I don't get it..

Creating each channel requires miner fees, so creating many channels would be costly for the average user.

This means that a network topology similar to Kademlia or something would be difficult to achieve because it would require a high up front cost of 5-10 on chain transactions. This topology also doesn't work perfectly because each person is going to create channel(s) with different maximum amounts. This means that there won't always be a way for the desired amount to be sent even if everyone bootstrapped into the network with 5-10 channels. The small world effect is great, but what if everyone in your little circle has tiny channels opened?

A central payment hub solves this problem. It only requires one channel to be created by each user, and it connects you to a massive amount of people (including other payment hubs) without requiring many BTC channels to be opened.

This means that each individual user can open a channel to the hub with the total amount that they want to send, but the network won't suffer at all if that amount is very small. Whereas, a truly distributed network similar to kademlia would result in frequent bottlenecks. This is why payment hubs will likely be gravitated towards as more convenient and useful, as well as being cheaper to set up.

That said, having payment hubs isn't really a big deal. You don't have to trust the hub with your money because if they stop cooperating as a a hub you can just close the channel and get your BTC back. Worst case scenario is that the BTC you used to open the payment channel is hung up for a while.

/r/Bitcoin Thread Parent