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routing: edits to golden coin example

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Olaoluwa Osuntokun 2020-08-09 19:12:16 -07:00
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@ -40,21 +40,27 @@ image:images/routing-network.png[]
The main challenge is to do this in a way that prevents Bob and Wei from stealing the money that Alice wants to be delivered to Gloria.
To understand how the Lightning Network protects the payment packages that are being routed through the network we compare the situation of indirect payments with physical payments with gold coins in the offline world.
Let us assume Alice wanted to give 10 gold coins to Gloria and decides to ask Bob and Wei for help.
How could Alice make sure that Bob and Alice do not run with the gold coins after receiving them?
In the physical world contracts could be used for safely doing such a cascade of payments.
How could Alice make sure that Bob and Alice does not run with the gold coins after receiving them?
In the physical world, traditional legal contracts contracts may be used to safely transmit this cascade of payments.
Alice could negotiate a contract with Bob which reads:
_I (Alice) will give you (Bob) 10 golden coins if you pass them on to Wei_
While this contract is nice in the real world Alice yields the issue that Bob might just breach the contract and hope not to get caught by law enforcement.
Even if Bob got caught by law enforcement Alice faces the risk that he might be bankrupt and her 10 golden coins would be gone anyway.
Assuming these issues are magically solved it would still be unclear to from a contract point of view that Wei also has to have a contract with Gloria to deliver the coins.
While this contract is nice in the abstract, in the real world, Alice runs the risk that Bob might just breach the contract and hope to not get caught by law enforcement.
Even if Bob got caught by law enforcement, Alice faces the risk that he might be bankrupt, rendering her unable to actually claim those 10 golden coins.
Assuming these issues are magically solved it, it's still unclear how to leverage such a contract to achieve our desired outcome: the coins ultimately being delivered to Gloria.
Thus we improve our contract:
_I (Alice) will reimburse you (Bob) with 10 golden coins if you can proof to me (for example via a receipt) that you already have delivered 10 golden coins to Wei_
Now you might ask yourself why should Bob sign such a contract as Bob now has the risk of getting reimbursed?
In economics a risk can usually be priced so Alice could offer a routing fee of 1 Golden coin to Bob and another one to Wei. Thus the contract will be altered onces more:
Now you might ask yourself why should Bob sign such a contract as Bob now has the risk of _not_ getting reimbursed?
Typically, in economic systems, participants must be properly compensated for contractual risk (whatever that may be), otherwise, they wouldn't agreed to said contract.
Even putting aside the risk, Bob must _already_ have 10 gold coins to send to Gloria, otherwise, he wouldn't be able to participate in the contract.
Therefore Bob must deal with the opportunity cost of allocating his capital to this contract, in addition to the counter party risk that would arise if Alice doesn't hold up her end.
Adjusting things slightly to compensate Bob, Alice could offer a routing fee of Golden coin to Bob, and another to Wei who bares similar costs.
Thus we alter the contract yet again, to factor in this new information:
_I (Alice) will reimburse you (Bob) with 12 golden coins if you can proof to me (for example via a receipt) that you already have delivered 11 golden coins to Wei_