Latency and Privacy in Lightning

The discussion on the topic of incentive mismatch within routing nodes highlights several critical points regarding their behavior and the impact on network performance and privacy. Routing nodes are primarily motivated by the goal of minimizing latency to enhance their capacity for forwarding payments, which directly correlates with their potential fee revenue. This incentive structure makes it unlikely for nodes, especially those not experiencing high traffic, to willingly adopt practices such as batching or adding intentional delays unless there is a clear demand-driven reason to do so. The reluctance towards these practices can be attributed to several factors, including the potential reduction in forwarding capacity and the increased costs associated with longer-held Hashed Timelock Contracts (HTLCs), which could lead to higher expenses in the event of force closures.

The issue extends into the domain of privacy, where attempts to introduce delay-based privacy features face significant challenges. The economic incentives favoring low latency are strong enough that nodes focused on maximizing efficiency may opt to remove such privacy-enhancing features, prioritizing speed over user privacy. This behavior is rational from an economic standpoint, given the current incentive models within the network.

Further compounding the problem is the notion of coarse-grained hold times. If the network were to standardize on a uniform hold time, such as 300 milliseconds, it would eliminate the ability for nodes to distinguish themselves by offering privacy-preserving delays. Nodes willing to incur additional costs to provide enhanced privacy cannot signal this commitment to users due to the uniformity of hold times advertised across the network. This lack of differentiation ultimately discourages the adoption of privacy improvements, as the efforts of privacy-oriented nodes become indistinguishable from those optimizing solely for latency. The uniformity in hold times effectively flattens the signal space, removing the opportunity for nodes to compete on privacy features, thus potentially stifying innovation in this area.