[keymone]

a. LN transactions and Bitcoin transactions are different things, i will assume you mean "how does LN affect Bitcoin's chain capacity?" - to use LN you have to make at least one Bitcoin transaction - so called "funding" transaction which opens or refills a channel, afterwards you can make millions of LN micropayments - none of them will affect Bitcoin tx capacity.

b. Yes, it's part of node configuration, you can set whatever fee you like, but most probably at this point everybody will just route around you.

c. When creating the funding transaction you decide the amount of satoshi to be locked up in a channel for use in LN. Funding transaction is subject to normal Bitcoin transaction fees (x sat/byte, the higher you pay the faster it's committed and your channel becomes usable).

[thisisit]

a. I meant bitcoin transaction sizing. Bitcoin fees are driven by transaction sizes and my understanding (edited) is for a LN channel to be opened and closed, the transaction needs to committed to the blockchain. What are the expected size of these transactions? And how does Segwit work for these transactions?

b. Thanks for the answer. (Edited): So, it seems the current argument there will be too much competition for nodes hence people will automatically set low or no fees.

c. This is unclear to me. Normally, when I am paying for stuff in bitcoin sellers tend to attach an estimated fee for the transaction. Lets take an example, I need to pay 0.1 BTC they will charge 0.101 BTC. The 0.001 BTC is the transaction fee.

With LN nodes charging fees on top of it, businesses now will have two fees to account for?

Additionally, my understanding now is that there are three fees now:

a. Channel Opening fees to miners

b. Node fees which might be zero

c. Channel Closing fees to miners

[keymone]

> What are the expected size of these transactions?

LN deposit/close transactions don't carry any information about LN payments made on the channel, so their size doesn't grow with usage. They are simply 2-2 multisig transactions, so somewhat larger than the minimal 1-in-1-out tx, but probably (didn't check this) not larger than median bitcoin transaction.

> And how does Segwit work for these transactions

those are always pay-to-witness-script-hash transactions, so they don't even work without segwit: https://github.com/lightningnetwork/lightning-rfc/blob/maste...

> current argument there will be too much competition for nodes hence people will automatically set low or no fees

it's not as easy, there are multiple incentives and discentives working here. lowering fees will bring more volume but increase cpu/io load. higher volume also means you need to have more capacity on your channels, which essentially means lots of funds in a hot wallet - a target for hackers. high volume also means you might become target for authorities wanting to track payments in LN. et cetera.

> With LN nodes charging fees on top of it, businesses now will have two fees to account for?

technically yes, but the fee for deposit transaction is paid only once per channel and merchants (usually) won't be involved with it. it's reasonable to assume that users will mostly fund channels with larger nodes because that brings better connectivity (you don't want to have a channel with starbucks, mcdonalds and burger king, you want single channel with a node that invested in having a lots of channels).

as for the three fees you listed - yes (but not necessarily to miners?). the assumption is that you will rarely be opening and closing channels, just like you're rarely opening and closing a new debit card. you'll open with a reliable node that makes you routable, you'll once in a while deposit more funds and eventually you will close the channel. in between you can have bajillion transactions for which you will pay close to zero fees.

[thisisit]

Thanks for the other clarifications but this part leaves me confused.

> mostly fund channels with larger nodes because that brings better connectivity (you don't want to have a channel with starbucks, mcdonalds and burger king, you want single channel with a node that invested in having a lots of channels).

Lets take an example. Bob wants to pay Starbucks for his coffee. Alice is running a node which has a channel open to Starbucks. Now he can open a channel to Starbucks directly and pay for his coffee. But that is time/fees consuming so he will pay Alice, who will then pay to Starbucks on his behalf?

If that is true, doesn't that put too much power in Alice's hand? And if there are some nodes which have heavily invested in cpu/io and coins to their channels, wont they effectively control a large part of the transaction volume and hence make the network more decentralized?

> you will rarely be opening and closing channels, just like you're rarely opening and closing a new debit card.

I get confused every time this analogy is brought up. Sure, I don't need to open/close debit cards but those cards are loaded automatically when I get my salary/income. And the money is not tied, I can move it around as much as I want.

On the other hand, again, as per my understanding LN requires me to commit an amount and I have to make do with it until the amount runs out. So, its more like a prepaid gift card with fixed commitments and a reload feature.

[keymone]

> If that is true, doesn't that put too much power in Alice's hand? And if there are some nodes which have heavily invested in cpu/io and coins to their channels, wont they effectively control a large part of the transaction volume and hence make the network more decentralized?

what do you mean by "power"? yes, there will be nodes handling more transactions than other nodes, but that in no way prevents you from using other nodes or even investing into opening channels yourself and competing.

> those cards are loaded automatically when I get my salary/income. And the money is not tied, I can move it around as much as I want.

not everybody carries a debit card connected to their main bank account. and those that do usually have daily limits on how much they can spend, so you can't really move it around as much as you want. similar to that, not every BTC holder stores their BTC in hot wallet. funding your debit card is similar to funding your hot wallet which is similar to funding your LN channels.

don't take the analogy too far though. point is that LN allows you to do is micropayments without flooding the blockchain. there are tradeoffs involved. that's it.

[polyomino]

LN transactions are bitcoin transactions though they aren’t broadcast to the blockchain most of the time.

[keymone]

you could argue either way depending on your definition of what bitcoin transaction is. if it's a separate entry in the blockchain then no, LN transactions aren't bitcoin transactions. if it's transfer of value within bitcoin's network with same security characteristics, then yes, LN transactions are bitcoin transactions.