Latency and Privacy in Lightning

The discussion revolves around the challenges and potential solutions in enhancing privacy for transactions over the Lightning Network, particularly focusing on the issue of matching incoming and outgoing update_add_htlc messages by adversaries. A suggested approach to mitigate this risk involves implementing cover traffic alongside padding messages so their sizes become indistinguishable, aiming to obscure the transaction paths from potential eavesdroppers. This strategy is underscored by the introduction of the path_key TLV to update_add_htlc messages, which, while improving privacy on blinded paths, also makes it apparent that additional measures like message padding are necessary to maintain anonymity across the network.

However, adopting such a solution does not come without its trade-offs, notably in increased bandwidth usage due to the padding of messages to a uniform size, ideally under the 65kB limit to avoid exceeding the capacity of a single TCP packet and thus preserving network performance. The concern arises that padding messages to this extent could, paradoxically, degrade system performance more significantly than the introduction of delays in the transmission of HTLC messages, traditionally considered another method to prevent tracking by timing analysis.

To accurately assess the impact of message padding on network performance versus the alternative of delaying messages, conducting simulations on real nodes with varying configurations of the message padding feature could provide valuable insights. Such empirical evidence would aid in determining the most efficient means to balance privacy with network efficiency and inform whether the precise reporting of hold times in attributable failures remains justifiable within this context. This conversation underscores the ongoing exploration and adaptation within the Lightning Network community to address privacy concerns while striving to optimize the system's overall functionality.