send BTC equivalent to $1 to Bob accomplishing a direct payment transfer and close
the payment channel. The procedure can be repeated in parallel with David to send 50
cents to him. The total fee and time for direct payment transfers in Table 1 indicates
the costs and time for above. In the case of a payment transfer through an intermedi-
ary, let us assume that Bob already has a payment channel with David and Alice
opens a payment channel with Bob. Alice sends $1 in BTC to Bob and 50 cents in
BTC to David, through the payment channel of Bob paying the channel fee to him
and closes the channel. The channel fee is 1 satoshi [16]. Table 1 gives the total fee
and time for payment transfers from Alice to Bob and from Alice to David with Bob
as intermediary in mediated payments. The lower bound of the transfer time is indi-
cated and it can increase in periods of network congestion. The ‘+’ sign used in the
total time for payment transfers indicates a few seconds more. Similar payment trans-
fers can be accomplished in Bitcoin through two transactions as seen in Table 1.
3.2 Raiden
Raiden Network [17] is the off-chain scaling solution for Ethereum blockchain [18]
network. Ethereum provides the feature of smart contracts [19]. Raiden helps in in-
stant, low fee payment transfers based on ERC20 tokens. ERC20 is a token standard,
which describes the functions and events that an Ethereum token contract has to im-
plement. The payment process is similar to Lightning Network and payment channel
technology is employed to enable low cost, bidirectional payments. The transacting
entity needs to have ERC20 tokens in an address, which needs to be registered with
Raiden. Once registered by deploying a Token Network Contract on Ethereum, a to-
ken has a Token Network associated with it and the Token networks are responsible
for opening new payment channels between transacting entities. If a transacting entity
needs to send a payment transfer in an ERC20 token, which is already registered, then
the costs for registering the token are absolved. The payment process after registration
is akin to Lightning Network where the transacting entity needs to open a payment
channel with another only if there are no intermediaries connecting them by deposit-
ing some tokens. As before the payment transfers through the channel cannot exceed
the deposited tokens. The costs for token registration on Ethereum is 3.5 million gas
[20], where gas is the unit to measure computational effort needed to execute an oper-
ation on the Ethereum Virtual Machine to calculate the costs in Ether (ETH), the
cryptocurrency of Ethereum. We consider the fastest time the transaction can be in-
cluded in Ethereum similar to our consideration for inclusion in the next block of
Bitcoin for Lightning Network and it costs 0.091 ETH or $9.55 [21]. The mean time
for transaction confirmation is presently 38 seconds [21] whereas theoretical limit was
14 seconds [2]. Data for channel fee is not available but it is predicted to be so low
that the overall fee would not be affected significantly by its inclusion. The transac-
tion cost for open and closing the payment channel in Ethereum for fastest transaction
time with 21000 gas is 0.0005 ETH [21]. In Table 1 the costs and time for the given
payment transfers from Alice for both unregistered and registered token are depicted.
The methodology for fee computation for the payment transfers is the same as in
Lightning Network. A mediated transfer includes the channel fee assumed as $0.
3.3 Stellar
Stellar is an open-source, distributed, blockchain-based payments infrastructure. Stel-
lar aids in the optimum conversion of fiat currency into cryptocurrency, XLM, to
enable fast cross-border payments between different currencies at extremely reduced
rates between people, payment systems and financial organizations [22]. Sending a
payment is an operation in Stellar and every operation has a base fee of 10-5 XLM
[22]. The transaction fee depends upon the base fee and the number of operations.
When a transacting entity conducts a payment transfer of some XLM to another, then
a default fee is charged (Table 1). The default fee is independent of the amount trans-
ferred with the transfer time being 3-5 seconds [2]. Table 1 depicts the total fee and
time for direct and mediated payments from Alice to Bob and David in Stellar.
3.4 Conventional Payment Methods
We consider payment transfers through a few popular payment solutions like PayPal,
bank transfer through Bank of America and MasterCard. The transfer time varies
from a few hours to several days in conventional payment methods. Since the amount
is low, micropayment rates of PayPal would apply, which are 5% + $0.05 [23] of the
paid amount. Payment transfers of $1 and 50 cents would therefore incur a total cost
of $0.175. Bank of America charges $30 for a domestic wire transfer and more for
international money transfers [24] so payments of $1 and 50 cents through a similar
bank is not feasible. The credit card company MasterCard has a payment transaction
fee of 0.19% + 0.53 [25] of the transacted amount in United States, which would cost
a total fee of $1.063 for payment transfers of $1 and 50 cents.
Table 1. Total Transaction Fee and Time for 2 Payment Transfers
Payment System
Lightning
Network
Raiden
Stellar
Bitcoin
Open Channel:
Fee, Time
$0.16 (18 satoshi/
byte), 600s
$0.05 (0.0005
ETH), 38s
-
-
Close Channel:
Fee, Time
$0.16 (18 satoshi/
byte), 600s
$0.05 (0.0005
ETH), 38s
-
-
Direct Payment:
Fee, Time
$0, milliseconds to
seconds
$0, sub-seconds
$0.08 (10-5
XLM),
3-5s
$0.16 (18
satoshi/
byte), 600s
Channel: Fee,
Time
$0.00003(1satoshi),
few seconds
very low,
few seconds
-
-
Total: Fee, Time-
1. Direct
2. Mediated
$0.64, 1200s+
$0.32003, 1200s+
$9.751, 114s1+
$0.202, 76s2+
$9.651, 114s1+
$0.102, 76s2+
$0.16, 3-5s
$0.16, 3-5s
$0.32, 600s
-
4 Data Analysis of Lightning Network
A beta version of Lightning Network was launched on the Bitcoin mainnet in March
2018 and we extracted data related to Lightning Network nodes, payment channels
and channel capacity. Information was extracted concerning node ID, total number of
payment channels of a node, total number of open channels and total number of
closed channels. Our data collection dates till the first 5 months of its public release
and reflects the state of the Lightning Network parameters till that time. In all, it was
found that 60 countries have at least one Lightning Network node. We observed that
US, which had 1141 nodes, out of the total 1983, owned 57.5% of the nodes. Germa-
ny ranked second with 165 nodes and France ranked third with 80 nodes. At the lower
rung we had countries like Iceland, Malta, Peru with just one node and Indonesia,
Thailand and Chile with 2 nodes.
Fig. 1 represents the top 7 countries in decreasing order of the total number of
Lightning Network (LN) nodes on the x-axis. The y-axis represents the channel capac-
ity per node per country and is calculated by multiplying the total channel capacity of
1
Unregistered token, cost for registration is 0.091 ETH.
2
Registered token.
the country by a factor of k=1000. The result is then divided by the total number of
nodes in the country. The usage of the factor k is to normalize the data for optimum
analysis and visualization. It was observed that US, which had the highest number of
nodes, had the lowest channel capacity of 0.0362 BTC per node among the 7 coun-
tries. France ranked third in the total number of nodes but had the highest channel
capacity of 0.0666 per node.
We also analyzed the total channel capacity of all the nodes found in 60 countries.
The mean channel capacity was found to be 1.45, the standard deviation was 5.44 and
the variance of the analyzed data was 29.64. The median was found to be at 0.24
BTC, which gives us the channel capacity lying in between the highest of 41.32 BTC
of US and 0 BTC of Latvia. Argentina and Greece had a total channel capacity of
0.24 BTC. Three countries Uruguay, Latvia and Iceland had zero channel capacities
with no open payment channels.
Fig. 1. Channel Capacity per Node in Countries with the Highest Number of LN Nodes
Fig. 2 depicts 7 countries, with the highest number of open payment channels with
labels on the x-axis giving the channel capacity per open channel in a country. Nor-
malized data is represented in the labels and it needs to be divided by a factor of
k=1000 to derive the actual channel capacity. It was observed that UK had the highest
channel capacity per open channel at 0.0102 BTC whereas US had the lowest at
0.0065 BTC. We also observed the total number of open and closed payment channels
per country and it was seen that US has both the highest number of open payment
channels at 6400 and the highest number of closed payment channels at 9279.
5 Conclusion
In this paper a comparison of the analyzed payment solutions indicates that the fee
incurred for a payment transfer through Lightning Network is less than in Raiden
(unregistered token), while Stellar provides the fastest payment transfer. Lightning
Network and Raiden compute transaction fee based on the number of intermediaries,
independent of the amount transferred. Stellar charges a default fee independent of
both the payment amount and the number of hops in the network. It is also observed
that the utility of Lightning Network lies in conducting multiple payment transfers
using intermediaries and Bitcoin would be cheaper to use if only direct payment trans-
fers are involved. PayPal comes close to offering similar transaction fees. Data analy-
sis of Lightning Network reveals that United States is at the forefront of using the
technology since it has the highest number of Lightning Network nodes, highest num-
ber of open channels and highest total channel capacity for payments. Lightning Net-
work has the potential to become a viable payment solution catering more to the mi-
cropayment sector, as the channel capacity restricts the payment amount. Financial
institutions as intermediaries to provide liquidity will help to strengthen it as a pay-
ment solution. Future work would involve analysis of the data of Raiden and Stellar to
bring about an optimum assessment of the comparison between different blockchain-
based payment solutions.
Fig. 2. Countries with the Highest Number of Open Channels
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