I listened to an interesting podcast recently. The interview guest was Danny Diekroeger. His day job is running the Lightning node for Cash App which is something of a big deal.
This links to him talking about his Lightning node operator journey: https://curiocaster.com/podcast/pi4431579/9771111713#t=3683,5479
Like many Lightning fans, he's very deep down the rabbit hole of how to make money routing other people's payments. The big issue on Lightning, however, is not routing, it's finding a use for the service!
He recently posted on Stacker News for the first time with a post entitled "how to be a profitable lightning routing node while adding value to the network"
I think it's worth sharing my perspective here on Hive, even though it was targeted at Lightning people.
My perspective: find utility don't just shuffle sats!
Here's a perspective routing node operators should think about: what are the USES of Lightning and how do I help THOSE? Try to look through the eyes of others.
I serve customers, I let people swap between Lightning and Hive, I don't give a shit about your views on Hive, if this site had it I'd have a block on anyone who said shitcoin to me but hey, I can and will just ignore you.
Here's how I operate: Hive comes in with a lightning invoice, I pay the invoice subtract my fee (200 sats + 0.8% of the value + routing fees) and I return a small amount of change to my Hive user. I also receive Lightning with a properly formatted message and then send Hive to the Hive user, same fees. I also receive streaming podcast payments and boosts and pass those on to Hive users.
I want to pay all the invoices and never see failures and I want it easy for incoming payments to come in. My service operates up to 300,000 sats per payment because that's what I want right now.
I look at the routing fees (which I pass on to Hive users) and I try to look where I'm sending funds to. That's why I have as direct as possible paths to Wallet of Satoshi, Muun, Bitrefill and GetAlby. I have a nice channel with ZeroFeeRouting and I've also opened one with Danny now as well because I was too dependent on ZFR and he was down for an afternoon.
I don't want to probe or guess or look for routes. If I see payments going through a high fee node repeatedly for my use case I will open a channel to route around that.
As much as this routing thing works, the vast majority of real use cases (i.e. not routing) are on big centralised wallets (or hybrids like Muun which does have a central node) and I can route direct. I would encourage anyone who actually tries to use Lightning as a value transfer system, to carefully avoid long routing paths and link to your repeat partners as often as you can.
BTW this is why I love ZFR. He's my path out to the bits I haven't managed to snag a direct path to and the inbound channel I can generally rely on.
Also I largely squash and avoid all routing on my main node by setting very high fees but I'm starting to learn that when I've pushed a whole load of sats out to Muun, if I carefully set fees on ZFR and Wallet of Satoshi I can balance things back. This is horribly manual and I make mistakes, but I don't see this changing any time soon.
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Thanks for the Tipp, @brianoflondon! Have downloaded the Episode of Kevin Rooke you mentioned and will tune in. (Of course via Fountain)
Sounds very interesting. 👍🏻
He also talks about using his reputation to run a service which isn't completely trustless i.e. you rely on and trust him.
This is a similar model to what I'm doing. The question I asked on Twitter (for which nobody has a good response) is what happens when you lose your Twitter account or you get deleted. Where is your public reputation.
This is a huge deal and something we've solved here on Hive.
Definitely! We just have to make more and the right people aware of that. 👍🏻
Thank you for all the interesting information. The lightning service is so useful !
No idea what you are talking about in terms of technical aspect of the post, but still think its value adding so keep it up man.
Yes wallets and exchanges are going to be the biggest routing nodes but I think that even though that won’t change it gets diluted as running a node becomes cheaper in terms of parts or doing on cloud like the green light model I’m just not sure how things will change with on chain fees, perhaps payjoins will help with cheaper channel creation or channel factories
I think a node shouldn’t be anyones business model but part of your income stream
Let’s do a simple example a coffee shop they can cut out that middle man and run their own node directly if they choose and route their own payments
And if they do have spare liquidity they can use it in lightning pool or magma to earn a yield when that liquidity is not required for daily operations.
If you’re just going to sit and yield farm LN right now you gotta have large bags and be crazily active on your channel management
Wallets and Exchanges will not be routing nodes. As Danny makes clear on the podcast they don't want to route payments and they're frankly worried about the regulatory framework around anonymous money transmission.
I don't think running a node is legal in the USA. It's just a matter of whether there is any appetite to prosecute. But if they want you for anything, running a routing node might be what they use to get the search warrants.
And there won't be regulatory arbitrage? what would the case be on hosting your node in another country, how do they define where the capital is sitting locale-wise?
If they do come down hard there not just be KYC routes and non-kyc routes? How do you account for private channels?
For a routing node in the middle of a path there is no real way to know the source and destination of a payment. One can make educated guesses at best. For example I have a fairly active channel to PodcastIndex and another to the GetAlby wallet. I forward quite a few transactions for boosting podcasts. I can tell by the size and frequency and when they occur.
Beyond that, pure routing is money transmission from one anonymous place to another for a fee. It perfectly fits the definition of what sent Charlie Shrem to prison. "Shrem officially pleaded guilty in September 2014 to aiding and abetting an unlicensed money transmitting business."
One could easily see that the entire network is unlicensed money transmitting business. I can absolutely see why Cash App want no part in forwarding transactions.
Private channels is probably the wrong name for them. They should be called un-announced channels.
For example I have a few private channels. I can send OUT on those channels but unless I send an invoice to someone who is paying directly from one of those private channels, nothing will come in via the private channels.
The exception is that I can explicitly mention my private channels in my invoices (which I actually do). This actually makes the QR codes I generate for Lightning Addresses on Hive a little more complicated than they would otherwise be. I may dump my private channels at some point. Right now I control routing with fees.
Yes I can see how from a legal sense you're providing liquidity for illicit transactions, I always wondered how blacklisted UTXOs would be handled too, because you could use it to open a channel and use your tainted bitcoin
Thanks for all the insights, I appreciate it, I am still learning how to use my node and all the issues around it and always want to know possible attack vectors, ill have to think this one over for a while and give that poddy a listen
Great food for thought
Your contributions towards making lightning more easier and useful is awesome and thanks for sharing I really appreciate every part of it.
as always great work!
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