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What is the Nostr-supported Bitcoin Lightning network tipping and how can it be used to make small payments?

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What is the Bitcoin Lightning Network and how is it used?

原文标题：《如何使用比特币闪电网络进行小额支付？》

Jonas Gross is President of the Digital Euro Association (DEA)

Bai Ze Research Institute

The Bitcoin Lightning network is becoming increasingly popular. Lightning's popularity is underway: There are now more than 4,800 bitcoins in the Lightning network, worth more than $90 million. In addition, institutional activity around the Lightning network has increased. For example, Lightning LABS, a major contributor to the Lightning protocol, raised $70 million in Series B funding earlier this year. The number of companies offering lightning-related services is also growing rapidly.

This article will explain: Why lightning network is needed, and how to use it?

Bitcoin as a global payment system?

Bitcoin offers many advantages as a decentralized payment system, allowing it to move money around the globe without intermediaries.

Foremost among these is the low barrier to entry for participants: anyone in the world with an Internet-enabled device can use Bitcoin, and no one can be excluded, which has a positive impact on financial inclusion. Moreover, Bitcoin represents a scarce digital asset, a kind of "digital gold." Each bitcoin can be divided into 100 million Cong, just like you can divide a dollar into 100 cents. Unlike fiat currencies, the supply of bitcoins is capped at 21 million. So it's impossible to devalue bitcoin by diluting it.

Despite these advantages, there are limitations to the current state of the Bitcoin network. Decentralization of the network comes at the expense of transaction throughput, which is the number of transactions a network can execute per second. Currently, the Bitcoin network can confirm up to seven transactions per second.

As a payment system, this low transaction throughput is not enough. Established payment service providers, such as Visa or Mastercard, can implement thousands of transactions per second, so scalability is better -- even if fully centralized. Transactions on the Bitcoin network typically take longer to be confirmed, making them unsuitable for daily payment transactions.

Another limitation is making small payments through Bitcoin. Because each transaction incurs a fee based on its storage size. The more storage you use, the more you pay. On average, today's transaction, no matter the volume, costs about $1. At times of increased demand, such as in 2017, transaction fees peaked above $60. For bulk payments, transaction fees seem relatively cheap; For small payments, however, the costs are too high.

Lightning network can solve this shortcoming

The goal of the Lightning network is to make Bitcoin an everyday means of payment. The goal is to increase throughput without centralization, which is fundamental to becoming a qualified payment network. More specifically, it means users can pay more, cheaper and faster. While a white paper on Bitcoin was published by Satoshi Nakamoto back in 2008, the idea for the Lightning network dates back to 2015, with the first development starting in 2016. In 2018, the first users started using the Lightning network. Since then, the technology has developed rapidly. However, despite heavy trading volumes and recent progress in adoption, it is still in its infancy in 2022.

How does lightning network solve the problem of low transaction throughput and relatively high transaction cost? Not all transactions are written into the blockchain (or "on-chain"). Most payments are made to each other "down the chain," and they are written to the blockchain (" settlement ") only in extreme circumstances or when the payment relationship between two network participants terminates. As a result, users' payments can be processed in real time and at low cost. Instead of waiting for confirmation from the Bitcoin network, the payment will be processed instantly.

如何使用比特币闪电网络进行小额支付？

How Lightning network works

To understand how lightning networks work, consider the following real-life example.

Let's say you're going to a bar for a fun night with some friends. You want to buy them a drink, but it's too much trouble for you to pay separately for each drink. So you give the bartender your credit card. For every drink you order, the bartender keeps a copy of the label. At the end of the reception, the bartender will arrange the labels and provide you with a final bill for payment.

Here, tagging is akin to the lightning network: individuals send transaction requests through lightning channels (down the chain) to other individuals or merchants, who open "payment channels" and transact with you, much like "tagging" with a bartender. In theory, both sides can play unlimited labels. The final payment will be settled on the Bitcoin network (on-chain).

How to use the Bitcoin Lightning Network?

Step 1 Set up your wallet

The first step requires you to download and set up the Lightning Wallet on your smartphone or computer. Setting up a Lightning wallet is relatively simple, similar to setting up a self-hosting bitcoin wallet, where you have your own private key.

Today, there are various lightning wallet providers, such as Zeus, Bluewallet, Phoenix or Breeze. Let's start with... Phoenix for example:

Download it in the App store. Phoenix Wallet After that, click the "Create a new Wallet" button.

After that, the wallet is ready to receive the money. To do this, you need to click Accept.

Please note that the first payment you receive is at least 10,000 Cong. BTC).

Since the app offers a self-hosting wallet, it is your responsibility to protect and store mnemonics. By clicking the "Restore phrase" button in the Phoenix Wallet, the mnemonic word appears, so write it down and store it in a safe place. This seed phrase is required to recover the private and public keys.

如何使用比特币闪电网络进行小额支付？

2. Put money in your wallet

The next step is to deposit the funds into the Lightning Wallet. Therefore, you need to transfer bitcoins from a self-hosting bitcoin wallet or from a hosting service provider (e.g. Coinbase And Binance) to Lightning Wallet. All you have to do is enter the Lightning Network receiving address and authorize payment by signing it using the private key.

For security reasons, you should wait for multiple confirmations (usually 6 confirmations, which takes about 60 minutes) from the bitcoin blockchain to ensure a final settlement of the deposit.

3. Open payment channels

Next, you need to open a payment channel with your trading partner. For example, if you want to pay for coffee with Lightning Network, you can open a payment channel at the cafe.

In the process of opening the payment channel, your funds are deposited into the payment channel. Funds deposited may be used for payments within the payment channel.

4. Start paying

After the funds are deposited, they can be traded with each other in the payment channel. To do this, cafes can issue a Lightning Web invoice (in the form of a QR code) that can be scanned through a wallet, such as the Phoenix wallet mentioned above. After that, you simply confirm the payment in your wallet.

summarize

Setting up the Lightning Wallet takes just a few minutes; The average initial deposit for the Lightning Wallet and Payment Channel takes about an hour each. Once Bitcoin assets in wallets and payment channels are available, payments can be made to each other in real time via lightning. In this way, the main advantage of the Lightning network will be fully realized: fast payments at low transaction costs. This is especially important when you want to make small payments (for example, a cup of coffee).

In practice, you don't need to open a payment lane for every favorite coffee shop. Instead of opening a new channel, Lightning Wallet routes funds through the available channels to the desired destination. Routing depends on the distribution of channel capacity and liquidity. To ensure a large number of successful payments and reliability, participants should not minimize routing costs. So-called "selfish routing strategies" consume channel capacity and may eventually lead to a reduction in the amount of payments a lightning network can handle.

Risk warning:

According to the Notice on Further Prevention and Disposal of Virtual Currency Trading Speculation Risk issued by the Central Bank and other departments, the content of this article is only for information sharing, and does not promote or endorse any operation or investment behavior. Readers are requested to strictly abide by local laws and regulations, and do not participate in any illegal financial behavior.