Bitcoin Q&A: Lightning usability, privacy, and Taproot


“What is the best way to manage Lightning channels?” “I understand that, to be an effective Lightning node,
one must curate channels that the node has in place.” “What is the best way to
select nodes to open channels to?” “I heard about balancing channels,
so that they are not uni-directional.” “But I have been unable to find
good instructions on how to do that.” “What techniques are available
to balance Lightning channels?” This is a really good question. Rebalancing channels, how to open channels, and
how to connect your node. These are challenges. If you are node operator.. I am a node operator. I run
a Lightning node. It has been running continuously… for over 10 months on the mainnet Lightning Network. Before that, I was running a Lightning
node on the Lightning testnet for a year, so I have quite a bit of experience with maintaining and
managing nodes, finding ways to connect [properly]. At the moment, my Lightning node is routing
approximately one hundred payments per day. There is forwarding activity,
which means the channels are being utilized. You (as an operator) can see the channels
being utilized in both directions. [If you are not an operator], you can’t easily see this,
but if you use the ‘listchannels’ command on lnd, or the equivalent command with other node software,
you will see that every channel has two balances. Not one. It has a local balance and a remote balance. In Lightning channels, you are moving chunks
of money, or balances, back and forth. A balance accumulates on either side. One of the best ways I have been able to describe this:
[imagine you are] in a bar with two dishes of peanuts. Convenience food they provide in
bars for free, when you buy a drink- Wait, it is not free, because I bought a drink.
Okay, I may need to reconsider my bar example. [Anyway], you will have two dishes full of peanuts, right?
Think of one dish as being your local balance, the other dish being the remote balance,
and between them is the channel. When you open a channel to another node,
if you start the channel, then you fund it. Your side is full of peanuts, the other side is empty. For
example, you have a local balance of 500,000 satoshis. And a remote balance of zero. To send the payments,
you will take peanuts from this side of the channel… and move them to the [other] side of the channel. That means someone can send you a payment back,
because there is a pile of peanuts on the other side. If someone wants to send a payment to you over
that channel, they can move these back to your side. The moment you make a payment,
you create balance on the other side. That is the hard way of creating [a remote] balance,
which allows your node to receive payments… or to do forwarding / routing. A better way would be, if people on the outside
opened a channel to your node and funded their end. Basically, expecting people to “lock up” some
of their money in a channel towards your node. Why would they do that? If they consider
your node to be well-connected, funded, and managed with high availability. When I decide which node to connect to, I am looking
for nodes that are well connected to the outside world, nodes which have been [running] for months
without interruption, high balances and capacity. That means they can route out from themselves, so
I will be able to use them as hops to reach other nodes. I am looking for nodes that are well connected,
with enough channels to other well connected nodes. There are websites where you can
type in the public key of your node… and it will tell you which ones to connect to
in order to maximize your connectivity in the network. For example, it will give you a list of public keys
of nodes that will give you two hops access… to 880 other nodes. The second-best option will give you two hops access
to 600 nodes. The third best will give you… and so on. It will give you a long list of nodes. Theoretically,
you could scroll through that and connect… outgoing channels to them. There are also nodes that will connect back to you. Again, there are various websites with information
about that. There are also nodes where you can buy… incoming channel capacity. You need to connect to them, send a few satoshis,
and they will open a channel back to you. That way, you have balance on both sides. Rebalancing is the process of making sure that
the balances on either side of various channels… allow your node to be useful to other nodes
for forwarding, which can earn you fees. Your node will have the ability to
both make and receive payments. To maintain that balance, there are a number of different
techniques you can use and there is ongoing research. I will just give you a few quick examples. One technique is to open new channels. You can close
channels that are not effective or being used efficiently, or that are connected to nodes which are not useful. In that case, you will pay on-chain fees.
You will need to decide if that is worth doing, opening and closing channels to rebalance things. One interesting technique that [will] exist is called
splicing, where you can use a single transaction… to both close an existing channel and open a new one. This technique has not been implemented fully yet. So the transaction to close a channel by spending
in the 2-of-2 multi-sig used for channel funding… can move that balance from the channel
you just closed to a new 2-of-2 multi-sig, which is the funding transaction for a new channel. Rather than one transaction to close and
[another transaction] to open another channel, you can use [the inputs in] a single transaction to
close one channel, and the outputs open another. There will be other [ways], with splice-ins and
splice-outs, which I will perhaps talk about in a second. Rebalancing is something we are
still developing techniques for. As a node [operator], you need to think carefully
about how you will manage your nodes. Make sure your node is up [and running], has good
capacity, and is well-connected to other nodes. That will make it more likely that
other people open channels to you. I know that from experience.
Even before my node [was labeled] “aantonop. Obviously, that makes a difference in
how many people open channels to you. Although, now that I’ve said [what my node is],
more people will put “aantonop” in their [node labels]. Damn it! Anyhow, just kidding. Even though it is a well-known node now, it was
under an alias and no one knew who was running it. People were connecting to it just because
it was connected and well-managed. That is how you maintain balance. Finally, keep in mind that there are some
automatic tools [for channel management]. Lnd has a tool called autopilot, which will
automatically open channels to various nodes… to maintain a minimum balance. You can set minimum and maximum
balances for opening channels. As a quick follow-up: Yes, you do need to [set up] port
forwarding or UPnP incoming NAT on your router… in order to allow incoming channel connections to
your node, and be better connected to the network. [AUDIENCE] I wanted to ask about your views
and thoughts on the Lightning Network. I recently mounted a full node myself and
found it technically difficult. [ANDREAS] Yes. [AUDIENCE] The user interface is not there yet.
There are some custodial solutions, which are not ideal. I just wanted to know your views and
how it [will affect] the adoption of Bitcoin. [ANDREAS] I am really excited about the
Lightning Network. I have talked about it a lot. I think it is a very interesting approach
[to scaling], this idea of second-layer networks… where you take advantage of the underlying security
[of the blockchain] and then build something… that can be faster and more scalable on top. The interface is not there yet. How many people
here have set up their own crypto node, of any kind? This is a very tech heavy room. Okay,
how many people don’t know what ‘ls’ is? There are the friends who you need to teach.
‘ls’ is the first command you learn, to install Linux. That was just a silly joke. Don’t worry, you don’t need
to know this. It is the techie’s job to make it easier. I will tell you a better story, which is [how
I sent] my first email. It took [a long time]. First, I had to read about email. At the time, there were
no email servers when I first accessed to the internet. Email was very basic. I had to build a new type of
email called SMTP, which is the protocol we use today. First, I needed to download software called ‘sendmail.’
Then I compiled it from the source code. That took two days of full-on geek work, to figure out
all the library dependencies and some weird errors… that the c-compiler was giving me. This was all part of sending the email, by the way.
At that time, this is what you needed to do. Eventually, I managed to [figure it out]. Then I [wrote]
my email and hit ‘Send’ on the command line. “I sent my first email!” Great, and did they respond?
No, it hasn’t [arrived at its destination] yet. [Laughter] It will three days to traverse the internet.
It was almost like Pony Express. [imitates riding horse] “We’ll get your email to the other side! Ha-ha, faster!” In total, it took six days to actually
send the email to the other side. The point is, that is how technology starts. Today, installing a Lightning node
[requires] an enormous amount of work. That is part of the reason it is exciting and interesting
to techies, but it will not work like that forever. Already, I have three wallets on my phone with
Lightning capabilities. But they make it a lot easier… at the expense of some decentralization. We are paying a bit of a price; that is okay for now.
Gradually it will become easier and easier. Eventually, everyone [will be able] to do it. Then we will
have the opportunity to make some new applications. But we need to be patient, these things take time.
By the way, that first email [I sent] was in 1989. Yes, I am that old. It was the first time I was on the
internet. My mother sent her first email in 2009. She used the new iPad I had
given her and swiped like that. Email, not Tinder! Come on. [Laughter]
I wouldn’t install that on my mom’s iPad. “In what scenarios would we use payment channels?” “Can you please explain how
payment channels help merchants? Payment channels are one
component of the Lightning Network. Lightning is a network of routable
payment channels connected together, which allow you to pay someone
[your node] is not connected to. This is an important thing to understand. If I want to pay someone over the Lightning Network,
I don’t need to open a payment channel to them. I need a payment channel to someone with a channel
to someone, who has a channel to someone, etc. who has a payment channel to the merchant. As long as your node is connected to five or six other
nodes, and each of those is connected to five or six, we take advantage of the network effect to create
a variety of routes where nodes are reachable. Then we have the ability to pay anyone on the
network, without direct channels to each other. That is the point of the Lightning Network.
What is the advantage of using it? You have instantaneous [confirmation], unlike the
base layer, which takes [about] ten minutes to settle. The Lightning Network [channels] are funded by
a multi-sig [transaction] that has already confirmed. Lightning [payments] are confirmed instantly.
You can send very small payments for little or no fee. You can send satoshis, not just hundreds of
thousands of satoshis, but single satoshis. There are certain scenarios where individuals
or companies many set up payment channels… directly to each other in order to manage
a lot of flows between themselves. For example, exchanges could set up a mesh network
of payment channels between themselves… in order to ensure that they can easily transfer from
exchange to exchange without incurring on-chain fees. Instead, they are [still] able to do it off-chain.
That is one other use in the context of Lightning. Or they could just set up direct payment channels
without being part of the Lightning Network. Think of it a bit like VPNs,
as an overlay network for TCP/IP. A payment channel is
an overlay network for blockchains. “Is there [a way to see] which
addresses initiated [a payment channel]?” “How would we identify a payment channel?” A payment channel is funded from an on-chain
transaction that stores money in a 2-of-2 multi-sig, which will appear on the blockchain explorer as
a pay-to-script (P2SH) address that starts with a ‘3.’ You can’t identify these as specifically being
payment channels until they are closed. When they are closed, the script used to close them
is easily identifiable as a Lightning payment channel, because the script is rather unique. Until it is spent, you can’t see the script,
as with any Bitcoin transaction. You will only see the script or public key when it is spent.
You see a ‘3’ address, which is a pay-to-script hash. You don’t know what that is. It could be multi-signature,
a SegWit address, or a Lightning payment channel. You don’t know. You know which addresses the money
came from, but that doesn’t tell you it is a channel. In fact, we don’t want people to identify and distinguish
between SegWit, multi-sig, and payment channels, because that breaks privacy. If you can identify what kind of payment it is,
you can start fingerprinting and statistical analysis, clustering addresses together and identifying
common elements of ownership. The end goal for privacy in Bitcoin is to make
every transaction look like a simple payment. Taproot and Graftroot will hide it even more.
But even now, until the channel is closed, you can’t identify it as being a channel.

28 thoughts on “Bitcoin Q&A: Lightning usability, privacy, and Taproot”

  1. Appreciate the lighting network explanation and lessons. Thank you. Welcome more videos about it.

  2. Can one actually rollback the bitcoin blockchain like people are discussing with the recent Binance hack?

  3. Channels are confusing thingies. The perfect channel for routing would be one with an even local and remote balance so that it can serve in both directions. On the other hand, say, my "buy stuff channel", which is mostly used for payments to merchants by myself, does not require a remote balance at all (it will build up once I use the channel, of course). The local balance is all that is important to me. So, to have a smoothly working routing network, there must be quite some in advance funding on both ends of a channel and this always requires two parties to cooperate. I still don't get my head around all the implications of this design.

  4. I never really understood how much lighting rewires how bitcoin itself works/will be used in the future. Thanks for the explanation

  5. Great work as always!

    Would you ever consider doing a 30-60 minute YouTube Livestream like many other Youtubers? A few of my other favorite YouTubers will do these once in a while. Could be a great way to speak more casually about things, and you could do it as new breakthroughs are discovered, or offering a theme for each discussion. Just a thought!

  6. He re-uploaded this because he accidentally put the ending screen into the middle of the video last time.

  7. It sounds to me like the lightning network is going to take to long to become popular and user friendly.
    Other coins might take off first.
    Last night I easily sent money back and forth in seconds at very low fees with Bitcoin Cash.

  8. With an English Engineer degree, I need to relearn my English to understand this…

  9. For the bar example, the cost of the drink is the fee for the on chain transaction to open the channel which gives you the peanuts. So it actually works even better as an analogy 😂

  10. I am an early Bitcoin user, but I still can’t quite get my head around this. Kinda want to jump in, but at the same time it just does not sound like an elegant solution – yet.

  11. In the bowls example, if you have N channels open you'll have N bowls on your side (and N on the other sides), but the problem is you can't move peanuts between your bowls. So you may be able to receive 3 peanuts from Alice, but if you dont have other 3 peanuts in your Bob bowl you cant route the payment. Is there any tools that will allow you to send funds from one channel and receive from another, rebalancing without making a main chain transaction?

  12. "Taproot" is in the title but it's appeared at the very last sentence of the last minute of this video 🙂 An expansion on this for the next videos?

  13. It'll be so cool when wallets open channels for you automatically, and time it when fees are low. Or just do a 1sat/bit fee and just wait until network mempool is empty. That's when I send my girlfriend money or others who aren't in a rush.

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