Towards an Economic Analysis of Routing in Payment Channel Networks
This addresses scalability issues in blockchain infrastructure for users of payment networks, but is incremental as it builds on existing economic models.
The paper tackled the problem of economic routing constraints in payment channel networks by modeling participant incentives and analyzing cheapest path finding, finding that direct blockchain settlement can be cheaper even with small routing fees.
Payment channel networks are supposed to overcome technical scalability limitations of blockchain infrastructure by employing a special overlay network with fast payment confirmation and only sporadic settlement of netted transactions on the blockchain. However, they introduce economic routing constraints that limit decentralized scalability and are currently not well understood. In this paper, we model the economic incentives for participants in payment channel networks. We provide the first formal model of payment channel economics and analyze how the cheapest path can be found. Additionally, our simulation assesses the long-term evolution of a payment channel network. We find that even for small routing fees, sometimes it is cheaper to settle the transaction directly on the blockchain.