Introduction

Few days ago I was talking with one of my "padawans" about how he is using his LN wallets. And I discovered a mistake he's doing: using his LN wallets as holding wallets not as spending wallets (as I told him to do).
LN liquidity is a very delicate subject that many new BTC LN users still do not grasp it entirely. And here is a very good guide about LN liquidity by Bitcoin Design team that I want you all to read and bookmark it.
So I will write here what I've explained (again) to him, so other new users will do it right and understand better how this LN liquidity works.
We are talking here ONLY about private LN nodes / channels using well known apps like: Zeus, Blixt, Electrum, Breez, Phoenix, Green, Bitkit, Alby Hub. Those were the user is opening private channels and manage them. We are NOT talking about PUBLIC routing nodes, those are another story.

Basic recommendations

First thing first and you should always remember this: the rule of 3 levels stash
  • onchain (cold) wallets are for holding long term
  • cache wallets (onchain and LN) are for coin control, managing liquidity, nodes etc.
  • LN wallets are for SPENDING. LN is THE payment network for Bitcoin network (onchain).
In other words, put in your LN wallets enough sats just for your regular spending.

Small analogy

Think about a LN channel as a "credit line" with your local bar. You put an amount of money in a box (LN channel), that both of you have control, but is deducted from it ONLY when you consume some beers in the bar. So you will open that channel only when you know for sure you will go in the next days to consume some beers.
The box content cannot be taken, only if both of you put a key to open it. Inside each of you will find his own balance, if you decide to open the box and take your part. That is the "closing channel" operation.
In any moment each of you will know the balance of the box (channel).
But think about this situation: you were the one depositing first an amount of sats as a "credit line" into that bar. But in time the sats are changing the owner. For you, as a consumer is not a problem, you can refill it anytime with more sats. Also the bar owner can move sats from that box, when are too many on his side, into another box (channel) or outside (onchain) using a swap. But can do that ONLY when you are refilling that channel with more sats (also from a swap).
The tricky part comes when you, the consumer, already consumed let's say 90% of that channel and forget about it, months and months. That is a problem for the bar owner... because now he have some funds stuck in a channel that is NOT moving, is not creating any business flow for him that generate revenue. So will be forced to close that channel and redeem his sats and returning you the remaining sats.
In other words, if you do not have a constant movement of funds with that channel, and most of the funds are on THEIR side, you put a lot of pressure on their liquidity. As business they cannot use these sats to buy more merchandise and stock, until they close the channel and redistribute the capital.
Read here also one of my old posts explaining LN with another analogy: #552822

What you should do as a regular LN private user (not public router)

I would recommend these general steps:
  • Use several LN wallets, not just one, spreading your liquidity on few channels, I would say 2-3 channels per wallet/node. No need for more.
  • Do not open tiny channels like 10k-20k-50k-100k. Open like min 500k-1M-2M per channel. Depends also of your spending habits, if you have large amounts moving or small amounts. Think in how much a channel can handle a payment of yours, in and out.
  • Try to have each LN wallet for a specific spending habit (one for zaps, tips,small donations, one for buying beers, groceries, one for buying sats from exchanges, one for swaps etc as you desire).
  • Always move around funds from those channels ! Do not keep them with more than 50% of the balance on the peer side.
  • If you know that will not use a depleted channel anymore, but you hope that someday (you don't know when) you will use it to receive more sats, better just close it and buy an inbound channel on the fly from many other LSP that are already offering on the fly inbound channels. If you already bought such "inbound channel" and you have a contract for 6 months or 1 year with the LSP, you better use it in this period.
  • If you do not have enough spending in a certain period of time, just move around funds between your own LN wallets. Yes, I know this have a cost in fees. But if you want to keep your channels alive, you must move funds. Otherwise you will get closed.
  • If you are just stacking slowly and you do not have enough sats to move to a cold onchain wallet, read the following guide here.

FINAL REMINDER

LN CHANNELS (private) are not for long term stacking, are for SPENDING. More stas flowing = generate more fees, routing nodes are happy and keep providing good routes = LN is flourishing and create slowly a Bitcoin Circular Economy
121 sats \ 1 reply \ @drlh 10 Sep
You moved from substack to github page for the new content?
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Is a backup repository, open to anybody and to translators. Anybody that want to translate can submit PRs to https://github.com/Darth-Coin/darth-coin.github.io
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Great guide Darth,
How would you recommend keeping track of balances and how much earned vs spent across the wallets. I'm a little iffy on Clams, but bullish on NWC budgeting.
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If you are using multiple wallets/accounts and use NWC, I would suggest to start testing Lightning.pub + Shockwallet by @justin_shocknet. You could have all in one interface. Is still in early phase, but is promising app.
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Thank you sir. I'm gonna follow your advice as it is.
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21 sats \ 7 replies \ @Cje95 10 Sep
I understand not opening up small channels but with SN's limit of 100k sats do you just let your balance here climb 5x before you move your balance?
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SN is not a wallet...
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21 sats \ 5 replies \ @Cje95 10 Sep
Your right but SN calls their sat thing one.
Your wallet is over the current limit (100k sats)
so I am asking what you do in this situation as to move it to Alby would require you to open a channel?
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SN are just cowboy credits...
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deleted by author
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21 sats \ 2 replies \ @Cje95 10 Sep
So you would open up a 100k channel is what I am trying to hash out since Darth is against such small ones and I am trying to get a feel of the room
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I think your gov agent brain cannot comprehend the cost of opening small channels, you are used to use others money. In bitcoin is not like that: everything has a cost. If you open a small LN channel you are the one paying more not others. Read https://darth-coin.github.io/beginner/getting-started-stack-sats-en.html
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31 sats \ 0 replies \ @Cje95 10 Sep
Lmao love how ya edited what you said once you realized it was me since you sure as shit didn't have that first half there lmaoooo
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Thanks! This is surely gonna help! One of my friends has been holding in LN wallets and finally I'm when I share this article with him, he's gonna change his mind.
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I can only show him the door...
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Thanks! šŸ™ If he doesn't accept it then šŸ¤£
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Thank you master šŸ™šŸ¤– each guide I read from you, I feel that it is a further complement to the course I take with you indirectly by studying your guides
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Awesome guide Darth.
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In terms of inbound/outbound liquidity, what do you mean when you say ā€œconsumed 90% of the channelā€?
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These are your channels... what do you see?
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I was thinking you were referring to a situation thatā€™s depicted by the last yellow row where it looks consumed (i.e. thereā€™s close to no inbound liquidity).
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That channel is with all liquidity on your side. This situation is not affecting too much your peer. The blue channel on top instead, is not favorable for the peer, if is a LSP or the bar owner. In most of the cases they will close that channel.
Balance is the key...
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Ok so I had it backwards then. Itā€™s bad when all the liquidity is on the peerā€™s side (i.e. I have low spending capacity). Is that right?
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Yes, is bad in the sense that you can get the channel closed, but if the peer agree to keep that liquidity on his side for longer time, is nothing bad, instead is good for you that you have more inbound liquidity available.
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Good to know. My channel with OLYMPUS has been this way for a while. Guess Iā€™m a bad peer. šŸ˜„
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Thanks for the guidance
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I always re-read the guides whenever I can and always learn something. Thanks Darth for always reminding me of those topics.
And here is a very good guide on LN liquidity from the Bitcoin Design team. Excellent explanation of Router, Merchant and Client. Great graphics of the Lightning network.
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How viable is Green with LN right now? About a year ago I ran into problems and my funds got stuck when closing the channel. And I decided to close the channel because I couldn't make a payment through LN.
How is it now? Is it possible to comfortably use and move for example from Phoenix? Or is it not worth it yet?
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More or less the same situation. You are better with Phoenix. Why moving from it? Use at least 2-3 LN wallets.
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I would like to reduce the number of wallets)
Green is more convenient for my tasks, so I'm waiting for the full-fledged implementation of LN
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I would like to reduce the number of wallets)
Wrong. Please read this: #583496
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stackers have outlawed this. turn on wild west mode in your /settings to see outlawed content.