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A Guide To Setting Up A Bitcoin Lightning Node
If one part of the internet hotly contested, it's the idea and concepts around Bitcoin. This brand new internet money has continued to grow in market cap over the last decade and is poised to disrupt the financial services we know it. The once ridiculed internet collectables game theory has seen it skyrocket in value and with that comes more investment and infrastructure built to support it.
One common critique of Bitcoin is the slow settlement times and the costly transactions, which is a clear barrier for commerce and eCommerce. Why would anyone want to perform a transaction in this slow and expensive settlement layer when fiat money already gives you perceived instant finality.
As most of us don't care about the financial plumbing, we don't realise that transactions aren't settled in an instant, and there is counterparty risk involved to make transactions convenient for the user, IE the consumer and the merchant.
To help combat these scaling issues around using a blockchain, Bitcoin developers have launched a side-chain project known as the lightning network. A protocal that allows users to pay with an instant settlement with credit card like speeds.
What is the lightning network?
The Lightning Network is a "layer 2" payment protocol for Bitcoin designed to be layered on top of the main blockchain. The Lightning Network allows transactions to be settled peer to peer on a side-chain.
The Bitcoin is locked in this second layer and can then be transferred using a different set of rules that are more efficient for smaller transactions. The Lightning Network is intended to enable fast transactions among participating nodes and has been proposed to solve the bitcoin scalability problem.
What exactly is a Bitcoin lightning node?
A Lightning Node can be software run on a computer, or you could set up a specific hardware device to run as your Lightning Node. A Lightning node is a non-custodial way of managing your Bitcoin on the lightning network. You can manage your channels, meaning those who can talk to you and transfer funds to and from your node.
A Lightning Node acts firstly as a verification tool for the blockchain, checking that all transactions abide by the network's rules. All network actors fulfil their duties as set by the protocal.
Secondly, a Lightning Node helps facilitate transactions, be it your transactions or transactions that require your node to pass through to the next person.
Why would you set up a Bitcoin Lightning node?
Setting up a Lightning Node allows you to verify transactions, so you never rely on a third party to confirm that transactions have been settled; this gives you peace of mind when conducting eCommerce or traditional commerce transactions settled in real-time.
The second advantage of running a Lightning Node is to leverage the liquidity you place in your node to verify transactions. As you lock up Bitcoin in your Lightning Node and begin to open up channels with different users and providers, you allow avenues to transfer Bitcoin via your node.
This use of the node is referred to as a routing node; as transactions are made on the lightning network, the route from one wallet to another may have to pass through your node. If you transfer payments as a routing node, you are rewarded with additional fees for assisting the network.
If you're not interested in doing all that work of opening channels, you can also supply liquidity to marketplaces like Lightning Pools, where other nodes will bid to use your liquidity to settle transactions and pay you a fee for the use of your funds.
How do you set up a Bitcoin lightning node?
- Bitcoin is a bearer asset and can be lost without proper use of the software and key management, while the Lightning Network is still in beta and is very much an experiment.
- You have to understand the risk you are taking as there may be a permanent loss of value from experimenting with these systems, so be mindful when transacting value on this second layer solution.
- Additionally, as a safety precaution, back up your computer's data and store your keys in a safe place.
Minimum requirements for set up with your computer
- Any Windows, macOS, or Linux computer
- 10 GB of disk space available
- Bandwidth to download 250 GB of data
- Download the latest release of the Lightning Power Node Launcher
- Open the Node Launcher; a Bitcoin icon will appear in your system tray (top right on macOS, in your taskbar on Windows).
- The icon will have a red dot while the nodes are starting, a blue dot while
- they are syncing, and a green dot when they are ready.
- Let your node sync (both Bitcoin and LND at the same time); this could take a long time if you have a slow internet connection!
- Wait for LND to finish catching up.
Additional guides can be found here:
Become your financial service provider
In a world where commerce can be done globally, the Lightning Network truly allows us a glimpse into what will be possible in the future, where trades can be settled instantly across borders with no need for intermediates. This will not only reduce the cost of transactions but allow you to offer better discounts to customers as you no longer giving up margin to financial service providers.
If you're ready to start accepting Bitcoin for your business, then a Lightning Node is a must, along with setting up other services like Multi-sig addresses, X-Pubs, cold storage and mode.
Becoming a Bitcoin run business may be a technical leap forward for many. Still, the privacy, cost-saving and addition of a new payment rail will continue to become more important as the price increases along with adoption.
We'd love to hear from the lightning network communityHave you made a lightning network transaction before? How did it work out for you? Which wallet option is your favourite? Let us know in the comments section down below.
If you would like to know more about digital assets or would like to market your digital asset company or how to set it up for your business, then don’t be shy. We’re happy to assist. Simply contact us
Are you looking to promote your business?
South African finance business owners can create your free business listing on nichemarket. The more information you provide about your business, the easier it will be for your customers to find you online. Registering with nichemarket is easy; all you will need to do is head over to our sign up form and follow the instructions.
If you require a more detailed guide on how to create your profile or your listing, then we highly recommend you check out the following articles.
If you enjoyed this post and have a little extra time to dive deeper down the rabbit hole, why not check out the following posts on cryptocurrency and blockchain.
- Why Blockchain and Cryptocurrency Is The Future Of Money
- 24 Ways To Earn Cryptocurrency
- How To Pay Tax On Cryptocurrency In South Africa
- How To Buy Bitcoin In South Africa
- Why Does Your Bitcoin Wallet Address Keep Changing?
- How To Make A Private Bitcoin Transaction
Disclaimer: This article should not be taken as and is not intended to provide any investment advice and is for educational purposes only. As of the time posting, the writers may or may not have holdings in some of the coins or tokens they cover. Please conduct your own thorough research before investing in any cryptocurrency, as all investments contain risk.