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What is the Lightning Network and how do I use it?

WikiBit 2022-04-15 03:00

Abstract:Bitcoin is a great store of value for now, but it's slow and expensive to use for everyday transactions, which is where the Lightning Network comes in. Bitcoin users can have their cake and eat it, thanks to the so-called layer two solution.

  •   Lightning addresses the problem

  •   Creating a Lightning Wallet for safekeeping

  •   Creating a Lightning Wallet that isn't kept on your computer

  •   Getting a full node on the Lightning network up and running

  Bitcoin is a great store of value for now, but it's slow and expensive to use for everyday transactions, which is where the Lightning Network comes in. Bitcoin users can have their cake and eat it, thanks to the so-called layer two solution. Bitcoin transactions that are quick and inexpensive without sacrificing security. Discover how to make use of the Lightning Network.

  To compete with existing payment systems like Visa, the Bitcoin network must be able to implement transactions quickly (far faster) and at a fraction of the cost of current fees.

  This scalability, though, must come at the expense of decentralisation or security. The Bitcoin trilemma is the name given to this conundrum.

  The fierce chain wars and the birth of Bitcoin Cash in 2017 and Bitcoin SV in 2018 resulted from an attempt to address it by just raising the capacity of blocks.

  Both have failed to produce a viable mechanism to transact fast and cheaply on-chain while maintaining Satoshi's design, highlighting the difficulty of expanding Bitcoin as a payment network with its current consensus method.

  The Lightning Network

  Is a technology that allows you to connect with other people

  Can the Bitcoin network have it both ways, that is, keep its original design while still serving as a high-speed micropayments network?

  It certainly can using the Lightning Network, and we'll show you how to use it for common transactions like paying for a cup of coffee.

  A Layer 2 bitcoin service, such as the Lightning Network, is an example. Joseph Poon and Thaddeus Dryja presented an off-chain method for the first time in 2015.

  In effect, it offloads the weight of minor transactions from the Bitcoin network and replaces it with micropayment channels managed by multi-signature (multisig) wallets. This is a fancy word for a system that requires two or more parties to agree on changes to the balances of jointly maintained payment channels.

  The Lightning Network's Key Features

  What is the speed of the Bitcoin network? Bitcoin can now only execute 2 to 7 transactions per second. To put things in perspective, Visa, the legacy payment network that powers your debit and credit cards, processes up to 150 million transactions every day. Its network capacity is 24,000 transactions per second, in comparison. So, how can Bitcoin compete? A challenger path is available on the Lightning Network.

  In principle, the Lightning network could handle transactions in the tens of thousands or hundreds of thousands in real time, making it ideal for micropayments as small as four satoshis (sats).

  The following are key elements to remember when using the Lightning Network:

  Nodes are pieces of software that connect to the Lightning Network and allow users to send and receive bitcoin from other nodes.

  Users of the Lightning Network build payment channels so that they can conduct off-chain transactions that can be settled (closed) on the mainchain later (on-chain)

  Invoices are Lightning Network payment demands that are created as QR codes. Invoices provide the essential information to complete a payment on the network, such as the payment amount, the blockchain to which the invoice relates, the expiry date, the recipient pubkey, routing hints, and other details.

  So, how do you get the Lightning network up and running? There are three options for doing so, starting with the most basic custodial option and progressing to creating your own Lightning Node.

  •   Bottlepay, for example, is a custodial lightning wallet.

  •   Non-custodial Lightning wallets, such as Satoshi's Wallet, Breez, BLW, Eclair, Zap Tippin.me, Bitrefill, BitPay, and others.

  •   Creating a complete node

  1 - How to create a Lightning Wallet that is kept on your computer.

  Bottlepay will be our custodial Lightning Wallet example because their user experience is excellent for novices. There are numerous alternatives.

  Step 1: Get the Bottlepay App from the Playstore or App Store.

  Step 2: Select your country.

  Step 3 - Enter a mobile phone number as your log-in information.

  Step 4 - Accept the terms and conditions and indicate whether or not you are a US taxpayer.

  Step 5 - Use the code Bottlepay sent to verify your mobile number. Step 6 - Create a six-digit pin and confirm it.

  Step 7 - Enable biometrics to improve security, which is optional but encouraged.

  Step 8: Create a profile, which includes a username, a profile photo, and an email address.

  Step 9: Confirm your email address.

  Step 10 - Provide your name, age, address, and evidence of identity (driver's license or passport) to verify your identity. Scan the front of the building and take a selfie (smile).

  This process takes a long time. Patience is required.

  Congratulations. You now have a Lightning wallet in your possession.

  You can add funds in two ways: cash through bank transfer or BTC through On Chain or Lightning. You should choose how you want to get paid. Either in regular currency or in Bitcoin. You always have the option to change your mind and convert later.

  Make a payment very fast.

  Create a BTC address or a Lightning Invoice to receive funds.

  Send money to other Bottlepay users, a mobile number, or a social profile like Discord, Github, Reddit, Twitch, or Twitter by sending money on chain or by scanning a Lightning Invoice.

  Cost Averaging is a type of trade that involves a one-time purchase or a recurrent transaction.

  2 - Creating a Lightning non-custodial wallet

  If you don't want the full-node experience, setting up a non-custodial wallet is a more leisurely way to join to the Lightning Network. You may start creating and paying invoices as soon as you download the Bitcoin Lightning Wallet app for Android or the Blue Wallet app for iOS and Android.

  You can now create a Lightning channel and start transacting with other users. It's also “non-custodial,” which means you keep track of your keys and keep your Bitcoin in your wallet.

  You can also download an Eclair mobile testnet wallet for lightning payments if you're a beginner who doesn't want to risk your money on Lightning without first learning the basics.

  1. Get the Eclair Android wallet from the Google Play Store.

  2. Make a new wallet or import one that already exists.

  3. If you're making a new wallet, remember to save your secret phrase of 12 words somewhere.

  4. Back up your phrase by typing in the words that the wallet asks for.

  5. Create a passphrase to aid in the decryption of your recovery phrase.

  6. Create a SEED ENCRYPTION pin, which is typically a six-digit password.

  After you are done configuring your wallet,

  Click Receive, then tap LIGHTNING, then the three dots in the upper right corner.

  To add payment channels, swipe left to Channels.

  After enabling that function in settings, the green circle with the Plus button allows you to manually add or select channels.

  Select options from the drop-down menu.

  Use the Receive over Lightning button to enable it. You can also begin collecting payments via Lightning!

  Depending on your preferences, you can change your Bitcoin unit to Satoshi, Millibitcoin, or Bits.

  We prefer Milli-Bitcoin (mBTC) since we will later in this article conduct a coffee purchase with a price in mBTC.

  3 - How to set up a Lightning network full node

  To set up your entire lightning network node, follow the procedures below.

  1. Get the client from the Lightning project's Github page.

  If you're using Windows, try Lightning-win32; if you're using Mac OS, try Lightning-darwin.

  1. Get the lightning client.

  2. Execute the

  2. Install and run the client

  3. It urges you to either create a new wallet or import an existing one. We're making a new wallet in our case.

  4. You'll be urged to copy and save your password recovery phrase.

  5. You'll need to double-check your work by typing in the random phrase provided.

  6. Verify the password

  7. Congratulations, your Lightning app is now ready to receive coins.

  2. Get your hands on some Testnet coins.

  There's no need to be concerned about using actual money to try out something you're unfamiliar with. Simply obtain some Testnet bitcoins from this faucet, and you're good to go.

  3. After that, you'll need to move your testnet coins to your Lightning app or a mobile or desktop wallet that accepts lightning payments. Eclair Mobile testnet wallet, which enables testnet lightning transactions, and BitPay (previously Copay) are good wallets for this.

  Using Lightning networks to create and settle bills in real-world circumstances

  You can start creating or settling invoices on Lightning Network now that your Lightning wallet is funded.

  You'll need to open a channel before you can make a payment. You'll need your partner's channel public key and IP address for this. We've made several channel addresses of popular goods that enable Lightning Network payments available because you're working in a testnet environment.

  Bitrefill

  Yalls

  Eclair

  How does it feel to pay a little less than a dollar for a cup of coffee, pay a fraction of a cent in transaction fees, and still have your transaction verified in seconds?

  Starblocks exemplifies this by allowing you to buy virtual coffee with Bitcoin in real time.

  Let's add the Expresso Coin Panna to our cart and checkout for 0.0015 mBTC.

  It generates an invoice right away. You have the option of manually copying the invoice information and pasting it into the lightning app you created before, or you can just click the option OPEN WITH YOUR WALLET.

  Pay with our Lightning Wallet (on desktop) or the Eclair testnet wallet (on mobile)

  What is the maximum size of the Lightning Network?

  Even though most mainstream businesses have yet to accept lightning payments, the Lightning Network has been growing steadily. 1ML is a fantastic resource for getting hold of real-time data from the Lightning Network, which currently has over 20,000 nodes and over 45,000 Lightning channels. The locations of the Lightning Network nodes are illustrated on a map created by Blockchain Caffe.

  We explained how Lightning Network could become Bitcoin's killer app by allowing transactions to take place through payment channels that can all be connected, allowing millions of micropayments to be made off-chain rather than on-chain, allowing scalability to be achieved without sacrificing decentralization.

  Bitfinex is one of the major exchanges that already accepts lightning payments. Crypto wallet providers are also being considered by a large number of people.

  However, there are a few bottlenecks that must be overcome first.

  There are certain drawbacks to using the Lightning Network.

  If you are not a technically inclined individual, setting up a lightning node is not easy. Another issue that the lightning network faces is liquidity. Users of the Lightning payment channel are unable to spend more than the amount they have locked in the channel, limiting the solution's flexibility.

  Some have criticized it, blaming it for the poor development in liquidity. When comparing the liquidity expansion of the lightning network to that of DeFi, the difference is obvious. The ratio of Bitcoin liquidity on DeFi to Lightning Network is $8.43B to $63.2M as of May 2021. Wrapped Bitcoin on DeFi is at least 133 times more liquid than the Lightning network, based on this calculation.

  We should expect quicker lightning network expansion with newer solutions like mobile wallets with support for lightning payment channels, which tend to abstract the difficult operations of setting up or communicating with a lightning node or channel.

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