Topic: A Beginner's guideline to Bitcoin Lightning Network - page 2. (Read 1338 times)

FYI, Bitlum wallet is shutting down in October 20th,
https://bitlum.io/
The website address is no longer actively. Use the following link to view the announcement:
https://webcache.googleusercontent.com/search?q=cache:9TSE4rbsgGsJ:https://bitlum.io/+&cd=8&hl=id&ct=clnk&gl=id

You can read more information about that in this article:
https://medium.com/bitlum/bitlum-shutdown-20th-october-9d5eabc32fec

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Credit to: pandukelana

OP Updated.

Never heard about Bitlum wallet. You can try with eclair wallet for Android which I am doing at the moment. By the way, no wallet charge fee for any transaction. Bitlum is a wallet which might support LN but this has no connection with charging 1 satoshi per transaction. As like BitCryptex said above, the fee will be charged by the route and it can be different depending on which Route you are using.

I think LN is a bitcoin adhesion developed by the bitcoin community that is useful for low cost micro transactions. But I have never tried to make transactions using LN. LN can also be compatible with mobile phones where the very familiar wallet is Bluewallet. But for some cases, Bluewallet needs time to synchronize node which will make some people uninterested.
Bitlum wallet is an alternative that can also be used to make LN transactions. Based on other people is experiences, Bitlum wallets charge 1 satoshi per transaction.

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Thanks for the comprehensive guide. I like the fact that it's nottoo technical. At least now, If someone asks me about Lightening Networks, I can say a thing or two about it and still make sense. During the weekend, I stumbled on a Twitter account/startup that supports Lightening Networks and I was surprised when they could send as little as 500 satoshi to winners of their mini giveaway. I must admit, I was shocked!

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Lightening Networks might not bring the much needed adoption but it'll play a very vital role as it'll greatly help with the Lightening fast micro payments.

There were quite a lot of people complaining about the Lightning Network because the available information wasn't clear. It also took me a lot of time to learn all this stuff. By the way, why don't you try out the Lightning Network? You can download Eclair Mobile Testnet from the Play Store if you have an Android device. No risk involved.


I sometimes forget about replies if I read them when I am on the go, sorry. Is there anything else you would like me to explain in a reply to that post?

To be honest, I have tried to keep it as simple as possible so that newbies can get idea. I never thought that it could mislead users. I had tried to learn from your topic, replied earlier here and waited for a long time to get corrected by someone. But no response.
I will update this topic if possible with more information as you have corrected.

Thank you. I always try to share my little knowledge with the newbies so that they can learn as well.

Your text is full of mental shortcuts which might mislead newbies (this also applies to people who have experience with crypto) if they decide to use the Lightning Network in the future.


That's false. The liquidity is a bit tricky. You are limited by the amount of coins locked up in the channel. You can't spend all the funds (reserve for closing transaction) and you can't receive more than you had initially in the channel. Not to mention that you also have to spend some of your coins in order to make space for the incoming ones.


Your own Lightning Network node never charges you anything. Direct payments also don't cost anything. It all depends on the nodes which route the payment. Sometimes, payments are free of charge because of other nodes' fee policy.


'May' is a keyword here. Routes can consist of many nodes which charge a different fee for routing the payment. Each node taking part in the routing process must have enough coins on their side in order to transfer the payment further. Usually, the higher the value of the transaction, the higher the chance of failure. Also, channels are still limited to about 0.16 BTC by default.


I have also written Basics of the Lightning Network which describes some information mentioned in this topic in detail. Also, the FAQ thread has a few pages of replies with many useful information!

Anyway, it's nice that you have put some effort into writing this thread. Keep it up!

Introduction
Lightning Network or shortly LN is an emerging feature which can drastically change the picture of bitcoin adoption solving the problem of the higher fee for micro payments and slower confirmation issue. Although still it's not implemented in most of the wallets, we can expect it to be soon.

Table of Contents
1. What is Lightning Network?
2. How LN works?
  (i) Channel
  (ii) Route
3. A Real Life Explanation
4. Advantages of LN
5. Will it increase massive adoption?

1. What is Lightning Network?
Lightning Network is a feature which will allow you to transact bitcoin outside the Bitcoin Main Chain. It's a protocol on bitcoin blockchain. You will be able to send, receive bitcoin with lower fees, any amount(see the first reply from BitCryptex), faster than ever. It will basically help you to send & receive micro-payments.
Imagine, you have visited Alice's Coffee Shop, had a coffee for $2. Paying $2 with bitcoin is still possible but for $2, you may have to pay more fees sometimes, moreover, Alice will not agree to have confirmation of the transaction after 3/4 hours of your leaving the shop.

Two problems we see when you want to pay $2 for a coffee.
- You will not be happy to pay $1 fee for spending $2 worth of BTC.
- Alice will not accept BTC because it requires much time to get confirmed.

But, now with Lightning Network, you don't have to pay a huge fee for spending $2 worth of BTC, nor Alice will have to think about the slower transaction.

2. How LN works?
In Lightning Network, you have to create a channel with the other party. In the channel, you will be able to transact bitcoin frequently with low fee, faster and any amount.
Creating a channel means having an agreement with the other party. In other word, you and the other party will have a multisig wallet where you both will be able to transact bitcoin frequently. For your info, when you are entering into a channel, you have to pay a fee. It's same sending a transaction. After entering into the channel, whatever you transact, these log will not be updated into the blockchain. You you close the channel or leave from a channel, another transaction will be logged into the blockchain. In between entering a channel & closing a channel, all the transaction will be happened outside the bitcoin main chain and it's called settlement. Only your balance will be updated time to time but no main chain transaction will happen.

Two LN terms you must know-
(i) Channel- Channel are the place where all the Lightning Network transaction of you and your other party will be taken place and logged in. It allows you to send & receive transaction in the Lighting Network.
(ii) Route- This can be called as a bridge between you and Alice Coffee shop. Assume, you are visiting 10 shops daily and want to pay with Bitcoin Lightning Network. Creating 10 channels with 10 shops for paying them is a big hassle and costly, and imagine, how much channel shops have to create since they are handling a thousands of customers. With Route, you may create only one channel and have able to pay in all the shops.

3. A Real Life Explanation

Imagine, you visit 3 shops per week on average for purchasing your daily life stuffs; A, B, C

The shopkeeper accept Lightning Network payment. But, as like I mentioned above in Route, they certainly will not create thousands of channel. It will create more hassle for them. They will want to create channel with a Lightning Network Node where most of their customers have already created channels. This way, the Lightning Node will act as a bridge between the shopkeeper and the customer. The below picture may help you understand the process-

Bob= You
Route= Node with whom both you & the shop will create channel.

You or the other customers will create a channel with the Node, Shops will also create channel with the Node, that's how Node is creating bridge between customers and the shops.

Assume, you have created a channel and funded your address with 0.01 BTC. The initial funding will require transaction fee.
Now, you have purchased coffee 10 times from Alice's restaurant, you will be able to pay from 0.01 BTC, this will not require any transaction fee but your Lightning Node (I mean The Route/The Bridge) will charge a very low fee. Assume, each coffee is priced BTC 0.0003, you are paying 0.003 BTC.
Your balance is 0.007 (Will be low since you are paying a little fee). Now, you decided to close the channel for some reason. A transaction fee will be required.

Therefore, you are paying 2 transaction fee while you have transacted 12 times including the purchasing of coffee 10 times.

4. Advantages of LN
a. Easy Micro payments
b. Faster transaction, no confirmation needed.
c. Lower fees.

5. Will it increase massive adoption?
Till now, without Lightning Network, paying with bitcoin is very expensive sometimes when we compare paying $1/$2 for something. Also, with lower fee a transaction may stuck on the chain for a long time and get rejected after some times. Since Lightning Network is assuring instant transaction, very low fee transaction and easy micropayments, we can expect merchant will accept it more often than previous. More people will now feel comfortable paying with bitcoin for a lower amount. This is not guaranteed but a expectation since LN is reducing the resistance of bitcoin as a micro payment method.

Some more resources-
Website- https://lightning.network/
Whitepaper- https://lightning.network/lightning-network-paper.pdf
A topic by BitCryptex- https://bitcointalksearch.org/topic/the-lightning-network-faq-5158920

Miscellaneous
1. I never used Lightning Network.
2. I am not a pro.
3. This guideline will act as very basic level of explanation for the beginners.