[OUTDATED] The Lightning Network FAQ

[Rath_]

This topic contains outdated information. A new thread has been created. It can be found in the link below.

https://bitcointalk.org/index.php?topic=5158920.msg51615708#msg51615708

Table of contents

      1. General Information
      2. Running a node
      3. Concerns

General Information

How are bitcoins on the Lightning Network different from on-chain bitcoins?

They are exactly the same coins. There are no Lightning Network tokens. The only difference is that bitcoins are stored in multi-signature addresses and transactions are settled between two parties without broadcasting anything to the blockchain (except when opening and closing the channel).


When will merchants start accepting Lightning Network payments?

It is a tough question. Many merchants were discouraged from accepting Bitcoin because of high transaction fees. Some of them use third party services which are slowly working on the Lightning Network support. Here you can find a list of stores which accept Lightning Network payments.


How many times can we expect to be able to use a payment channel?

Every channel has a minimum amount of coins which has to stay unspent. Channels can be used as long as both parties continue to cooperate with each other.


How fast and reliable are Lightning Network payments?

Depending on the route, Lightning Network payments can be instant. Every wallet tries to find the cheapest and the shortest route once you send your transaction. You can open a channel directly to a person who you are going to often trade with or depend on other channels which might route your payment for a small fee. Lightning Network is still in its early state so payments fail from time to time.


What are the upcoming features?

Dual funded channels - both parties will be able to fund a channel.

Watchtowers - they will be responsible for taking care of people attempting to cheat while the other party is offline.

Muilti-path payments - currently, the payment can't be divided into smaller ones which sometimes results in failed payments due to not enough funds in the channels.

Sphinx - users will be able to send payments without having to ask the other person to generate an invoice.

You can find more here.


Where can I find the latest news regarding the Lightning Network?

Telegram channel - a whole group of knowledgeable people ready to talk about the Lightning Network. Great source of information.

Bitcoin Lightning - a website strictly focused only on the Lightning Network.

Cointelegraph - nothing to add here.


Which wallet is the best one?

There are multiple implementations of the Lightning Network and most wallets have similar features. However, some mobile wallets can't receive payments. Eclair is the most popular wallet for Android but it is also available on Windows. The most popular implementations are: c-lightning, LND and eclair mentioned earlier.


Running a node

How much money can you make on running a Lightning Network node?

Don’t expect to make a lot of money. Everything depends on the number of connections and your fee policy. The less you charge, the higher your chances to route a payment. Don’t set the fee too low. You have to save up money for future channel re-balancing. User Xian01 opened almost 200 channels and earned barely 15 satoshis after 2 weeks (Reference).


How do channel owners get paid for routing payments?

Fees earned from routing payments are added to the balance of the channel. The total fee charged is basefee + (amount * feerate / 1000000), where amount is the forwarded amount. If you set both of these values too high, you won't route any payments.


Is running a Lightning Network node demanding?

You can run a Lightning Network node on both Linux and Windows. You have to run a Bitcoin full node which uses the biggest part of available resources. In order to start making money on running a node, you have to open a few channels. Keep in mind that built-in autopilot might not guarantee you the best connections. Even Raspberry Pi 3 B+ is capable of running a Lightning Network node. Check out RaspiBlitz for fast setup.


Is there any risk in running a Lightning Network node?

Yes, due to many factors. Lightning Network implementations are still in beta and might contain critical bugs which could be used to steal funds locked up in channels. Keep in mind that if you won't keep your node online 24/7, someone can attempt to cheat you by broadcasting an old state of your channel. An online node would normally broadcast a penalty transaction.


Does opening new channels help to increase the earnings?

No, it doesn't. There are many other things that you should take into account. Your fee policy, channels' capacity, connection to different sized nodes. Here you can find an interesting comparison between Andreas Brekken's and Alex Bosworth's nodes. The node which had lower principal, made higher profit.


Do I have to run a full Bitcoin node?

No. LND supports neutrino which allows user to run a light node instead of a full one. It is a good solution for devices with low processing power and storage (Raspberry Pi).


How do I set up a Lightning Network node?

The setup process varies for each implementation. Fortunately, detailed documentation makes it easy for inexperienced users to start their own Lightning Network node even on Linux. If you don't feel confident with any other operating system than Windows then take a look at this tutorial which will help to set up your own node.


What is the purpose of setting alias and color?

This information is often used by Lightning Network visualisers and explorers. It is not very important and has no impact on how the node works.


Do I have to generate an invoice every time I want someone to send me coins over the Lightning Network?

Currently, in order to receive a payment over the Lightning Network, a single-use invoice has to be generated. However, Sphinx will allow users to send payments without having to request the invoice from the other person. Sphinx can be already used if both nodes update to the test branch.


Can I refill my channel?

Currently, there is no way to refill channels without using third party services such as Lightning Conductor. Splicing will allow users to either top-up their channels or drain funds from them without having to reopen the channel. Channel balance will be updated once the transaction gets enough confirmations.


Why can't I receive coins?

In order to receive Lightning payments, some conditions must be met:

1. Nothing can be received immediately after creating a new payment channel, as ‘room’ for incoming funds has to be made by spending some funds first. A payment channel can be thought of as a full bottle of water: in order to pour something in one first has to pour something out.

2. Each channel implicitly contains a reserve which is unspendable and typically takes about 2% of the channel’s capacity. You must spend an amount matching that reserve to make receiving possible. Unspendable channel reserve is the reason you see a negative receive limit when a new channel is full. It indicates how much you need to spend before anything can be received through the channel.

3. Every payment request is disposable, they can’t be fulfilled twice. So you will need to issue a new individual payment request for every incoming payment you wish to receive.

4. Wallet needs to be online in order to receive off-chain funds.

Note that not every mobile wallet supports receiving coins because of the fourth point. There are some exceptions such as Bitcoin Lightning Wallet (Android), Eclair Mobile Testnet (Android).

Concerns

Is Lightning Network centralized? Is it more centralized than Bitcoin? Does it make Bitcoin more centralized?

This topic has been brought up many times. The Lightning Network is a second layer scaling solution which has no impact on the Bitcoin network. It works independently and no one is forced to use it. The problem of large nodes should solve itself once network continues to grow.


Will casual users be able to accept payments and donations without having to run their own full node 24/7?

Both OpenNode (payment gateway) and Bitlum.io allow users to receive Lightning Network payments without having to run a full node. However, these wallets are custodial which means that they have a full control of one's funds.


What are the new limitations of scalability once lightning is fully functional?

Opening and closing a channel requires broadcasting a Bitcoin on-chain transaction. Increasing the blocksize might be necessary in the future; however, solutions like SegWit, Schnorr signatures can help to decrease the size of transactions. Lightning Network is a second layer protocol, it is possible to build more user-friendly layers on top of it.


What would happen if a large node disappeared from the network?

Recently, we were able to observe Andreas Brekken’s experiment (shitcoin.com node). He was in charge of a node whose capacity was around 43 BTC (more than 50% of the whole network’s capacity!). After its closure, some people started to experience routing problems.


Is Lightning Network more anonymous than on-chain transactions?

Lightning Network increases the level of privacy. The next node doesn’t know if the previous one initiated the transaction. Every node which routes the payment doesn’t know the details of the transaction (final destination, sender).


What happens if some nodes go temporarily offline?

The problem of "zombie nodes" hasn't been solved yet. Offline channels are still considered as capable of routing payments which in some cases cause the payment to fail because channels are unavailable. It is a matter of making a few changes to how channels signalize their state. More information can be found here.

This problem has been addressed in the v0.5 release of LND. When a channel is being closed or a peer node has gone offline, the rest of the network is informed that they are incapable of routing payments. It is also possible to create unadvertised channels which won't route payments.

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[d5000]

Good writeup!

There are two questions where I would want to know a little bit more:

Will casual users be able to accept payments and donations without having to run their own full node 24/7?

Currently, it is not possible. It might be possible in the future to ask a third party to watch for the incoming payment.

Here I would like a clarification what is exactly not possible. Can't the payer initiate a Lightning transaction, waiting a time (e.g. 24 hours) until the other node pops up to sign its part? It's clear that both have to be online at the same time somewhen, at least for a moment. And: Does the "watching" node need to be connected with the destination node?

Is there any risk in running a Lightning Network node?

Yes, due to many factors. Lightning Network implementations are still in beta and might contain critical bugs which could be used to steal funds locked up in channels. Keep in mind that if you won't keep your node online 24/7, someone can attempt to cheat you by broadcasting an old state of your channel. An online node would normally broadcast a penalty transaction.

Here an interesting addition is if there is a "standard" timeout/lock time for the Lightning "penalty transaction" - to know how often you should be online to avoid being cheated. I've currently no Lightning node running (I tested Eclair some weeks ago but it's now outdated, so I can't answer that question myself.) Normally, you should be able to set the timeout you want, but what are the chances you will find a route or a partner to open a channel with?

[Vigme86]

Very interesting and helpful topic, I would merit if I still had it.
From a user point of view sounds like LN it's a potential breaktrough innovation but still with some big issue to fix
(opening a channel 24/7 is clearly impossible, and it's not clear to me how you can manage negative balance once a user wants to close his channel).

Anyway there's a sentence that sounds really disappointing to me

...We can’t avoid increasing the block weight in the future...

It's one year since BCH fork, and after all that debate here's the conclusion  .
I quite disagree with it. Block weight should stay 1 MB forever. Makes no sense to me increasing it.

[Rath_]

Here I would like a clarification what is exactly not possible. Can't the payer initiate a Lightning transaction, waiting a time (e.g. 24 hours) until the other node pops up to sign its part? It's clear that both have to be online at the same time somewhen, at least for a moment. And: Does the "watching" node need to be connected with the destination node?

One of the problems is that even if the other party would come back online for a few seconds after 24 hours, the route might have changed so the transaction would not take place. The word "watching" was probably the worst one that I could have used. I was thinking of a service which would accept payments on behalf of someone (connection to both nodes would have to exist) and then send it to the destination node on demand.

Here an interesting addition is if there is a "standard" timeout/lock time for the Lightning "penalty transaction" - to know how often you should be online to avoid being cheated. I've currently no Lightning node running (I tested Eclair some weeks ago but it's now outdated, so I can't answer that question myself.) Normally, you should be able to set the timeout you want, but what are the chances you will find a route or a partner to open a channel with?

I'm quite sure that locktime is being negotiated while you are trying to open a channel therefore it will vary for your each connection with the other node. Finding someone with the same channel policy might be a bit difficult.

It's one year since BCH fork, and after all that debate here's the conclusion  .
I quite disagree with it. Block weight should stay 1 MB forever. Makes no sense to me increasing it.

I didn't write that we have to increase the block weight 30 times. There are plenty of things that can be done in the future before increasing the block weight, for example, implementing channel factories which allow users to create new Lightning Network channels from existing ones - no need to broadcast closing and opening transaction. I have changed the sentence you quoted in order to make it more neutral  

[fwknfge8923@mailsac.com]

Lightning Network Risk Prevention Measures

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The Lightning Payment Layer 1 private key (cold storage) is generated offline, and the second layer private key is generated by using the wallet address as the brain wallet seed, and is cyclically calculated to the 100th layer. Use the last layer 100 public key as the public key for lightning payment. If the lightning private key is stolen, the layer 99 public key is broadcast in time to invalidate the 100th layer public key. It can prevent stolen 100 times.

Lightning channel establishment:
1. Sign the authorized private key with cold storage to authorize the lightning payment of the layer 100 public key, and all lightning payments do not use the original private key. Both the original private key and the lightning layer 1 private key are cold storage (offline) and are very secure.
2, in order to control the risk, you must set the daily payment limit of each party (such as: daily maximum limit: 60 yuan for one party, 70 yuan for B party). If the lightning private key of Party B is stolen, Party B will use cold storage for original private use. The key closes the channel on the chain, and at most, it will only lose the maximum payment of 70 yuan for the day.

In order to save the blockchain space, when the lightning channel is established, the blockchain only stores the hash value of the lightning-paid third-layer public key and the daily payment limit. The party applying to close the channel must provide the original information for the miner to verify the Lightning Payment Level 100 public key for both parties and the maximum daily payment limit.

Welcome to support BTC address: 18cZYPCppT5LbUjwDoqdjVGUP8jFoCPGcE

[Anon136]

Suggested edit:

Lightning Network increases the level of anonymity privacy.

[d5000]

One of the problems is that even if the other party would come back online for a few seconds after 24 hours, the route might have changed so the transaction would not take place.

That makes sense, thanks for the clarification.

However, a workaround shouldn't be difficult: the client of the "customer" could simply save the "intention" of the transaction, and it would get carried out if the second node pops up before a timeout is reached. In this case, the route is decided only at the moment both nodes are online.

The word "watching" was probably the worst one that I could have used. I was thinking of a service which would accept payments on behalf of someone (connection to both nodes would have to exist) and then send it to the destination node on demand.

Yep, that sounds more logical. Unfortunately, that would provide incentives for hubs.

I'm quite sure that locktime is being negotiated while you are trying to open a channel therefore it will vary for your each connection with the other node. Finding someone with the same channel policy might be a bit difficult.

OK, I'll probably soon test an updated Eclair again and look how it's implemented there.

And regarding your response to Vigme86: I agree with a conservative block size policy, and I have some hopes that the sidechain concept isn't fully forgotten because it could serve as an excellent intermediate layer. We could then have the following structure:

Mainchain -> Sidechains/Pegged chains -> Channel factories/Superchannels -> "reloadable channels"

[Rath_]

I have just added a few new questions and I am still looking for more. Don't be afraid to ask! The new ones are: Which wallet is the best one?, Do I have to run a full Bitcoin node?, How do I set up a Lightning Network node?, What happens if some nodes go temporarily offline?

Suggested edit:

Lightning Network increases the level of anonymity privacy.

Thanks for catching that! Fixed.

[Rath_]

The problem of "zombie nodes" hasn't been solved yet. Offline channels are still considered as capable of routing payments which in some cases cause the payment to fail because channels are unavailable. It is a matter of making a few changes to how channels signalize their state. More information can be found here.

As I mentioned in my other thread, this problem has been addressed in the v0.5 release of LND. I have just edited the topic and included proper explanation. I have also included a few questions which were answered by me in this thread.

[lokas0506]

In this article some big concerns are being raised


what do you think

https://cryptobriefing.com/whats-holding-back-the-lightning-network/

[Rath_]

what do you think
https://cryptobriefing.com/whats-holding-back-the-lightning-network/

There is nothing wrong with the article. Being online all the time is mandatory for receiving payments. There are still many channels which have low capacity. I am not surprised that payments higher than $200 fail. There are two reasons for that. The Lightning Network is still in an early state and people don't want to lose money. It was designed to handle mostly micro-transactions due to low transactions cost and their instant.

So there has been some progress, and Lightning has moved from engineering problems to user experience problems. That, at least, is a simple matter to tidy up.

Just give it a few more months. Lightning Network Specification 1.1 is currently being written. I will write about it today in another thread.

[Rath_]

I have just updated this thread with answers to the following questions. Do I have to generate an invoice every time I want someone to send me coins over the Lightning Network? Can I refill my channel? Why can't I receive coins? Don't hesitate to ask questions either in this thread or in the Lightning Network discussion one.

[Wind_FURY]

OP, Brand7 also made a Lightning FAQ on Medium, https://medium.com/@The1Brand7/lightning-faq-67bd2b957d70

There might be some questions answered there that are not in your post that newbies need to read before they succumb to the FUD, and misinformation from people who either are gaslighting or don't understand how it works.

[franky1]

OP, Brand7 also made a Lightning FAQ on Medium, https://medium.com/@The1Brand7/lightning-faq-67bd2b957d70

i guess this is where windfury gets his mis-information.
so lets atleast state the obvious. seeing as he thinks the link he quotes is his bible to LN. lets use it against him with some obvious falacies

Q 7: Will there be any form of custodian risk in a Lightning Network?
Do I need to trust anyone to hold my money on my behalf?
A: No, this system is not based on trust; you remain in full control of your money.
vs
Q13:
A Holding value on a Lightning Network means that you are in possession of double-signed transactions. .....
The transactions you are holding are of the 2 of 2 multi-signature type.
Both you and your counterparty will sign, and you will both store the transactions locally.

Q 8: I’ve heard that Lightning transactions are happening “off-chain”…Does that mean that my bitcoin will be removed from the blockchain?
A: No, your bitcoin will never leave the blockchain.
vs
Q 9: I’ve heard that the Lightning Network will require my bitcoins to be locked up…Is this correct?
A: “Locked up” is a very misleading term in this case.
Lightning will not make your money less accessible.
Your money will actually become more accessible when held in a Lightning channel.

and then there is the big facepalm of Q14

the long waffle that bitcoin has no coin and is just signed message so if signed messages are involved then it must be bitcoin

what the article DOES NOT correctly mention is that the payments within LN are measured in MILLISATS as the unit of account. but the bitcoin network is measured in sats.

a LN payment signed in millisats would not be accepted onto the bitcoin network.
this is why people on LN lose value/get locked out when errors arise as the LN system does not use 8 decimal(sat) transactions at all times. it only uses them for the opening/closing
when people go offline, or you lose your data or someone on a route does not agree to the route in time. 'value' in LN gets locked because its not just using standard bitcoin transactions of 8 decimal where all thats needed is the privkey to move value.


windfury. please do yourself the biggest favour, and update your research

[Wind_FURY]

OP, Brand7 also made a Lightning FAQ on Medium, https://medium.com/@The1Brand7/lightning-faq-67bd2b957d70

windfury. please do yourself the biggest favour, and update your research

Why should I be the only one who needs to update "my research", when everyone with a sane mind knows that there are no "IOU pegged promises to pay tokens" in Lightning?

You're not convincing anyone, except maybe some newbies, and which I encourage them to believe you to make them actually learn from experience.

[franky1]

OP, Brand7 also made a Lightning FAQ on Medium, https://medium.com/@The1Brand7/lightning-faq-67bd2b957d70

windfury. please do yourself the biggest favour, and update your research

Why should I be the only one who needs to update "my research", when everyone with a sane mind knows that there are no "IOU pegged promises to pay tokens" in Lightning?

You're not convincing anyone, except maybe some newbies, and which I encourage them to believe you to make them actually learn from experience.

you repeat the same thing, but have no clue. get a clue and see if your repeats matches your own clue.
i gave you a clue, its called millisat. now its time you go out and search about it and learn it then go learn beyond it taking more steps until you find your own clue

[Wind_FURY]

OP, Brand7 also made a Lightning FAQ on Medium, https://medium.com/@The1Brand7/lightning-faq-67bd2b957d70

windfury. please do yourself the biggest favour, and update your research

Why should I be the only one who needs to update "my research", when everyone with a sane mind knows that there are no "IOU pegged promises to pay tokens" in Lightning?

You're not convincing anyone, except maybe some newbies, and which I encourage them to believe you to make them actually learn from experience.

you repeat the same thing, but have no clue. get a clue and see if your repeats matches your own clue.
i gave you a clue, its called millisat. now its time you go out and search about it and learn it then go learn beyond it taking more steps until you find your own clue

You also repeat the same thing, and accuse me of not learning anything, when everything I have learned is nothing but the truth, and no sane Bitcoiner can accept your opinions because "IOU pegged promises to pay in Lightning" is simply, wrong.

You can trick the newbies though, which I encourage, to make them have actual learning experience with the "different" people in the community. But they will also know the truth sooner, or later. Sorry.

[DooMAD]

so lets atleast state the obvious. seeing as he thinks the link he quotes is his bible to LN. lets use it against him with some obvious falacies

Q 7: Will there be any form of custodian risk in a Lightning Network?
Do I need to trust anyone to hold my money on my behalf?
A: No, this system is not based on trust; you remain in full control of your money.
vs
Q13:
A Holding value on a Lightning Network means that you are in possession of double-signed transactions. .....
The transactions you are holding are of the 2 of 2 multi-signature type.
Both you and your counterparty will sign, and you will both store the transactions locally.

Q 8: I’ve heard that Lightning transactions are happening “off-chain”…Does that mean that my bitcoin will be removed from the blockchain?
A: No, your bitcoin will never leave the blockchain.
vs
Q 9: I’ve heard that the Lightning Network will require my bitcoins to be locked up…Is this correct?
A: “Locked up” is a very misleading term in this case.
Lightning will not make your money less accessible.
Your money will actually become more accessible when held in a Lightning channel.

I guess every single person on planet Earth is going to have to update their definition of the word "fallacies", as apparently franky1 has decided it means something new now.  Or maybe that's why franky1 also decided to come up with a brand new spelling for it.  

There are no fallacies in the above text unless you don't understand LN.  

There are no custodians in Lightning.  A custodian is a third party who holds and controls your funds directly.  If you make a payment via a bank transfer or card payment, a bank is generally the custodian you are required to place trust in.  With LN, the transaction is between you and the other person, peer to peer.  If your payment is routed through other users, those users are not in direct control of your funds.

Bitcoins in a hashed time lock contact, or HTLC, do not leave the Bitcoin blockchain.  Fractional reserve is not possible and there are no "IOUs".  Whatever total amount is placed in the initial HTLC CLTV, it will be the same total that is broadcast back to the blockchain when the channel is closed.  

[franky1]

Bitcoins in a hashed time lock contact, or HTLC, do not leave the Bitcoin blockchain.  Fractional reserve is not possible and there are no "IOUs".  Whatever total amount is placed in the initial HTLC, it will be the same total that is broadcast back to the blockchain when the channel is closed.  

bitcoin locks on the blockchain are not HTLC's, the blockchain tx's are timelocked multisigs using CLTV
bitcoins on the blockchain use a different type of lock

i can see where you can get easily confused with simple 4 letter acronyms  CLTV vs HTLC

the HTLC's in LN are the temporary 'payment/invoice' IOU contracts
what you might want to do is read some code.

but first. a challenge for you
go to bitcoins github. and in the search type in msat
go to LNs github. and in the search type in msat

what you will notice is bitcoin does NOT have a single reference to millisats or msats
https://github.com/bitcoin/bitcoin/search?q=millisat&unscoped_q=msat
" We couldn’t find any code matching 'msat' in bitcoin/bitcoin
You could search all of GitHub or try an advanced search. "

https://github.com/lightningnetwork/lnd/search?q=msat&unscoped_q=msat
" 70 code results in lightningnetwork/lnd or view all results on GitHub"

what you then do if you start reading more code is learn a HTLC is not a "final state" transaction

hopefully what you realise is that the VALUE that changes as temporary IOU (it changes as different agreements of who OWES what changes) is measured in LN as millisats. which is a different unit of account than bitcoins/satoshi's. infact a unit of account bitcoin dos not recognise

have a nice day with your research

[DooMAD]

bitcoin locks on the blockchain are not HTLC's, the blockchain tx's are timelocked multisigs using CLTV
bitcoins on the blockchain use a different type of lock

I stand corrected.  CLTVs are indeed the lock used on Bitcoin's blockchain.  However, this doesn't negate the point about there being no fractional reserve or IOUs.

the HTLC's in LN are the temporary 'payment/invoice' IOU contracts
what you might want to do is read some code.

There is still an appreciable difference between an "IOU" and a transaction that has been signed and approved by both parties.  It is far easier to renege on an IOU than it is to renege on a payment channel where both parties have revoked the previous commitment state.  You can certainly keep calling it an IOU if you want, but I suspect I'm not the only one who will never accept such a crass definition.