Today I break down 9 common questions about the Bitcoin Lightning Network! Let’s dive in!
- What is a lightning node? A computer that runs the Bitcoin software is referred to as a node. Your node is a customized version of the Bitcoin blockchain with its own set of rules. Consider it your own personal entry point into the Bitcoin ecosystem. It broadcasts transactions, confirms that the bitcoin you get is genuine, and protects your privacy by letting you participate anonymously.
- Describe the Lightning Network? On top of the Bitcoin system, the Lightning Network offers a scalability solution. It allows customers to make small, instant payments at a near-zero cost. It eliminates the requirement for every transaction to take place on the Bitcoin ‘base layer,’ while still ensuring that the value being transferred complies with the Bitcoin network’s essential rules and values.
- Why do we need the Lightning Network? The Bitcoin base layer can have very cheap fees at times, but as on-chain fees rise and block subsidy falls, Lightning does what it does best! Transactions are low-cost, efficient, and with instant settlement.
- How does Lightning Work? By completing an on-chain ‘funding transaction,’ Roger establishes a payment channel with Charles. Roger can transfer a certain amount of value using Lightning based on the size of the funding transaction. Upon confirmation of the financing transaction on the base layer, Roger may transact with Charles as many times as he wants through lightning until one party decides to terminate the channel. Each lightning transaction modifies the current status of the channel, ensuring that neither party may fool the other with balance or funds. The most recent “channel state” is broadcast to the Bitcoin network when the channel is closed, and each participant gets the relevant balance in their on-chain wallets.
- Who owns the Lightning Network? The Lightning Network, like Bitcoin, is totally open source and not controlled by a single entity. Anyone with no permissions can run a node and participate in the network. LND, C Lightning, and Eclair are some of the most common Lightning implementations. The interoperability of all of these solutions is around 100 percent thanks to the BOLT standards.
- Where do Lightning Network Fees go? The small costs you pay on Lightning go to network members who are part of the payment route, therefore anyone running a Lightning node can earn for routing payments
- Are there any downsides to Lightning? Liquidity management of Lightning takes work especially when managing multiple channels. The network is still in its infancy and due to liquidity constraints, large payments are not typical. As the network grows, liquidity increases and reliability improves, these downsides will be reduced.
- How do I start using Lightning? You can download a wallet on your phone like Muun, Blue Wallet, Wallet of Satoshi. Or you can set up your own node using our easy and simple service!
- Do I need a node to use Lightning? To engage with the Lightning network, you don’t require a node as you do with Bitcoin, however, it is recommended. Keep in mind that if you don’t run your own node, you’re dependent on someone else’s. The good news is that most Bitcoin node providers (such as mynode, umbrel, and raspiblitz) now include a Lightning node as well, so you shouldn’t have much trouble getting started with Lightning if you decide to run a node that way.
Now you know a bit more about Lightning!