7 upvotes, 1 direct replies (showing 1)
View submission: Lightning Network Megathread
Will the lightning netowkr reduce BTC Liquidity due to "locking-up" funds in channels?
Let me try to address this:
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The notion that the lightning network will reduce liquidity by "locking up" funds is similar to the idea that keeping your funds in a wallet locking up funds, making them unusable to the rest of the network. The funds are always under your control, and you can decide to close a channel, and reallocating the funds at any point in time. One notable exception of this is the case when one endpoint disappears or becomes otherwise uncooperative. In this case you'd need to unilaterally close the channel, incurring in a dispute timeout, which may vary and be up to a few hours in length. During this timeout you cannot use the funds in question, yes.
During normal operation your funds retain the same liquidity properties that they had while sitting in a classic wallet. On the contrary one could argue that due to the instant confirmations and the lower fees, the liquidity of the system as a whole is much greater than the underlying blockchain. Don't think of creating a channel as locking up funds, think of it as allocating the funds to a channel to maximize the utility you get out of those funds.
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Comment by codedaway at 03/01/2018 at 13:17 UTC
2 upvotes, 0 direct replies
Thank you for the answer, added to the FAQ section!