Braess Paradox in Layer-2 Blockchain Payment Networks

Abstract

Layer-2 is a popular approach to deal with the scalability limitation of blockchain networks. It allows users to execute transactions without committing them to the blockchain by relying on predefined payment channels. Users together with the payment channels form a graph, known as the offchain network topology. Transactions between pairs of users without a connecting channel are also supported through a path of multiple channels. Serving such transactions involves fees paid to intermediate users. In this paper we uncover the potential existence of the Braess paradox in payment networks: Sometimes establishing a new payment channel can increase the fees paid for serving some fixed transactions. We study conditions for the paradox to appear and provide indications for the appearance of the paradox based on real data of Bitcoin's Lightning, a popular layer-2 network. Last, we discuss methods to mitigate the paradox upon establishing a new payment channel.