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Have you ever wondered how #Bitcoin moves on and off the Lightning Network?
Let’s take a look at the process & costs at a high level.
Thread:
Let’s take a look at the process & costs at a high level.
Thread:
Moving sats on and off the Lightning Network starts with opening a channel.
This involves creating a multi-signature wallet, which is essentially a Bitcoin address that requires two signatures to spend the funds.
This involves creating a multi-signature wallet, which is essentially a Bitcoin address that requires two signatures to spend the funds.
When opening a channel, you commit an amount of Bitcoin to the multi-signature wallet.
This is an on-chain transaction, meaning it's recorded on the Bitcoin blockchain and requires a transaction fee.
This is an on-chain transaction, meaning it's recorded on the Bitcoin blockchain and requires a transaction fee.
The cost of having a transaction included in the next block varies according to supply and demand.
Sometimes you can get away with one satoshi per vbyte, so an average transaction might cost around 120 sats.
However, during periods of high demand, you may have to pay more.
Sometimes you can get away with one satoshi per vbyte, so an average transaction might cost around 120 sats.
However, during periods of high demand, you may have to pay more.
Once the channel is open, you can start transacting on the Lightning Network.
These transactions are off-chain, meaning they don't need to be recorded on the Bitcoin blockchain and don't incur additional Bitcoin transaction fees.
These transactions are off-chain, meaning they don't need to be recorded on the Bitcoin blockchain and don't incur additional Bitcoin transaction fees.
However, while transacting on the Lightning Network, you may have to pay a fee to routing nodes for forwarding your payments.
These fees consist of a base fee and a fee rate, which are set by the nodes themselves.
These fees consist of a base fee and a fee rate, which are set by the nodes themselves.
The base fee is a set amount charged for each forwarded payment, irrespective of its size.
The fee rate is a proportional fee based on the value of each forwarded payment.
The fee rate is a proportional fee based on the value of each forwarded payment.
To move sats off the Lightning Network, you close the channel, which requires another on-chain transaction.
This incurs a transaction fee, similar to the one paid when opening the channel.
The actual fee depends on the current demand for block space.
This incurs a transaction fee, similar to the one paid when opening the channel.
The actual fee depends on the current demand for block space.
Keep in mind, the cost of opening and closing channels can be amortized over many Lightning Network transactions.
The more transactions you make, the less the initial and final on-chain fees impact your overall cost per transaction.
The more transactions you make, the less the initial and final on-chain fees impact your overall cost per transaction.
TL;DR:
Moving sats on and off the Lightning Network involves opening and closing channels.
Opening a channel requires an on-chain transaction and a fee that varies with demand.
Once the channel is open, transactions are off-chain and incur fees set by routing nodes.
Moving sats on and off the Lightning Network involves opening and closing channels.
Opening a channel requires an on-chain transaction and a fee that varies with demand.
Once the channel is open, transactions are off-chain and incur fees set by routing nodes.
/end
Thanks for reading, we hope you learned something from this one.
Btw, if you run a Lightning node, make sure to check out Torq - it’s an analytics and node management tool that we’re building here @LN_Capital
Link is in our bio!
Thanks for reading, we hope you learned something from this one.
Btw, if you run a Lightning node, make sure to check out Torq - it’s an analytics and node management tool that we’re building here @LN_Capital
Link is in our bio!
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