How To Run Your Lightning Node

Hi and welcome to Stephan Livera podcast, a show about Bitcoin and Austrian economics. Have you been wondering about how to run your Bitcoin Lightning node? Today I talk with Nate, aka BeefOrBacon, about this, and we talk about the basics of running a Lightning node, different Lightning implementations, different kinds of Lightning nodes, and different users, channel management Who do you open a channel with? How do you maintain that? How do you set the fees? And thoughts on swap providers as well as Lightning payments reliability and how do you back up your Lightning node? And what are the prospects for earning satoshis on the Lightning Network today? This show is brought to you by Swan Bitcoin, the easy way to buy Bitcoin and also learn about Bitcoin. Now with Bitcoin, we launched Swan Private for high net worth investors and entity accounts. We launched this because we talked- to so many people that had issues with the major exchanges. Some people were getting their accounts locked and customer service couldn't help them, some couldn't onboard their accounts, and many just wanted to talk to an actual human being. So with Swan Private, the team is here to actually support you in your Bitcoin journey. You have one-on-one access to a Bitcoin expert, there is full support for trust, business, and other entity accounts, and you get expert guidance on choosing the right custody option for your Bitcoin. So go to swanprivate dot com and sign up to get help. Lend at HodlHodl is a peer-to-peer Bitcoin-backed lending platform where you can anonymously borrow stablecoins against your Bitcoin. With Lend at HodlHodl, you no longer need to sell your Bitcoin to get some liquidity, you can borrow stablecoins. So when you do this, you're putting your Bitcoin up as collateral and you still hold one key control over this two-of-three in escrow throughout the whole deal. So you obviously don't have full self-control of it, but you can see that it's not being rehypothecated. So with Lend at Hodl All the deals are happening between users, and you are the ones to set the terms. You put up your offers depending on how long you want to borrow and the interest rate that you are willing to pay. So go and check it out, it's lend dot hodl hodl dot com. Compass Mining is an online marketplace making it easier for everyone to mine Bitcoin and enhance the Bitcoin network's security. This is not cloud mining, you can select an ASIC and have that sent to a specific facility that has been vetted by the Compass team, or if you're in the US, you can have that ASIC sent This at home mining guide to get into mining at home. So with Compos, everyone can tap into the economies of scale offered by Compos, and you can access reasonably priced hardware and cheap industrial power rates. So this might not be accessible for everyone in their residential home and residential rates. So if you're unsure about how to get started, go to the website, they've got all kinds of content and material like a newsletter and audio material that can teach you about Bitcoin mining. So that website is Composmining dot io. Now onto the show with Nate. Nate, welcome to the show. Glad to be here, Stephane.

Thanks for inviting me.

So, Nate, we've been chatting for a while, and I know you obviously have some expertise and some practice now in running Lightning nodes, and this is something, you know, we've even been chatting in the background about it for a little while, and I thought it would be great to get an episode to get your thoughts on it, and of course, I know you're working at Voltage as well, so you can probably share a little bit from that

A bit of a background on yourself for the SLP listeners, so they know who you are and what's your involvement in this whole Bitcoin and Lightning world.

Sure, absolutely. So, my name's Nate, I go by BeefOrBacon1 on Twitter, and I am a Bitcoiner, been a Bitcoiner for a while, and in the sort of bear market of twenty eighteen, I was thinking about running a node for the first time, and near the edge of twenty nineteen, there, I came across the Statikus Rasp- Raspberry Pi bolts guide on building your own node on a, Raspberry Pi, and I decided to dive into that with zero Linux experience whatsoever and managed to figure it out. And I honestly just wanted to run a Bitcoin node at the time, but I saw Lightning as sort of like a bonus, like, "Cool, I get to run a Bitcoin node and a Lightning node at the same time." And then after that, I just sort of went deep into Lightning and started learning about channels and liquidity. I spent a lot of time on the LND Slack. Obviously, I was Starting LND at that time, and eventually I, I noticed the community in twenty twenty and twenty twenty one where it was really starting to grow out, people were starting to talk about it more, so I got into just helping as many people as I could. at the time, I was still working my sort of normal non Bitcoin job and raising a family and everything, but, you know, when I could spare time, I was working with the Plutonet guys or running free Calendly, consulting to help people answer general questions about running Light- Lightning, and then, Voltage hired me last September to sort of spearhead the support and education part of the service, which I've been doing, and it's been great. So that's, I guess, that's the, general overview there.

Fantastic. And so, I think it's probably important for listeners, maybe if you're new or maybe you're not as advanced into this, just to understand the different Lightning users. So let's say as an example, there are some different types, and maybe you wanna spell out some of your thoughts. I mean, let me just open And you can expand on that. So as an idea, you might be, let's say, just a retail user of Lightning, and so this might be a person who is using different Lightning services like Phoenix, Breeze, Moon, or even Wallet of Satoshi, you're using Lightning services, and you're typically just making small payments and receiving. Another user type might be the routing node operator, and so this is a person who's trying to set up and actually, you know, set up channels, and these are distinct roles, right? And then you might-- Another example might be a person who is a Merchant, so you are receiving typically payments, and so you need to set up, you might need to set up a lightning node from that point of view. And then maybe another bucket or category might be like a lightning service provider, and some of these might be like a routing node, but they are kind of doing a slightly different service themselves, right? And then, so there's kind of this ecosystem of different user types, right? Because maybe if people are looking back to, let's say, twenty eighteen or twenty nineteen, it's just kind of like, oh, it just, it was all the one Seeing a distinction in the different role types. So, do you wanna just expand a little bit on that, just for those people who are new to Lightning, maybe they're learning about Bitcoin and Lightning?

Yeah, I, I think that maybe some people, when they're starting to hear about Lightning and nodes, they start thinking about everybody needs to run it the same way or have the same goal. but that's, that's not the case at all. Trying to build out a routing node takes, takes time, energy, and effort, right? But if you are trying to be a Bitcoin- Bitcoin, Sovereign, you know, there's a lot of Lightning wallets out there that are very user friendly, but you're trusting third parties a-and whatnot. But if you just wanna, you know, buy gift cards on Bitrefill or pay with Moon and you wanna run your own node and you just wanna do that, that, that is probably the easiest way to go about it, because after you get your node running, you simply open up channels to other, to routing nodes, and we can go over how to choose who to open up channels with later, and essentially you're good to go. Capacity and now you can make payments, great, and you're, you're all set. Merchants are a little bit different because you're more inbound focused as a merchant, meaning the liquidity that you want needs to be, you know, receivable. So that's called your remote or your inbound capacity. So that's the equivalent of somebody opening up a channel to your node, and that's where a lot of node, liquidity services have kind of popped up, such as, well, they've got the marketplaces from Lightning Labs, the Lightning Pool, C-Lightning, has liquidity ads, so essentially if you're running a routing node and you have excess liquidity, you can basically sell that liquidity to new node runners, or merchants specifically, need that. And I think that is a really cool concept that is continuing to hopefully be made easier and eventually, I think, will be obfuscated away for merchants that wanna run a node, they can simply say, "Hey, I want liquidity, boom, bam," and they get some. So I, I'm hoping that's the future. I think it's going that way. And then of course- Is the routing node operator, which is someone that has a lot of capital, and by what I mean a lot, I mean like, so now, now we're getting into the part where this is my opinion, a lot, I would say to start a routing node, you probably need, I don't, again, this is just my opinion, but I think five million sat channels are probably the sweet spot, and I think around twenty channels are probably, pretty good. And not all of those channels have to be channels that you open yourself, it could be channels you receive from others, and that

Start lightning nodes out of curiosity, meaning they don't wanna do any of that, they just wanna learn how it works, and then they maybe transition to that in the future. Maybe they decide, okay, this was like my beginner node, I learned a lot doing it, I'm gonna shut it all down, I'm gonna make a new one, maybe on better hardware or something, and then take it seriously from there. So I work with a lot of those kind of people also. So yeah, that's a general overview.

Yeah, that's great, and I think that is a great segue into that

A Raspberry Pi or an Umbrel or a MyNode or, you know, various other, node packages, and typically people might start out as like a beginner or learning node, they might start out with a Raspberry Pi or one of these single board computer type small computers, and that's been a bit of a discussion in the community. Like my friend Katan is, quite against the whole Raspberry Pi, he believes you should run a box, and then there's another camp which is you can run a VPS, and obviously Voltage, can help you. With that. So, do you wanna just spell out some of your thoughts comparing those three, right? So, the Raspberry Pi or let's say a Rock Pro 64 versus the second option, which is like running a box at your home, like your own box, or thirdly, running a VPS. If you could just explain a little bit about each of those and your thoughts on those for a Lightning node runner.

Yeah, so Raspberry Pis are obviously very popular, very affordable in a lot of ways, and fairly powerful for what you, you get with them. And I think running just like a normal Bitcoin node, you know, base layer Bitcoin node on a Raspberry Pi is great because it's, you can turn it off whenever you want and it's not as intensive. when you start using it with Lightning though, all of a sudden you're dealing with-- So with Lightning, you need to be online all the time, right? And I'm not saying Raspberry Pis are gonna break down or anything, I mean, they've been known to do that, but being online is a big issue, especially if you wanna run a quality routing node, because that's gonna affect your overall But you're gonna want to, eventually consider that the Lightning Network is a gossip-based protocol, which means packages, packets, and stuff of, informa-- you're sending information out to the network constantly and receiving information from the network constantly. As you get more and more channels and build out your node, this might prove to be a bottleneck in the future. So I, I, I really think that if you're running a routing node, which in my opinion is more than twenty channels, I think the next step is to get a Mini computer. So what I did after I decided to take it seriously was I went to Google and I was like, "I wanna build a budget mini gaming PC, right? " And then it's really cool 'cause if you Google something like that, it'll be like, it'll, it'll show you the parts you need to buy. And building a computer is actually pretty straightforward these days. So a mini ITX, that, that re- that's basically the size of the motherboard, which is just this little maybe eight inch by eight inch board in a little case, and you just put the pieces Machine for five hundred dollars, basically. you might spend a little bit more than that on the hard drive if you wanna go to like a two terabyte or something and really do that. But I, I would, I would say that's the next step for the home lightning enthusiast. And now we get to like VPS stuff, which is been around for a while, and generally with VPS, you are essentially renting computer power from a data center somewhere, and you are manually installing Configuring, doing all this stuff, very technical command line type stuff usually, and that is pretty good for those that are traveling a lot, don't wanna deal with power outages. Obviously, you can connect into your node remotely with mobile apps like Zeus, so a lot of folks like to do that when on the go. And then Voltage comes along and is like, "We've developed a way to provision you your own node that we don't see what's happening." Whatsoever, we don't know what you're doing, we have no access to your funds, and everything's encrypted client side with your node unlock password basically. So even if we wanted to see what you were doing, we can't do anything. The worst that we, I say we, the worst a Voltage could do is basically remove access to your Voltage dashboard per se, but that doesn't mean you lose your money, and that doesn't mean that we take your money. It just means that you, if that worst case happened, you'd have to recover just as if your hardware broke down or something. Really interesting solution, and, I, I find that so far a lot of folks that are wanting to sell things on Shopify or even BTC Pay Server, which Voltage does have natively integrated into the platform, really like that they don't need to deal with updates, upgrades, uptime, and that sort of, hands-on requirement of running a physical node at home. So we're building that out and, and working on some other things too. So To boil it all down, I think that it's just there's so many user types, right? So maybe for example, you could run your routing node at home because you have physical access to that, you know the configurations and everything. But then maybe you're a node, you can run a second node that you just buy things with, right? That could be your Voltage node, for example, which you can run on Neutrino, which is very, which is a little bit more affordable than a standard node for the Voltage platform and connect to it with Zeus. And boom, you're all, you're all set. You open up a couple big channels to like Async or something, or Bitrefill if you're using gift cards a lot, and off you go, and you don't have to worry about your routing node touching any of that.

Yeah. Okay. So, so let me summarize a little bit. So if you are just looking to be a very basic user and you just wanna be able to spend and receive, and you're not that concerned about sort of the privacy, self-sovereignty, I mean, you can just literally use one of those phone Let's say when you're at the level of, let's say, learning about Lightning Network nodes and you want to run one just to learn, that's where, let's say, the Raspiblitz and Umbrel and things like that, you can do that. And of course, I mean, there are users who do use their Raspiblitz as their routing node, so you can absolutely do that. And then, let's say you wanna take it the next level up, that's where you have like the box at your home, as you spelled out, you're using a, and therefore, because of the gossip network, because of, let's say, everyone's, having to run this channel's database and all this other stuff that's going in and out of that, having a more beefy box can help you with that. And then obviously, the, the VPS option is great for people who are wanting to run a very, like, a larger, an even larger node, and they're maybe slightly less concerned about the self-sovereignty part of it, but they want more the availability, maybe they want to be able to travel, and maybe they want

The VPS, the provider, VPS, virtual private server, is running some of that in the background for you, and let's say the professional cloud infrastructure is being done in a way where they ensure very high uptime, very high availability, some of these professional level concerns. So that's probably the, you know, just a, a basic overview of the different options that you can go with there. Now, also curious from a lightning implementation point of view, because there are- Different im-im-implementation, right? So obviously LND from Lightning Labs is one of the big ones, Core Lightning now, it used to be called Sea Lightning by Blockstream, we've got Rust Lightning and let's call it Sensei by, you know, which is utilizing that. We have the Electrum Lightning implementation, and there's also the Async implementation. Those are probably the well-known ones, there might be one or two other smaller ones. Do you have any thoughts, on the different Lightning implementations? Do you have any that you prefer?

For sure. Yeah. So, I guess we just need to define what a node is really quick. So, a node is just software running on your computer, right? Or somewhere. And that node software has the ability to interact with other node software. So, like when we say these implementations, they all operate under at least the first eleven bolts, which is the basis of lightning technology, a sort of a rule set for interoperability between all the implementations. there's some debate about bolt twelve Well, but we can talk about that another time, but at least the first eleven bolts are pretty much agreed on. So, if I'm running a LND node made by Lightning Labs and you're running a core L- or core Lightning node made by Blockstream, we can still open up channels with each other and do things, you know, no problem. there are different features though that are on top of that sort of base interoperability that each implementation might have. For example, Lightning Labs has the Loop service and the Pool service, Core Lightning has Liquidity API. Ads and a few other things. So LND is definitely more consumer grade, I would say, meaning the ease of use and the build out of it is very-- they're focusing a lot on user experience. For example, they have a Lightning Terminal app that lets you easily, graphical user interface, interact with their, sorry, their pool and loop services and stuff, where Blockchain Core Lightning is more focused on, features and maybe more of an enter- Enterprise grade setup, there are some third party apps that, provide a user interface for Core Lightning, RightTheLightning is one of them. And then we're getting into, so like Eclair, funny enough, so Eclair is the implementation built by Async. They've been around since the beginning. As a matter of fact, the very first time I used Lightning was on the Eclair wallet, which was pretty fun for the time. And, I think that, they're really focused On the, the mobile set, setup a little bit. Like Phoenix is their sort of next-gen wallet that's been out for a while, mobile wallet that I highly recommend people try out, I think it's really great. And now we have the LDK, the Lightning Development Kit, which is basically put together by Spiral, which is a sort of development team funded by Block, now, which used to be called Square, yeah. Right. Yeah. So, yeah. And so the LDK is kind of cool because now- Now if you are a developer or a development team and you have sort of a really cool idea, you can essentially use these libraries and this development kit to piece together the, the foundation of your own implementation, and then you can build whatever cool stuff you want on top of that. Sensei is a really good example of that. John Cantrell, which you had on recently, talked about, Sensei, which, I'm really excited about, I'm really excited about other LDK sort of ideas. I think the Child node concept is very, very interesting, and I'm excited to, to see where that further goes. So there's, those are definitely the, the major implementations right now, and if, if a lot of people say, "Gosh, well, geez, if, if Lightning Labs and Blockstream have like a stranglehold on this, for a long time, you know, what does that mean?" And I really see them someday I mean, this might not be true, but some-someday I think that there'll be a lot of implementations, all for specific use cases. There might be like a merchant-focused implementation someday that has really cool merchant accounting features or or a, a gaming implementation for those that someday in the future are building video games that have something to do with Sats and Lightning. so I, I'm excited to see that sort of ecosystem build out in the coming

years. Gotcha. And so from your perspective, when you're coaching and helping educate, what are some of the typical implementations you've been working with? Has it typically been helping people with their LND or with their C-Lightning, or Core Lightning, rather?

Yeah, it's definitely been LND, probably near a Hundred percent of the time. I've, I've still have very little experience with c-lightning or core lightning, even though my good friend Lisa over at Blockstream is constantly trying to get me to run one, I just haven't had the time yet. They're coming out with a, a version update here soon that they're getting excited about, zero point eleven is coming out soon. They're already at like the third release candidate, so the, the final version should be out any, any day now. So I might have to. The, the problem is too, is Raspberry So I'm trying to, figure out a way to, to get a c-lightning going, soon. I haven't run any other node implementations though. I, I have run Sensei on Regtest for fun. I don't think that really counts though, 'cause it's not quite, you know, there yet, but definitely LND, ninety-nine

point nine percent of the time. Gotcha. And so let's talk a little bit about setting up your own lightning node and some of the getting started points there. So let's say you're setting up your Lightning node, what are some of the things you should be doing at the start, maybe, in terms of channel opening as well? Like, how do you pick who you open channels with?

Yeah, this is, this is a great question, and I'm, I'm assuming that maybe we wanna eventually have a routing node, you know, but we wanna kinda like learn a little bit first. The, the first thing that you're gonna want to do is decide how much capital you wanna allocate to your node at the beginning. you wanna say, hey, I wanna open up Ten million sats worth of channels or twenty million sats worth of channels. You, you wanna have these numbers in your head. You don't wanna just like open up willy-nilly, because that will help you decide what size channels to open with once, once you get going. So for example, if I wanted to put a whole Bitcoin into bootstrapping a new routing node, I would probably say, okay, I probably want fifteen to twenty channels of like five to seven million sats each, and just have a nice little divisibility on that. The hardest part about bootstrapping a node, You know, getting started is you need inbound liquidity for, for other people's payments to flow through you, which is, for some the, the hardest to get. You know, some people have it easier because some people might have a footprint on social media or something, and they can say, "Hey, I just started a new node, open up channels with me," and the whole community will jump in and give them tons of inbound. But for the normal sort of person that just wants to, like, get going, and not only that, but like the sovereign person that wants to not Pretty challenging because unless you start a new nim or something and go into the Telegram groups and say, "Hey, I'm starting a routing node, someone open up a channel with me," yada, yada, yada, that, that's, that's a hard sell because routing nodes, want to open up channels with folks that will sort of reciprocate or, or add value to their own node as well, 'cause your routing node is only as good as the peers you're connected to at the end of the day. So there has to be some sort of incentive there.

Pool or liquidity ads for core lightning, where, you know, you're, you're opening up a channel with somebody but they're paying you to do so basically. Now, that might not be for everybody, but that is an option. One of the quickest ways I've found to sort of bootstrap that inbound, that initial inbound liquidity is using, atomic swap services like Loop or Bolts. What that is, is you s- essentially open up a channel, and then you go to the service and you say, "Hey, so, for example, if I open up a five million sat channel, I could say, 'Hey, I want to move four million sats out of that five million sat channel to the other side.' And what I'm essentially doing is I'm paying somebody those sats, and then they're saying, "Okay, pay me those four million sats, and I will send you those four million back on chain, and now you have four million of inbound." Take a little bit of a fee for that service, but now you've, you've bootstrapped a good amount of inbound for your node, and that's probably the, the, the hardest thing to do. One of the easiest ways to get inbound though is to just spend Sats, really, because if you're spending it, you're, you're moving it over. So if you wanna, spend Sats on a bunch of gift cards or something, you can do that as well. Any questions so far?

Yeah, no, that, that all makes a lot of sense. So in How does a new person do that?

Yeah, so if I'm looking for quality peers, so it's, you're basically playing a game with incomplete information. It's a lot, it's a lot like poker. So, but thankfully, a lot of information about public facing nodes and channels are sort of put together in very easy to read public databases, such as Ambo.Space. 1ML used to be the leader in that, but 1ML, I don't even know who runs 1ML actually, but they haven't really- Really updated it or done anything in a long time. So Tony, who built ThunderHub, and Jeffre, who's a really good friend of mine also, are building this Amboss dot space platform where you can go and you can see, basically look at a node, you can see what their channels are, see what their capacities are, and see what their, what their fee rates are like and that sort of thing. So there's multiple factors. My, my biggest factor though is how many channels does the node I'm opening up with have, and what is their average? Average channel size. If I'm looking to open up a five million sat channel, I don't wanna open up a five million sat channel with, with a node that has five hundred thousand sat average size, right? Even with really cool things like multi-path payments, that's still sort of a bottleneck because not everybody uses AMP and multi-path payments right now. so that is, I want, I want that average channel size to be near the size that I wanna open. And generally, if they have at least twenty channels, that's, that's good. the age of the node also needs needs to sort of be taken into account, and you can go to, terminal dot lightning dot engineering and see if they're, which is a lightning lab sort of ranking database using their own arbitrary metrics, but it gives you a good idea if they're online or offline a lot, because they'll have this pretty green color next to their, next to their node name. So I would use lightning dot terminal dot engineering in conjunction with amboz dot space to sort of vet nodes that I'm, I'm looking to open up with. A lot of people- People think that they just wanna open up nodes to our channels to the biggest nodes on the network, and they're gonna be all set. But for a routing node, that's not quite the best idea. It's okay to have a few channels like that, but the issue is if you're just connecting to, big routing nodes on the network or just big nodes in general on the network, you're essentially competing with all the other channels that are with them. So the ultimate goal of a routing node is to find paths from medium to smaller nodes that are making payments to go to To services and, you know, where, where you think that, traffic is flowing to. So maybe you wanna open up a channel with Bitrefill, and then you wanna go and maybe open up some channels to like some smaller nodes also, and have a variety of connections. And, yeah, we, we could go deep into theory on that, but that's, Yeah, no, I think that's a good high level idea. That, which, which is a heck of a rabbit hole itself, but yeah.

Back to the show in a moment. Have you thought about upgrading to multi-signature with Unchained Capital? Unchained have collaborative custody, so they can make it easy for you to hold two keys and for them to hold the third key, giving you some additional peace of mind and it might help you sleep at night knowing that one error won't make you lose all your coins. And so in Bitcoin security, we want to try to remove our single points of failure, and you can do this with two hardware wallets. So with Unchained Capital, they've got a concierge on board Onboarding program where you can pay upfront, they'll ship you two hardware wallets, they'll do a call with you and deposit some Bitcoin in your vault, and there's some ongoing support also, so you can do this even if you've never held your own private keys before. So this is a great way to improve your security, take away those single points of failure. Go to unchained dot com and use the code livera on the concierge onboarding program for a discount. So with Bitcoin security, you've gotta go and check out coinkite dot com. Not only do they offer the Cold They offer a range of products that you will love. They've got the Block Clock, they've got metal backup seed products like the Seed Plate. So if you have written down your twenty-four seed words on a piece of paper, well, think about upgrading to a metal stamping solution so that way you don't lose your coins if natural disasters or accidents happen, such as a fire or other natural disasters. So make sure you are looking out for your Bitcoin security and your backups. Go to CoinKite. dot com and use the code livera for a discount there. Brains are a Bitcoin mining company through and through, and they've got Brains OS Plus. This is firmware that you can install on your ASIC machine to give you more hash rate for your electricity bill. They help you auto-tune your miners to help you get maximum performance and efficiency. So go to brains dot com, that's brains with two eyes, and you can see which models are supported there. Also on that website, you can see a range of content. I really enjoy reading their blog posts, and they've also got an analytics dashboard All kinds of statistics about Bitcoin mining, profitability calculations, and all sorts of useful information for anyone interested in Bitcoin mining. That website is brains dot com. Back to the show with Nate. Yeah, for sure. But I think just to give people a flavor and just to summarize, and I think that's right, the general idea is that you want to open channels in the direction that you believe the flow is going to go, right? So let's say you believe, if you knew there's a new hot merchant in town, you know, and you believe everyone's gonna be paying them because, let's say, they've got some really cool Bitcoin merchandise or some other thing they're selling for Bitcoin, you, you as a smart routing node operator are thinking, "Yeah, alright, sweet, Then as they want to pay to him, they're gonna route it through me, and so then I'm gonna collect some routing fees. And so I guess that's kind of like a high level, or at least one way, thinking about that part of it. But then, like you said, you still wanna have other people who want to pay you through that, so you still have to think about that aspect of it.

That's a great example because I think that, as a routing node operator, being constantly aware of new merchants, new merchants and services that are just starting, it, you're Which means open up a channel with them, because you know that the flow is, you know, especially if they're a, a high level merchant or whatever, like Great American Mining, for example, just enabled Bitcoin Lightning on their store. So I'm thinking, okay, if I'm one of the first people to open up a channel with them, I can set my fee rate higher 'cause there's less competition right now. But as more competition, meaning more people open up channels to them, that might drive the fee rate of forwarding payment to them down. that happened with the Loop node, 'cause so the Loop node at Lightning Labs is constantly doing these atomic swaps, or submarine swaps for, for folks, meaning that, you know, and which can sometimes be really big and, and really high end. Demand, but a lot of people started realizing that and opening up channels with the Loop node and try-- and then drove that fee rate pretty much under the ground. So, I, I think that, that is a really cool sort of incentive for merchants, because, i-if you get going, I think you'll see channels just open up to you naturally as part of the ecosystem.

Excellent. And so how should people think about fee rates and setting the fees? So, I guess the quick overview for people is generally in Lightning, there's the base- Base fee component, which is like a, like a flagfall, like as soon as you're routing a payment, and that might be a certain level, and then there's the parts per million or the, the fee per how much you're routing. And listeners also check out my earlier episode with Renee Picard, who's also got some thoughts on this. But, Nate, I wanna get your thoughts. How should users be thinking about their fee rates when they are setting up a light-lightning routing node?

Yeah, I mean, these days there's a lot of talk, but I'm, I'll, I guess I'll like rewind to sort of the initial idea was base fee can be whatever you want it to be, base fee meaning no, no matter what the size of payment you're forwarding, you are, at least collecting that base fee, and then you can set a percentage on top of that that you can also take basically. And a-at the time, before selling liquidity was easier, was easy, as it is today. Basically, you would sort of guess, right? You would use these one ML or Amboss, and you'd say, okay, so-and-so, like, there's, you could, you could see basically the, the fee rate and say, I, I want to undercut some of this, and I'll still sort of make a profit. And when I say make a profit, we could actually, I'm gonna get back to that. Or Or you can open up a channel and just set a default fee rate. A, a lot of the times it's really not that much, fifty or a hundred parts per million, which is zero point zero zero five percent, I think. So it's not a lot. I think that if your goal is to earn fee income running a routing node, the bulk of your income is going to come from your channels to in-demand merchant-style nodes the most. So I would set, you know, those would be a higher fee set than if Than, than just a, a normal sort of sized node on the network, because you're not really gonna be earning a lot from, from that generally. That, that sometimes can change, but generally that's true. And then after that, so like say bit refill, for example, say that I have a ten million sat channel bit refill, it gets drained out all to the inbound. Well, now I have to figure out a way to get that liquidity back into that channel so, so it can happen again, and I can just keep sort of earning from that. So the challenge to that is The cost of what's called a rebalance, which is essentially paying yourself out of one of your channels and into the channel that you're looking to profit off of. And one of the big challenges is calculating the rebalance cost minus the fees that you get from the drain of that rebalance is your net profit. And it's actually fairly, really, really tight most of the time, and it's generally not that much. So I really don't think, earning fees on a node that isn't gigantic like the Y'all's node, for example, is very, you know, it's like, "Cool, I get some Sats or whatever." So now you have folks like Zero Fee Routing who realize, "Hey, listen, I'm not gonna be making any fees. I, I'm not gonna be making that much from fees, so I'm gonna provide a service saying that I'm gonna do zero fee, zero base rate, everyone can free flow through me, and then he's monetizing, I say he I don't know who they are, it's a nim from basically saying, by basically selling liquidity, selling channels, saying, "Hey, I've got this gigantic node with five hundred channels, I don't charge any fees. If you want some liquidity from me, email me and we'll discuss terms and I'll open up a channel with you." I think that's really interesting. I think that is the general way that earning income on Lightning is gonna go for the near-ish future, in the, in the far future, who knows what it'll be, but in the nearest future, selling liquidity is probably And, the volume of, of that market in all of its i-integrations or, types are, is, is just gonna explode. So I'm, I'm, I really think that fees are like cool or whatever, but compared to selling a ten million sat channel to a merchant and they're paying you seven percent APR or something, that's gonna be where the, where the money is for, for running a lightning node, I think.

Yeah, yeah. Also, I wanna get your thoughts on payment reliability, right? So for some users who maybe they are struggling to get more reliable payments back, you know, out or in to receive. What are the typical causes for that? Do you believe that's because it's not-- they're not having big enough channels, or they don't have it with the right channel participants, or maybe their lightning node isn't online enough? Like, what are the typical, issues that you run into when you're helping troubleshoot for, you know, someone you're helping with?

Yeah, I think the The hardest thing to wrap your head around when you're s-brand new and just kinda like trying to understand how, how channels work and stuff is the liquidity, really. I mean, I've, I've got folks, through no fault of their own, right, they say, "Hey, I opened up like a couple channels and I'm trying to pay X and it's not working, "or "I opened up a couple channels and I'm trying to receive a payment and it's not working, "and then, you know, that could be frustrating at the start because you don't have that foundational understanding

to do that. Oh, well, how do I do that? It's, it is a big headache, and it is a little bit of a learning curve, absolutely. And I hope in the future this sort of thing will be more automated. So it's really, a lot of folks that get frustrated because they open up channels, and when I say channel, maybe two or three, and then they, they're frustrated because their payment isn't going through. And obviously the solution to that is to choose who you're opening up your channels with very deliberately, meaning kind of what we went Initially getting started, you should, you should open up channels to, to bigger nodes on the network. It doesn't have to be the biggest nodes on the network, there's a lot of big nodes on the network now, and sort of go from there. So yeah, if your payment's failing, we need to, we can troubleshoot that by figuring out, you know, where it's, who you're connected to, who they're connected to, it might not be a good peer to begin with, or if it's the other way, they're trying to receive, we need to get them,

Pretty frustrating for people.

Yeah. And so, I guess that's the con-the concern or the question from a payments reliability point of view. How easy would you say it is to earn Sats, like if you're trying to actually run a profitable routing node? Do you believe that's, like, that a lot of people are running a profitable routing node, or do you think maybe once all costs are considered, let's say, on-chain open and close fees, swap fees, rebalancing, once you count-account for all of this, do you think there are a lot of profitable routing node operators, But still sort of in a, you're only gonna make a, a small amount.

Yeah, I, I think from fees for ninety-nine percent of people, it's gonna be breakeven at best when you factor in all of that. like I said earlier, I think that the, the idea of selling channels is probably gonna be the way to go in the future. There are, you know, like I said, those services and some people even taking it into their own hands, proving that they have a really, really, really good node and proving that they have a- Value that they think that others are willing to pay them to open up a channel with them, which is absolutely probably true. That's, that's what makes running a routing node exciting. You get, you get it, you know, you get that reputation up, and then you're like, "Yeah, I'm here to like, you know, help the network," and, and you get valued for that, and that's just gonna keep growing. I think that, we don't have to go too deep into it, but I'm pretty sure, this is just me sort of speculating, plugged into their lightning pool liquidity marketplace in some way. So even though your node might not be dealing with whatever tokens or whatever are built on that, you could still sell channels, and I, I hope the volume picks up on pool thanks, because of, Taro, I think that'd be really great.

Yeah, that's interesting as well. So maybe the high level summary of some of that insight is that maybe historically, when, you know, in earlier years, let's say twenty eighteen, twenty nineteen, people were thinking about this idea more in terms of the route- Routing fee income, where maybe the more relevant, and that was arguably the way people were thinking about in terms of Lightning Network reference rate, right? The, the research by Nick Barchio, but actually I think what might be more, where the money is at, is the market for opening a channel to each other, right? So that idea of, hey, I'm gonna sell you this channel, right? So I know in the early days, Bitrefill had their Thor channels, and nowadays there's Lightning Lab Pool, there's, you know, liquidity ads, there's, you know, there You're selling a channel upfront, and I know even with Voltage, you've got, a Flow, right? And that, that, I believe that's working using Lightning Labs pool, right? So, can you tell us a little bit about how that part of it works?

Yeah, Flow, Flow is really, really cool. So when Pool came out about a year and a half ago now, they also had this idea of, what they called sidecar channels or sidecar tickets. And all a sidecar ticket is, is essentially a order for liquidity from Lightning Pool, from the Lightning place that somebody else can like print out saying, "Hey, I want five million sats, and I'm willing to pay five thousand sats for this," and then a little ticket comes out, which is just a string of letters and numbers, and then you can redeem that ticket as if you put in the order yourself. So one of the big headaches with pool is you have to have a pool account, they call it, which is essentially a registered UTXO with Lightning Labs to sort of prove that you have funds, and that's where you sort of pay fees, in and out of pool Pool account. So at Voltage, we run, you know, a pool account using the Voltage sats, and we essentially have a little user interface. And Flow's cool, 'cause anyone using LND is welcome to go to Voltage dot cloud, go to Flow, no KYC or anything, and make your own sidecar ticket if you'd like, and redeem it on your own node. You don't need to be running a Voltage node, but you can say, "Hey, I want, I want a four million sat channel, I wanna pay ten thousand sats, I want it for two thousand Blocks and whatever, and you hit create, and, you know, in the background, we generate a sidecar ticket that you can go redeem, you could give to your friend, and essentially that puts in an order into the Lightning Pool marketplace as if you were running pool sort of yourself. so that's been really popular. Because, Voltage nodes are sort of Tor only, there's been a little bit of hiccups because Tor has-- Tor can sometimes like slow down, and the way that Lightning Pool, matches Is, has, it has, there's a timer for the match before the total peer connection, channel open thing can happen. So if Tor just kind of times out on that, it doesn't fully complete. but thankfully we've been, working really hard with the team at Lightning Labs to help alleviate a lot of that, and the newest pool version helped out a lot with matching with, our sidecar tickets. And I think, according to our metrics, about thirty-ish percent Of the bid side of the pool order book, meaning those looking to buy liquidity, is, is done through flow sidecar tickets right now, which is really cool.

Oh, well, that's a, that's a fair amount, yeah. So I guess it is just early days of lightning, and I know Voltage is used both for, let's say the, you know, people who wanna run their lightning node like as an individual, but also companies who wanna run like a, a VPS level routing node, they, they might use, you know, Voltage for that. So that's,

With all of this, also I wanted to get your thoughts on backing up a Lightning node. So how is this done currently? What are the best practices around this? Yeah,

so there's, there's two pieces of information to do a full recovery, and so this is strictly for LND, that's the only one I really feel comfortable giving advice about. But, so when you start up an LND Lightning node, you're provided what's called a cipher seed phrase, and the seed phrase that you're- Given is, is, is sort of a unique one though. You can't use this on a Blockstream Green wallet or a Samurai wallet to recover. It is strictly an LND cipher seed phrase. So you write down the seed phrase, just a bunch of words like the kind you're used to, and then off you go, right? Now every time that something happens to one of your channels, behind the scenes, your signature and your peer signature, 'cause a, a channel is just a two of two multisig, is, Signing an on-chain transaction, it's not broadcasting, but just signing it, updating the channel state. Meaning, you know, if, if I pay you five hundred thousand, we both sign the new update channel state. And this is important because if we close the channel, or, worst case scenario, we force close the channel, these are broadcasted and we all get our money back. so I guess to go off on a side note there, for security purposes, this is another really important reason why you wanna be online all All the time, because there is the possibility that if you go offline, your peer could broadcast to the network that they own more sats than they actually do in a fair world, and they could say, "Before you paid them a million, or before they paid you a million, they could broadcast a, a channel state transaction that was, said that they had what they actually didn't, and now you're out of money because you're not online to sort of contest the agreement, the contract." Correct. So, Lightning Labs has, watchtowers, which is essentially you can have a, the node of a friend, or you can run a secondary node that can watch yours and keep, the channel states, correct. And the cool thing about watchtowers is any nefarious actor doesn't know if there's a watchtower watching or not. So now there's, and that's important because the punishment for the justice transact-- they don't call it that anymore, I forget what they call it now, but I, I still like justice transact. Transaction is basically if you get caught cheating and it's really obvious that you're cheating, that's an old channel state because, you know, timestamps and everything, the person being cheated gets the whole balance. so people that are want to try to use that sort of cheat are very, very disincentivized from doing so, especially because watchtowers are so easy to run and there's a bunch of public watchtowers you could connect your node to to watch your node if, if you go offline nowadays. Alright, so let's talk about recovery now. So say I'm running a Raspberry Pi, it broke, crap. so I've got my cipher seeds here. I put, so what you would do at that point is you would start a new LND node somewhere, it could be on Voltage, it doesn't matter where you, you start a new LND node, and then you recover from seed. Great, you, boom, boom, boom, recovered from seeds. But the node that you're now on doesn't have the funds that are in your offline channels. You, you might Component of your lightning node, but you don't have your channel. So what do you do there? Well, there's a secondary file, which is very, very small, called the channel backup file or the static channel backup, the SCB, and this is what you use, this is what is constantly being updated also when, your node opens or closes channels, it, it records a history of these things, and it records, the tran-, the force close, pre-signed, transaction. So if you upload that also, it triggers all- All of those channels to force close, it could sometimes, sometimes take a few days, but eventually those funds will be in the on-chain component of your Lightning wallet. Essentially, you know, minus fees on-chain, essentially you get all your money back at that point. And a lot of people that I, I've talked to, and this has happened to, they then say, "Cool, I got all my Sats back, my on-chain, I'm gonna start opening up channels again." And I highly recommend that after, if this ever happens, you, and you, you actually use your stack channel backup and you have everything, get those funds off of that node as soon as possible, put it somewhere safe, and you could put it into a cold storage or something if it's a lot. And then just start a brand new lightning node with a whole new, cipher phrase and everything, just start fresh. just-- I can't really articulate why that's important, but I just feel like if you're gonna like start from fresh anyway, just, just start fresh and you should be all good. So the static channel backup is something that is constantly put in your LND directory. you can download it also from ThunderHub if you're using ThunderHub, if you're using Balance of Satoshi's. there's a Telegram bot That'll auto-download your, channel backup for you into Telegram, which is really cool. And if somebody finds your static channel backup, they can't do anything with it without your cipher seed phrase, so don't worry about saving that on your computer or anything, because I'm assuming that your seed words are not on your computer along with it, so that shouldn't be an issue. And there's a few other things, I think, Amboss is actually doing a, a, a way for them to pool the static channel backup for you also, so you don't have to constantly Voltage does something similar also.

Gotcha. Because I mean, I'm sure people are thinking, hey, I can set up like a cron job to automate saving of that or pushing that somewhere else. But I mean, for people who, who don't wanna, who aren't going to that level. Also, just any thoughts around swap providers? So I know you mentioned earlier, you know, Bolts as an example. Do you have any thoughts on, the use of swap providers? Should, lightning node routing node runner, p look, using them? should you? To be paying for this kind of swapping in and out service.

Yeah, so there's a couple scenarios where you would wanna use it, and the first scenario is you are just starting a node and you really want to get that inbound liquidity fast, and the swap like loop or bolts is You know, it, it costs some money to get going, but the, it gets you going faster for that inbound capacity. Now, a really cool strategy that I like, 'cause I've bootstrapped several routing nodes at this point, is I take the initial capital that I'm looking to put into my node, and I take a good chunk of that, and I open up a big channel to maybe the Async node or something, or just like a big, a big node. And then, so say for example, I have fifty million sats, I'll, I'm gonna open up a forty Sat channel with Asynch, and I'm gonna loop out like thirty-five million of it, right? So now I got a huge chunk of inbound on that channel. I did pay for it, you know, I probably paid over a hundred thousand sats to do that loop out, but I've got thirty-five million sats of inbound now. Now I can take that chunk that I got back on chain, now I can open up my five or four million sat channels, going down. And you can only do that when you're first starting a node, though. You can't, you Yes. so I think that's a really cool like first step for getting a ton of inbound, and then after you do that, you could try doing the circular rebalance where you, you know, you're trying to sort of pay into that big channel that you have with the inbound to sort of get everything balanced, assuming the fee rates are, are good for doing that. So that, that's a huge, I think that's a really cool sort of hack to, to bootstrap.

Yeah, that, that makes a lot of sense. And so then the other aspect I'm curious How big are the payments that you can easily route through the Lightning Network today? Like, we see varying reports on social media and even with people's own nodes, they might be easily able to do small payments, but then once you start trying to do larger payments, it becomes less reliable. Do you have any thoughts on that today and how that could be improved or what that means for the state of Lightning in terms of payment reliability?

Yeah, so the more you're looking to pay, the less of the network you can access. Just by design it makes sense. so if I'm looking to pay two million sats, I essentially can just minus out all of the channels out there that are less than two million, and then, and then work from there. again, we're not talking about AMP or anything, which is really cool, like AMP will let me pay out two million sats using three different sort of payment paths to sort of piece it together, which is actually, I, I think amazing, and I think we're gonna see more of that going forward. So hopefully that'll alleviate some of the pressure in And the other thing is obviously as, the fiat exchange rate increases next to Bitcoin, the amount of value that a channel can process also increases, right? When I first started, we were sub ten thousand, so like a ten million sat channel is like whatever, but now a ten million sat channel is, you know, four thousand US dollars, so that's, that's pretty darn good, right? That's pretty good. So it's like a TV, right? so I guess it's just like a time thing, but also as time goes- Goes on, the ability to open up bigger channels for most people also decreases. So the sort of routing nodes now that were around enough to be able to afford, at the time was at a, a one thousand dollar, which was ten million sat channels, that might be a premium in the future for routing, so, I, I guess it kinda is what it is at that point. It's supposed to, it's a double-edged sword, number go up on this. I, I hope that AMP and a few other of these tools that allow you to make Bigger payments through multiple payment outflows really takes off though, 'cause I think that'll take away a lot of that pressure.

And I'm also curious to get your thoughts around what you think the average percent of the fee is going to be taken for payments, right? So as an example, if we're comparing Lightning with Visa, Mastercard, et cetera, where let's say the merchant in the background is actually paying three, four, maybe even five percent for that payment, you know, like whereas let's say today in the Lightning network, what kind of number? Numbers are we seeing people are paying like, is it kind of in that half a percent range, point four percent? Do you think it's roughly gonna be in that range or do you have any thoughts where, where that currently is and where you, if you have any speculation where you think it might be going?

Yeah, I kinda see what you're saying. So if I'm paying for a gift card, I'm using ThunderHub to, to, so Bitrefill gives me a invoice, I take that invoice, I paste it in ThunderHub, ThunderHub's telling me, okay, what And so you kinda have to pick, oh, I'm willing to pay fifty sats or I'm willing to pay a hundred sats. It might not be that much, but you're just telling, as, as it's looking for a path to that final destination, it's, it's calculating the routing fees along the way and saying, oh, this doesn't meet the criteria, we'll try this path. That doesn't meet the criteria, you know, we'll try this path. So I don't really think of it as sort of percentage. I can imagine that the high percentage routes will be

channels with that to try to get a piece of that action, which will drive it back down. So I can't really give a hard number on that. I don't, I mean, obviously buying something from Bitrefill is gonna cost more of a routing fee than me just paying Joe down the street, that doesn't have a big footprint in, you know, on the network. That's just the nature of the beast, though. I think that the free market on that will drive fees down. I think that'd be the natural course. Some people might disagree with me, I might not be That would be the way it goes. So hopefully it drives fees down and, I, I think there's a good chance that just routing fees in general will just be not, not the focus for earning on, on Lightning in the future as well.

Yeah, that's interesting because the routing node operator still, if they're running it professionally, they need to make money somehow. but as if you're saying that they're not gonna make their money on that, they need to make their money in some other way, whether that's the selling of the channel or some other It means, then I guess it's still a bit of an open question where does it settle down, because of course, like generally speaking in the free market, of course, yeah, the things, the prices are coming down, but in this case, there is a bit of an opportunity cost, right? Because you are putting your SATs into a lightning channel, there is some risk with that, it's not just risk-free. Sure. And right, routing node operators and lightning service providers and so on, people have to get compensated. So, yeah, I guess it's an interesting It might be very like hobbyist and everyone's kind of just personally subsidizing it anyway, 'cause, you know, they just love it and they just wanna do it. I'm just curious where it goes as the industry professionalizes, as it matures, as people actually have to start getting profit for it, or, or as you're saying, maybe the profit is gonna be there, but it's gonna come in a different way.

Yeah, I'm, I'm, I'm with you on that, and that's what makes kind of everything so exciting, though, you know, it's only been All these cool open source apps that help you monitor your node like lndmon and, and lnbits is, you know, Benark, lnbits is just awesome. And there's just all these cool things, and it's, it's, it's kind of overwhelming, but, it's a fun hobby. And the thing is, if, if anyone is sort of thinking about running a lightning node, I recommend just diving in, join the Telegram groups, the Plutonet groups are still super active and they're super helpful, and, and just give it a shot You know, just, just, you, you'll learn a lot, and I, I, I think that it's totally worth it, whether it's Umbrel, or Raspiblitz, or Raspibolt. I have a soft spot in my heart for Raspibolt, Raspibolt and Staticus taught me Linux basically, and I, I'm, I'm very, very grateful for that. So I, I think that folks that, you know, if you have like a technical sort of aptitude, and you wanna like learn Linux, learning it with Bitcoin is a

Fantastic. Well, I think that's probably a, a great spot to finish up. So Nate, before we let you go, where can people find you online and where can they find Voltage online?

Thanks, Stefan. Yeah, it was, it was a great time. So yeah, I'm, I'm at BeefOrBacon1 on Twitter. Please follow me, please DM me, let me know if you need anything. we do have also a Voltage community, voltage.cloud/discord to join our Discord group. That's for anyone running Lightning. We have tons of channels talking about And sometimes Zevity has the, has a Discord bot where you can sling sats at people in the Discord group, so we do that sometimes, it's a lot of fun. and then Voltage Cloud, we have a seven-day free trial on Testnet if you wanna play around with the dashboard and, check it out. Please do, we've got a lot of cool things coming, so stay tuned for everything and thanks again, Stefan.

Thanks, Nate. Bye. Share the episode with anyone who wants to learn about how to run their Bitcoin Lightning node. Get the show notes at stephanolivera.com/three-six-six. Thanks for listening, and I'll see you in the Citadelles.