In this chapter, we will begin where most people start when encountering the Lightning Network for the first time - choosing software to participate in the Lightning Network economy. We will examine the choices of two users who represent a common use-case for the Lightning Network and learn by example. Alice, a coffee shop customer, will be using a Lightning wallet on her mobile device to buy coffee from Bob's Cafe. Bob, a merchant, will be using a Lightning node and wallet to run a point-of-sale system at his cafe, so he can accept payments over the Lightning Network.
=== Alice's First Lightning Wallet
=== Alice's first Lightning wallet
Alice is a long time Bitcoin user. We first met Alice in Chapter 1 of _"Mastering Bitcoin"_ footnote:["Mastering Bitcoin 2nd Edition, Chapter 1" Andreas M. Antonopoulos (https://github.com/bitcoinbook/bitcoinbook/blob/develop/ch01.asciidoc).], when she bought a cup of coffee from Bob's cafe using a bitcoin transaction. If you are not yet familiar with how Bitcoin transactions work or need a refresher, please read Mastering Bitcoin or the summary in <<bitcoin_fundamentals_review>>.
Alice is a long time Bitcoin user. We first met Alice in Chapter 1 of _"Mastering Bitcoin"_ footnote:["Mastering Bitcoin 2nd Edition, Chapter 1" Andreas M. Antonopoulos (https://github.com/bitcoinbook/bitcoinbook/blob/develop/ch01.asciidoc).], when she bought a cup of coffee from Bob's cafe using a Bitcoin transaction. If you are not yet familiar with how Bitcoin transactions work or need a refresher, please read Mastering Bitcoin or the summary in <<bitcoin_fundamentals_review>>.
Alice recently learned that Bob's Cafe just started accepting Lightning Network payments! Alice is eager to learn about and experiment with the Lightning Network, she wants to be one of Bob's first Lightning Network customers. In order to do this, first, Alice has to select a Lightning wallet that meets her needs.
Alice recently learned that Bob's Cafe just started accepting Lightning Network payments! Alice is eager to learn about and experiment with the Lightning Network; she wants to be one of Bob's first Lightning Network customers. In order to do this, first, Alice has to select a Lightning wallet that meets her needs.
Alice does not want to entrust custody of her bitcoin to third parties. She has learned enough about cryptocurrency to know how to use a wallet. She also wants a mobile wallet so that she can use it for small payments on-the-go, so she chooses the _Eclair_ wallet, a popular non-custodial mobile Lightning wallet. Let's learn more about how and why she's made these choices.
=== Lightning Nodes
=== Lightning nodes
The Lightning Network is accessed via software applications that can speak the Lightning Network protocol. A _Lightning Network Node_ (or simply "node") is a software application that has three important characteristics. First, Lightning nodes are "wallets", so they send and receive payments over the Lightning Network as well as on the Bitcoin network. Second, nodes must communicate on a peer-to-peer basis with other Lightning nodes creating the network. Finally, Lightning nodes also need access to the Bitcoin blockchain (or other blockchains for other cryptocurrencies) to secure the funds used for payments.
The Lightning Network is accessed via software applications that can speak the Lightning Network protocol. A _Lightning Network node_ (or simply "node") is a software application that has three important characteristics. First, Lightning nodes are "wallets", so they send and receive payments over the Lightning Network as well as on the Bitcoin network. Second, nodes must communicate on a peer-to-peer basis with other Lightning nodes creating the network. Finally, Lightning nodes also need access to the Bitcoin blockchain (or other blockchains for other cryptocurrencies) to secure the funds used for payments.
Users have the highest degree of control by running their own Bitcoin node and Lightning node. However, Lightning nodes can also use a lightweight Bitcoin client (commonly referred to as Simplified Payment Verification (SPV)) to interact with the Bitcoin blockchain.
Users have the highest degree of control by running their own Bitcoin node and Lightning node. However, Lightning nodes can also use a lightweight Bitcoin client, commonly referred to as Simplified Payment Verification (SPV), to interact with the Bitcoin blockchain.
[[ln_explorer]]
=== Lightning Explorer
=== Lightning explorers
A Lightning network explorer is a useful tool to show the statistics of nodes, channels and network capacity.
Lightning network explorers are useful tools to show the statistics of nodes, channels and network capacity.
The below is an inexhaustive list (in alphanumerical order):
Below is an inexhaustive list (in alphanumerical order):
* 1ML Lightning explorer, https://1ml.com/
* ACINQ's Lightning explorer, with fancy visualization, https://explorer.acinq.co/
@ -32,50 +32,50 @@ The below is an inexhaustive list (in alphanumerical order):
[TIP]
====
Note that when using Lightning explorers, just like with existing block explorers, privacy can be a concern.
Note that when using Lightning explorers, just like with other block explorers, privacy can be a concern.
If users are careless, the website may track their IP addresses and collect their behavior records (for example, the nodes users are interested in).
Also, it should be noted that as there is no global consensus of the current Lightning graph or the current state of any existing channel policy, users should never rely on Lightning explorers to retrieve the most updated information.
Also, it should be noted that as there is no global consensus of the current Lightning graph or the current state of any existing channel policy; users should never rely on Lightning explorers to retrieve the most current information.
Furthermore as users open, close, and update channels, the graph will change and individual Lightning explorers may not be up to date.
Use Lightning explorers to visualize the network or gather information, but not as an authoritative source of what is happening on the Lightning Network.
To have an authoritative view of the Lightning Network, run your own Lightning node that will build a channel graph and collect various statistics, which you can view with a web-based interface.
====
=== Lightning Wallets
=== Lightning wallets
The term "Lightning Wallet" is somewhat ambiguous, as it can describe a broad variety of components combined with some user interface. The most common components of lightning wallet software include:
The term "Lightning wallet" is somewhat ambiguous, as it can describe a broad variety of components combined with some user interface. The most common components of Lightning wallet software include:
* A keystore that holds secrets, such as private keys.
* A Lightning Network node (Lightning node) that communicates on the Peer-to-Peer network, as described previously.
* A Bitcoin node that stores blockchain data and communicates with other Bitcoin nodes.
* A database "map" of nodes and channels that are announced on the Lightning network.
* A database "map" of nodes and channels that are announced on the Lightning Network.
* A channel manager that can open and close Lightning Network channels.
* A path-finding system that can find a path of connected channels from payment source to payment destination.
A Lightning wallet may contain all of these functions, acting as a "full" wallet, with no reliance on any third-party services. Or, one or more of these components may rely (partially or entirely) on third-party services that mediate those functions.
A _key_ distinction (pun intended) is whether the keystore function is internal or outsourced. In blockchains, control of keys determines custody of funds, as memorialized by the phrase "your keys, your coins; not your keys, not your coins". Any wallet that outsources management of keys is called a "custodial" wallet because a third party acting as custodian has control of the user's funds, not the user himself. A "non-custodial" or "self-custody" wallet, by comparison, is one where the keystore is part of the wallet, and keys are controlled directly by the user. The term "non-custodial" wallet just implies that the keystore is local and under the user's control. However, one or more of the other wallet components might or might not be outsourced and rely on some trusted third parties even if some of the components (other than the keystore) rely on some trusted third parties.
A _key_ distinction (pun intended) is whether the keystore function is internal or outsourced. In blockchains, control of keys determines custody of funds, as memorialized by the phrase "your keys, your coins; not your keys, not your coins". Any wallet that outsources management of keys is called a "custodial" wallet because a third party acting as custodian has control of the user's funds, not the user. A "non-custodial" or "self-custody" wallet, by comparison, is one where the keystore is part of the wallet, and keys are controlled directly by the user. The term "non-custodial" wallet just implies that the keystore is local and under the user's control. However, one or more of the other wallet components may or may not be outsourced and rely on trusted third parties.
Blockchains, especially open blockchains like Bitcoin, attempt to minimize or eliminate trust in third parties and empower users. This is often called a "trustless" model, though "trust-minimized" is a better term. In such systems, the user trusts the software rules, not third parties. Therefore, the issue of control over keys is a principal consideration when choosing a Lightning wallet.
Every other component of a Lightning wallet brings similar considerations of trust. If all the components are under the control of the user, then the amount of trust in third parties is minimized, bringing maximum power to the user. Of course, this brings a direct trade-off, as with that power comes the corresponding responsibility to manage complex software.
Every user must consider their own technical skills before deciding what type of Lightning wallet to use. Those with strong technical skills should use a Lightning wallet that puts all of the components under the direct control of the user. Those with fewer technical skills but a desire to control their funds should choose a _non-custodial_ Lightning wallet.
Often the trust in those cases relates to privacy.
If users decide to outsource some functionality to a third party they usually give up some privacy as the third party will learn some information about them.
Every user must consider their own technical skills before deciding what type of Lightning wallet to use. Those with strong technical skills should use a Lightning wallet that puts all of the components under the direct control of the user. Those with fewer technical skills, but with a desire to control their funds, should choose a _non-custodial_ Lightning wallet.
Often the trust in these cases relates to privacy.
If users decide to outsource some functionality to a third party, they usually give up some privacy as the third party will learn some information about them.
Finally, those seeking simplicity and convenience, even at the expense of control and security, may choose a custodial Lightning wallet. This is the least technically challenging option, but it _undermines the trust model of cryptocurrency_ and should therefore be considered only as a stepping stone towards more control and self-reliance.
There are many ways wallets can be characterized or categorized.
The most important questions to ask about a specific wallet are:
. Does this Lightning wallet have a full Lightning Node or does it use a third-party Lightning Node?
. Does this Lightning wallet have a full Bitcoin Node or does it use a third-party Bitcoin Node?
. Does this Lightning wallet have a full Lightning node or does it use a third-party Lightning node?
. Does this Lightning wallet have a full Bitcoin node or does it use a third-party Bitcoin node?
. Does this Lightning wallet store its own keys under user control (self-custody) or are the keys held by a third-party custodian?
[TIP]
====
If a Lightning wallet uses a third-party Lightning node, it is this third-party Lightning node that decides how to communicate with Bitcoin. Hence, using a third-party Lightning node implies that you are also using a third-party Bitcoin node. Only when the Lightning wallet uses its own Lightning node, does the choice "full Bitcoin-node" vs. "third-party Bitcoin node" exist.
If a Lightning wallet uses a third-party Lightning node, it is this third-party Lightning node that decides how to communicate with Bitcoin. Hence, using a third-party Lightning node implies that you are also using a third-party Bitcoin node. Only when the Lightning wallet uses its own Lightning node, does the choice "full Bitcoinnode" vs. "third-party Bitcoin node" exist.
====
At the highest level of abstraction, questions 1 and 3 are the most elementary ones.
@ -92,26 +92,26 @@ But remember that this is just one way of categorizing Lightning wallets.
| *Custodial* | Q3: Above medium technical skills, above medium trust in 3rd parties, requires some permissions | Q4: Low technical skills, high trust in 3rd parties, least permissionless
|===
Q3, quadrant 3, where a full Lightning node is used but the keys are held by a custodian is currently not common.
Future wallets from that quadrant would let a user worry about the operational aspects of their node, but then delegate the access to the keys to a third party which may use primarily cold storage.
Quadrant 3 (Q3), where a full Lightning node is used, but the keys are held by a custodian, is currently not common.
Future wallets from that quadrant may let a user worry about the operational aspects of their node, but then delegate access to the keys to a third party which primarily uses cold storage.
Lightning wallets can be installed on a variety of devices, including laptops, servers, and mobile devices. To run a full Lightning node you will need to use a server or desktop computer, as mobile devices and laptops are usually not powerful enough in terms of capacity, processing, battery life, and connectivity.
The category "Third-party Lightning Nodes" can again be subdivided into:
- Lightweight: means that the wallet does not operate a Lightning node and so needs to obtain information about the Lightning Network over the Internet from someone else's Lightning node.
- None: means that not only is the Lightning Node operated by a third party but most of the wallet is operated by a third party in the cloud. This is a "custodial" wallet where someone else controls the custody of funds.
- Lightweight: This means that the wallet does not operate a Lightning node and so needs to obtain information about the Lightning Network over the Internet from someone else's Lightning node.
- None: This means that not only is the Lightning node operated by a third party, but most of the wallet is operated by a third party in the cloud. This is a "custodial" wallet where someone else controls custody of the funds.
These subcategories are used in Table <<lnwallet-examples>>.
Other terms that need explanation in Table <<lnwallet-examples>> in column "Bitcoin Node" are:
Other terms that need explanation in Table <<lnwallet-examples>> in the column "Bitcoin Node" are:
- Neutrino: This wallet does not operate a Bitcoin Node. Instead, a Bitcoin Node operated by someone else (third-party) is accessed via the "Neutrino" protocol.
- Electrum: This wallet does not operate a Bitcoin Node. Instead, a Bitcoin Node operated by someone else (third-party) is accessed via the "Electrum" protocol.
- Bitcoin Core: implementation of a Bitcoin Node
- btcd: another implementation of Bitcoin Node
- Neutrino: This wallet does not operate a Bitcoin node. Instead, a Bitcoin node operated by someone else (a third-party) is accessed via the "Neutrino" protocol.
- Electrum: This wallet does not operate a Bitcoin node. Instead, a Bitcoin node operated by someone else (a third-party) is accessed via the "Electrum" protocol.
- Bitcoin Core: This is an implementation of a Bitcoin node.
- btcd: This is another implementation of a Bitcoin node.
In <<lnwallet-examples>> we see some examples of currently popular Lightning node and wallet applications for different types of devices. the list is sorted first by device type and then alphabetically.
In <<lnwallet-examples>>, we see some examples of currently popular Lightning node and wallet applications for different types of device. The list is sorted first by device type and then alphabetically.
[[lnwallet-examples]]
.Examples of Popular Lightning Wallets
@ -135,7 +135,7 @@ In <<lnwallet-examples>> we see some examples of currently popular Lightning nod
[[testnet-bitcoin]]
==== Testnet Bitcoin
The Bitcoin system offers an alternative chain for testing purposes called a _testnet_, in contrast with the "normal" Bitcoin chain which is referred to as "mainnet". On testnet, the currency is _testnet bitcoin (TBTC)_, which is a worthless copy of bitcoin used exclusively for testing. Every function of Bitcoin is replicated exactly, but the money is worth nothing, so you literally have nothing to lose!
The Bitcoin system offers an alternative chain for testing purposes called _testnet_, in contrast with the "normal" Bitcoin chain which is referred to as _mainnet_. On testnet, the currency is _testnet bitcoin (TBTC)_, which is a worthless copy of bitcoin used exclusively for testing. Every function of Bitcoin is replicated exactly, but the money is worth nothing, so you literally have nothing to lose!
Some Lightning wallets can also operate on testnet, allowing you to make Lightning payments with testnet bitcoin, without risking real funds. This is a great way to experiment with Lightning safely. Eclair mobile, which Alice uses in this chapter, is one example of a Lightning wallet that supports testnet operation.
All of the examples in this book can be replicated exactly on testnet with TBTC, so you can try and follow along if you want without risking real money.
All of the examples in this book can be replicated exactly on testnet with TBTC, so you can follow along if you want without risking real money.
=== Balancing complexity and control
Lightning wallets have to strike a careful balance between complexity and user control. Those that give the user the most control over their funds, the highest degree of privacy, and the greatest independence from third party services are necessarily more complex and difficult to operate. As the technology advances, some of these trade-offs will become less stark, and users may be able to get more control without more complexity. However, for now, different companies and projects are exploring different positions along this control-complexity spectrum and hoping to find the "sweet spot" for the users they are targeting.
When selecting a wallet, keep in mind that even if you don't see these trade-offs, they still exist. For example, many wallets will attempt to remove the burden of channel management from its users. To do so, they introduce central "hub" nodes that all their wallets connect to automatically. While this trade-off simplifies the user interface and user experience, it introduces a Single Point of Failure (SPoF) as these "hub nodes" become indispensable for the wallet operation. Furthermore, relying on a "hub" like this can reduce user privacy since the hub knows the sender and potentially (if constructing the payment route on behalf of the user) also the recipient of each payment made by the user's wallet.
When selecting a wallet, keep in mind that even if you don't see these trade-offs, they still exist. For example, many wallets will attempt to remove the burden of channel management from its users. To do so, they introduce central "hub" nodes that all their wallets connect to automatically. While this trade-off simplifies the user interface and user experience, it introduces a Single Point of Failure (SPoF) as these "hub nodes" become indispensable for the wallet's operation. Furthermore, relying on a "hub" like this can reduce user privacy since the hub knows the sender and potentially (if constructing the payment route on behalf of the user) also the recipient of each payment made by the user's wallet.
In the next section, we will return to our first user and walk through her first Lightning wallet setup. She has chosen a wallet that is more sophisticated than the easier custodial wallets. This allows us to show some of the underlying complexity and introduce some of the inner workings of an advanced wallet during our example. You may find that your first ideal wallet is further towards "ease of use", by accepting some of the control and privacy trade-offs. Or perhaps you are more of a "power user" and want to run your own Lightning and Bitcoin nodes as part of your wallet solution.
In the next section, we will return to our first user and walk through her first Lightning wallet setup. She has chosen a wallet that is more sophisticated than the easier custodial wallets. This allows us to show some of the underlying complexity and introduce some of the inner workings of an advanced wallet. You may find that your first ideal wallet is further towards "ease of use", accepting some of the control and privacy trade-offs. Or perhaps you are more of a "power user" and want to run your own Lightning and Bitcoin nodes as part of your wallet solution.
=== Downloading and Installing a Lightning Wallet
=== Downloading and installing a Lightning wallet
When looking for a new cryptocurrency wallet, you must be very careful to select a secure source for the software.
Unfortunately, many fake wallet applications will steal your money, and some of these even find their way onto reputable and supposedly vetted software sites like the Apple and Google application stores. Whether you are installing your first or your tenth wallet, always exercise extreme caution. A rogue app cannot only steal any money you entrust it with, but it might also be able to steal keys and passwords from other applications by compromising your mobile device operating system.
Unfortunately, many fake wallet applications will steal your money, and some of these even find their way onto reputable and supposedly vetted software sites like the Apple and Google application stores. Whether you are installing your first or your tenth wallet, always exercise extreme caution. A rogue app may not just steal any money you entrust it with, but it might also be able to steal keys and passwords from other applications by compromising your mobile device operating system.
Alice uses an Android device and will use the Google Play Store to download and install the Eclair wallet. Searching on Google Play, she finds an entry for "Eclair Mobile", as shown in <<eclair-playstore>>.
@ -174,21 +174,21 @@ image::images/eclair-playstore.png["Eclair wallet in the Google Play Store"]
[TIP]
====
It is possible to experiment and test all Bitcoin-type software with zero risk (except for your own time) by using Testnet bitcoins. You can also download Eclair Testnet wallet to try lightning (on Testnet) by going to the Google Play Store.
It is possible to experiment and test all Bitcoin-type software with zero risk (except for your own time) by using testnet bitcoins. You can also download Eclair testnet wallet to try Lightning (on testnet) by going to the Google Play Store.
====
Alice notices a few different elements on this page, that help her ascertain that this is, most likely, the correct "Eclair Mobile" wallet she is looking for. Firstly, the organization "ACINQ" footnote:[ACINQ: Developers of the Eclair Mobile Lightning wallet (https://acinq.co/).] is listed as the developer of this mobile wallet, which Alice knows from her research is the correct developer. Secondly, the wallet has been installed "10,000+" times and has more than 320 positive reviews. It is unlikely this is a rogue app that has snuck into the Play Store. As a third step, she goes to the ACINQ website (https://acinq.co/). She verifies that the webpage is secure by checking that the address begins with HTTPS, or prefixed by a padlock in some browsers. On the website she goes to the Download section or looks for the link to the Google App store. She finds the link and clicks it. She compares that this link brings her to the very same app in the Google App Store. Satisfied by these findings, Alice installs the Eclair app on her mobile device.
Alice notices a few different elements on this page, that help her ascertain that this is, most likely, the correct "Eclair Mobile" wallet she is looking for. Firstly, the organization "ACINQ" footnote:[ACINQ: Developers of the Eclair Mobile Lightning wallet (https://acinq.co/).] is listed as the developer of this mobile wallet, which Alice knows from her research is the correct developer. Secondly, the wallet has been installed "10,000+" times and has more than 320 positive reviews. It is unlikely this is a rogue app that has snuck into the Google Play Store. As a third step, she goes to the ACINQ website (https://acinq.co/). She verifies that the webpage is secure by checking that the address begins with https, or prefixed by a padlock in some browsers. On the website she goes to the Download section or looks for the link to the Google App store. She finds the link and clicks it. She compares that this link brings her to the very same app in the Google App Store. Satisfied by these findings, Alice installs the Eclair app on her mobile device.
[WARNING]
====
Always exercise great care when installing software on any device. There are many fake cryptocurrency wallets that will not only steal your money but might also compromise all other applications on your device.
====
=== Creating a New Wallet
=== Creating a new wallet
When Alice opens the Eclair Mobile app for the first time, she is presented with a choice to "Create a New Wallet" or to "Import an Existing Wallet". Alice will create a new wallet, but let's first discuss why these options are presented here and what it means to "import an existing wallet".
==== Responsibility with Key Custody
==== Responsibility with key custody
As we mentioned at the beginning of this section, Eclair is a _non-custodial_ wallet, meaning that Alice has sole custody of the keys used to control her bitcoin. This also means that Alice is responsible for protecting and backing up those keys. If Alice loses the keys, no one can help her recover the bitcoin, and they will be lost forever.
@ -197,13 +197,13 @@ As we mentioned at the beginning of this section, Eclair is a _non-custodial_ wa
With the Eclair Mobile wallet, Alice has custody and control of the keys and, therefore, full responsibility to keep the keys safe and backed up. If she loses the keys, she loses the bitcoin, and no one can help her recover from that loss!
====
==== Mnemonic Words
==== Mnemonic words
Similar to most Bitcoin wallets, Eclair Mobile provides a _mnemonic phrase_ (also sometimes called a "seed" or "seed phrase") for Alice to back up. The mnemonic phrase consists of 24 English words, selected randomly by the software, and used as the basis for the keys that are generated by the wallet. The mnemonic phrase can be used by Alice to restore all the transactions and funds in the Eclair Mobile wallet in the case of an event such as a lost mobile device, a software bug, or memory corruption.
[TIP]
====
The correct term for these backup words is "mnemonic phrase". We avoid the use of the term "seed" to refer to a mnemonic phrase, because even though its use is common it is incorrect.
The correct term for these backup words is "mnemonic phrase". We avoid the use of the term "seed" to refer to a mnemonic phrase because even though its use is common, it is incorrect.
====
When Alice chooses to "Create a New Wallet", she will be shown a screen with her mnemonic phrase, which looks like the screenshot in <<eclair-mnemonic>>.
In <<eclair-mnemonic>>, we have purposely obscured part of the mnemonic phrase to prevent readers of this book from reusing the mnemonic.
[[mnemonic-storage]]
==== Storing the Mnemonic Safely
==== Storing the mnemonic safely
Alice needs to be careful to store the mnemonic phrase in a way that balances the need to prevent theft and accidental loss. The recommended way to properly balance these risks is to write two copies of the mnemonic phrase on paper, with each of the words numbered as the order matters.
Alice needs to be careful to store the mnemonic phrase in a way that prevents theft but also avoids accidental loss. The recommended way to properly balance these risks is to write two copies of the mnemonic phrase on paper, with each of the words numbered - the order matters.
Once Alice has recorded the mnemonic phrase, after touching "OK GOT IT" on her screen, she will be presented with a _quiz_ to make sure that she correctly recorded the mnemonic. The quiz will ask for three or four of the words at random. Alice wasn't expecting a quiz, but since she recorded the mnemonic correctly, she passes without any difficulty.
Once Alice has recorded the mnemonic phrase, after touching "OK GOT IT" on her screen, she will be presented with a quiz to make sure that she correctly recorded the mnemonic. The quiz will ask for three or four of the words at random. Alice wasn't expecting a quiz, but since she recorded the mnemonic correctly, she passes without any difficulty.
Once Alice has recorded the mnemonic phrase and passed the quiz, she should store each copy in a separate secure location such as a locked desk drawer or a fireproof safe.
[WARNING]
====
Never attempt a "DIY" security scheme that deviates in any way from the best practice recommendation in <<mnemonic-storage>>. Do not cut your mnemonic in half, make screenshots, store on USB drives or cloud drives, encrypt it, or try any other non-standard method. You will tip the balance in such a way as to risk permanent loss or theft. Many people have lost funds, not from theft but because they tried a non-standard solution without having the expertise to balance the risks involved. The best practice recommendation is carefully balanced by experts and suitable for the vast majority of users.
Never attempt a "DIY" security scheme that deviates in any way from the best practice recommendation in <<mnemonic-storage>>. Do not cut your mnemonic in half, make screenshots, store on USB drives or cloud drives, encrypt it, or try any other non-standard method. You will tip the balance in such a way as to risk permanent loss. Many people have lost funds, not from theft, but because they tried a non-standard solution without having the expertise to balance the risks involved. The best practice recommendation is carefully considered by experts and suitable for the vast majority of users.
====
After Alice initializes her Eclair Mobile wallet, she will see a brief tutorial that highlights the various elements of the user interface. We won't replicate the tutorial here, but we will explore all of those elements as we follow Alice's attempt to buy a cup of coffee!
=== Loading Bitcoin Into the Wallet
=== Loading bitcoin onto the wallet
Alice now has a Lightning wallet. But, it's empty! She now faces one of the more challenging aspects of this experiment: she has to find a way to acquire some bitcoin and load it onto her Eclair wallet.
Alice now has a Lightning wallet. But, it's empty! She now faces one of the more challenging aspects of this experiment; she has to find a way to acquire some bitcoin and load it onto her Eclair wallet.
[TIP]
====
@ -240,39 +240,39 @@ If Alice already has bitcoin in another wallet, she could choose to send that bi
====
[[acquiring-bitcoin]]
==== Acquiring Bitcoin
==== Acquiring bitcoin
There are several ways Alice can acquire bitcoin:
* She can exchange some of her national currency (e.g. USD) at a cryptocurrency exchange
* She can buy some from a friend, or an acquaintance from a Bitcoin Meetup, in exchange for cash
* She can find a _Bitcoin ATM_ in her area, which acts as a vending machine, selling bitcoin for cash
* She can offer her skills or a product she sells and accept payment in bitcoin
* She can ask her employer or clients to pay her in bitcoin
* She can exchange some of her national currency (e.g. USD) on a cryptocurrency exchange.
* She can buy some from a friend, or an acquaintance from a Bitcoin Meetup, in exchange for cash.
* She can find a _Bitcoin ATM_ in her area, which acts as a vending machine, selling bitcoin for cash.
* She can offer her skills or a product she sells and accept payment in bitcoin.
* She can ask her employer or clients to pay her in bitcoin.
All of these methods have varying degrees of difficulty, and many will involve paying a fee. Some will also require Alice to provide identification documents to comply with local banking regulations. However, with all these methods, Alice will be able to receive bitcoin.
==== Receiving Bitcoin
==== Receiving bitcoin
Let's assume Alice has found a local Bitcoin ATM and has decided to buy some bitcoin in exchange for cash. An example of a Bitcoin ATM, one built by the Lamassu company, is shown in <<bitcoin-atm>>. Such Bitcoin ATMs accept national currency (cash) through a cash slot and send bitcoin to a Bitcoin Address scanned from a user's wallet using a built-in camera.
Let's assume Alice has found a local Bitcoin ATM and has decided to buy some bitcoin in exchange for cash. An example of a Bitcoin ATM, one built by the Lamassu company, is shown in <<bitcoin-atm>>. Such Bitcoin ATMs accept national currency (cash) through a cash slot and send bitcoin to a Bitcoin address scanned from a user's wallet using a built-in camera.
To receive the bitcoin in her Eclair Lightning wallet, Alice will need to present a _Bitcoin Address_ from the Eclair Lightning wallet to the ATM. The ATM can then send Alice's newly acquired bitcoin to this bitcoin address.
To receive the bitcoin in her Eclair Lightning wallet, Alice will need to present a Bitcoin address from the Eclair Lightning wallet to the ATM. The ATM can then send Alice's newly acquired bitcoin to this Bitcoin address.
To see a Bitcoin Address on the Eclair wallet, Alice must swipe to the left column titled "YOUR BITCOIN ADDRESS" (see <<eclair-receive>>), where she will see a square barcode (called a _QR code_) and a string of letters and numbers below.
To see a Bitcoin address on the Eclair wallet, Alice must swipe to the left column titled "YOUR BITCOIN ADDRESS" (see <<eclair-receive>>), where she will see a square barcode (called a _QR code_) and a string of letters and numbers below.
[[eclair-receive]]
.Alice's bitcoin address, shown in Eclair
image::images/eclair-receive.png["Eclair bitcoin address QR code"]
The QR code contains the same string of letters and numbers as shown below it, in an easy to scan format. This way, Alice doesn't have to type the Bitcoin Address. In the screenshot <<eclair-receive>>, we have purposely blurred both, to prevent readers from inadvertently sending bitcoin to this address.
The QR code contains the same string of letters and numbers as shown below it, in an easy to scan format. This way, Alice doesn't have to type the Bitcoin address. In the screenshot <<eclair-receive>>, we have purposely blurred both, to prevent readers from inadvertently sending bitcoin to this address.
[NOTE]
====
Both Bitcoin addresses and QR codes contain error detection information that prevents any typing or scanning errors from producing a "wrong" Bitcoin address. If there is a mistake in the address, any Bitcoin wallet will notice the error and refuse to accept the Bitcoin Address as valid.
Both Bitcoin addresses and QR codes contain error detection information that prevents any typing or scanning errors from producing a "wrong" Bitcoin address. If there is a mistake in the address, any Bitcoin wallet will notice the error and refuse to accept the Bitcoin address as valid.
====
Alice can take her mobile device to the ATM and show it to the built-in camera, as shown in <<bitcoin-atm-receive>>. After inserting some cash into the slot, she will receive bitcoin in Eclair!
@ -293,18 +293,18 @@ The number of "confirmations" on a transaction is the number of blocks mined sin
While in this example Alice used an ATM to acquire her first bitcoin, the same basic concepts would apply even if she used one of the other methods in <<acquiring-bitcoin>>. For example, if Alice wanted to sell a product or provide a professional service in exchange for bitcoin, her customers could scan the Bitcoin Address with their wallets and pay her in bitcoin.
While in this example Alice used an ATM to acquire her first bitcoin, the same basic concepts would apply even if she used one of the other methods in <<acquiring-bitcoin>>. For example, if Alice wanted to sell a product or provide a professional service in exchange for bitcoin, her customers could scan the Bitcoin address with their wallets and pay her in bitcoin.
Similarly, if she billed a client for a service offered over the Internet, Alice could send an email or instant message with the Bitcoin Address or the QR code to her client, and they could paste or scan the information into a Bitcoin wallet to pay her.
Similarly, if she billed a client for a service offered over the Internet, Alice could send an email or instant message with the Bitcoin address or the QR code to her client, and they could paste or scan the information into a Bitcoin wallet to pay her.
Alice could even print the QR code and affix it to a sign and display it publicly to receive tips. For example, she could have a QR code affixed to her guitar and receive tips while performing on the street!
footnote:[It is generally not advisable to reuse the same Bitcoin address for multiple payments as all Bitcoin transactions are public.
A nosy person passing by could scan Alice's QR code and see how many tips Alice has already received to this address on the Bitcoin blockchain.
Fortunately, the Lightning Network offers more private solutions to this, discussed later in the book!]
Finally, if Alice bought bitcoin from a cryptocurrency exchange, she could (and should) "withdraw" the bitcoin by pasting her Bitcoin Address into the exchange website. The exchange will then send the bitcoin to her address directly.
Finally, if Alice bought bitcoin from a cryptocurrency exchange, she could (and should) "withdraw" the bitcoin by pasting her Bitcoin address into the exchange website. The exchange will then send the bitcoin to her address directly.
=== From Bitcoin to Lightning Network
=== From Bitcoin to Lightning network
Alice's bitcoin is now controlled by her Eclair wallet and has been recorded on the Bitcoin blockchain. At this point, Alice's bitcoin is "on-chain," meaning that the transaction has been broadcast to the entire Bitcoin network, verified by all Bitcoin nodes, and "mined" (recorded) onto the Bitcoin blockchain.
@ -312,7 +312,7 @@ So far, the Eclair Mobile wallet has behaved only as a Bitcoin wallet, and Alice
Now, Alice is ready to start using the Lightning Network by taking her bitcoin "off-chain" in order to take advantage of the fast, cheap, and private payments that the Lightning Network offers.
==== Lightning Network Channels
==== Lightning Network channels
Swiping right, Alice accesses the "LIGHTNING CHANNELS" section of Eclair. Here she can manage the channels that will connect her wallet to the Lightning Network.
@ -324,10 +324,10 @@ Furthermore, Alice's channel peer can _forward_ payments via other channels furt
[TIP]
====
Not all channel peers are _good_ peers for routing payments. Well-connected peers will be able to route payments over shorter paths to the destination, increasing the chance of success. Channel peers with ample funds in their other channels will be able to route larger payments.
Not all channel peers are _good_ peers for routing payments. Well-connected peers will be able to route payments over shorter paths to the destination, increasing the chance of success. Channel peers with ample funds will be able to route larger payments.
====
In other words: Alice needs one or more channels that connects her to one or more other nodes on the Lightning Network. She doesn't need a channel to connect her wallet directly to Bob's Cafe in order to send Bob a payment, though she can choose to open a direct channel too. Any node in the Lightning Network can be used for Alice's first channel. The more well-connected a node is the more people Alice can reach. In this example, since we want to also demonstrate payment routing, we won't have Alice open a channel directly to Bob's wallet. Instead, we will have Alice open a channel to a well-connected node and then later use that node to forward her payment, routing it through any other nodes as necessary to reach Bob.
In other words, Alice needs one or more channels that connects her to one or more other nodes on the Lightning Network. She doesn't need a channel to connect her wallet directly to Bob's Cafe in order to send Bob a payment, though she can choose to open a direct channel, too. Any node in the Lightning Network can be used for Alice's first channel. The more well-connected a node is the more people Alice can reach. In this example, since we want to also demonstrate payment routing, we won't have Alice open a channel directly to Bob's wallet. Instead, we will have Alice open a channel to a well-connected node and then later use that node to forward her payment, routing it through any other nodes as necessary to reach Bob.
At first, there are no open channels, so as we see in <<eclair-channels>>, the "LIGHTNING CHANNELS" tab displays an empty list. If you notice, on the bottom right corner, there is a plus symbol (+), which is a button to open a new channel.
@ -360,7 +360,7 @@ Choosing the ACINQ node will slightly reduce Alice's privacy, as it will give AC
Alice selects "ACINQ Node" and is ready to open her first channel on the Lightning network.
==== Opening a Lightning Channel
==== Opening a Lightning channel
When Alice selects a node to open a new channel, she is asked to select how much bitcoin she wants to allocate to this channel. In subsequent chapters, we will discuss the implications of these choices, but for now, Alice will allocate almost all her funds to the channel. Since she will have to pay transaction fees to open the channel, she will select an amount slightly less than her total balance footnote:[The Eclair wallet doesn't offer an option to automatically calculate the necessary fees and allocate the maximum amount of funds to a channel, so Alice has to calculate this herself.]
@ -389,7 +389,7 @@ image::images/eclair-channel-open.png["Channel is Open"]
Did you notice that the channel amount seems to have changed? It hasn't: the channel contains 0.018 BTC, but in the time between screenshots the BTC exchange rate changed, so the USD value is different. You can choose to show balances in BTC or USD, but keep in mind that USD values are calculated in real-time and will change!
====
=== Buying a Cup of Coffee using LN
=== Buying a cup of coffee using LN
Alice now has everything ready to start using the Lightning Network. As you can see, it took a bit of work and a bit of time waiting for confirmations. However, now subsequent actions are fast and easy. The Lightning Network enables payments without having to wait for confirmations, as funds get settled in seconds.
@ -411,7 +411,7 @@ On the counter at Bob's Cafe, there is a tablet device showing <<bob-cafe-posapp
Alice selects the "Cafe Latte" option from the screen and is presented with a _Lightning Invoice_ (also known as a "payment request") as shown in <<bob-cafe-invoice>>
Andreas M. Antonopoulos
3 years ago
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