Game-Theoretic Analysis of (Non-)Refundable Fees in the Lightning Network

Satwik Prabhu Kumble, Dick H. J. Epema, Stefanie Roos

Abstract: In PCNs, nodes that forward payments between a source and a receiver are paid a small fee if the payment is successful. The fee is a compensation for temporarily committing funds to the payment. However, payments may fail due to insufficient funds or attacks, often after considerable delays of up to several days, leaving a node without compensation. Furthermore, attackers can intentionally cause failed payments, e.g., to infer private information (like channel balances), without any cost in fees. In this paper, we first use extensive form games to formally characterize the conditions that lead to rational intermediaries refusing (or agreeing) to forward payments. An intermediary’s decision to forward or not depends on the probability of failure, which they approximate based on past experience. We then propose and analyze an alternative fee model that allows the sender to determine and pay a fraction of the fee to intermediaries in a non-refundable manner. A rational sender chooses the fraction such that the intermediaries’ utility for forwarding the payment exceeds their utility for not forwarding. Our simulation study, based on real-world Lightning snapshots, confirms that our novel mechanism can increase the probability of successful payments by 12% and decrease routing fees for senders by about 6% if all nodes behave rationally. Furthermore, previously cost-free probing attacks now require that the attacker pays 1500 satoshis for every 1 million satoshis inferred.