Bitcoin allows you to become your own bank, you custody your funds, you are the only one that can proof ownership, and you’re the only one that can move the funds. It’s a revolutionary way to manage your wealth, and we’re still getting to grips with it.
While the bitcoin base-chain lays the foundation for verifying the supply and holding your wealth with no counterparty risk, you can take your self-banking experience to new levels, but it comes with additional complexity. Now that we have additional feature sets in second-layer protocols, like Lightning, any user running a bitcoin full node can add Lightning support and use their bitcoin in this new environment.
Moving bitcoin into the Lightning Network brings you enhanced settlement and far cheaper transactions as you conduct your transfers off-chain, but these benefits are not without a series of tradeoffs and operational requirements.
Using Lightning today, you’re on the leading edge of future financial infrastructure and because of that, there will be pain points and teething issues. If you have used non-custodial LIghtning, you’ll quickly discover that liquidity management and channel management can be a bit of a nightmare.
- The objective of liquidity management is to ensure that a node has enough capacity to send and receive funds.
- Channel management concerns the opening and closing of channels to ensure that a node is sufficiently connected to the network and its capital is efficiently allocated.
Depending on how you manage your Lightning node, you might want to churn channels, submarine swap with channels or use a liquidity service provider. So how am I meant to decide which opinion is best for me, when is the best time to seek liquidity or rebalance my channel? How do I run a profitable Lightning node or at least one that doesn’t cost me more than I use?
These are all questions you’ll need to ask yourself once you start managing channels. You can look to the community of routing node runners for advice, but the truth is we’re all figuring this out together, there is no right answer, but there are tools that can help you.
What is Faraday?
If you’re running the LND instance of Lightning then you can learn on Lightning Labs and their Faraday suite which provides an automated accounting feature to make bookkeeping easier for node operators and Lightning Network service providers (LSPs). Faraday is a suite of tools built to help node operators and businesses and decrease the operational overhead of running a Lightning Node.
It primarily helps users understand how capital is flowing through their node, which is useful to help identify underperforming or drained channels and where to deploy capital most efficiently. The current features in the Faraday suite provide insight into node channel performance and support for accounting with both on-chain and off-chain reports for LND.
Faraday can help you manage your node by providing you with valuable analytics and insights from your LND node in an easy-to-understand format.
Lightning meets accounting
The Faraday suite this week to bake in accounting tools for both Lightning and on-chain transactions. As LND’s tech stack has increased to include advanced features like Lightning Loop, the accounting burden for businesses running Lightning services has likewise become more cumbersome.
A simplistic update, the new Faraday accounting feature will automate what was formerly a manual process. A welcomed tool for LSPs that have to wrestle with hundreds of Lightning channels swimming with several thousand dollars worth of liquidity.
All the data collected by the automated accounting tool can also be imported into Google Sheets or Microsoft Excel if you really want to get down and crunch the numbers.
How does Faraday work?
The Faraday tool will scan node operations and, based on certain data points, will provide you with recommendations for closing channels that are not performing. Faraday will also expose more information about your node’s routing behaviour and give you more insight into how a high-performance Lightning node should operate.
Faraday will look at various issues, such as:
- Uncertain peer behaviour
- Review and close Low Volume channels
- Assisting in Effective Liquidity Management
- Peer uptime
- Changes to fee policies
- Channel churn vs channel cleanup
- Revenue and volume report
A node in a box
To encourage more people to use Lightning and provide more liquidity and routing options for single and multi-path payments, the infrastructure needs to allow less technically efficient people to use Lightning. Managing a routing node isn’t easy, which puts a lot of people off running the service, and when you consider the fact that you need to be online at all times, that just adds additional responsibility many might not find appealing.
If node operation can become largely automated, with node management tools conveniently packaged with your node, it might encourage more users to open up channels and run them on autopilot. A blissful future is one where your Lightning node “just works” out of the box, and the burden of daily operations does not lie on individual node operators.
The average user can then use Lightning without too much effort, while the more actively managed nodes would continue to provide the bulk of the support and net more fees as they respond to the changing needs of liquidity on the network.
A network of “passive” and “active” Lightning nodes might be how the network scales going forward.
Get the app
There you have it, another tool you can use to improve your Lightning experience and make your life a little easier and have fun with the Lightning network. If you’re new to the Lightning Network and you’re only getting started with your Lightning wallet or Lightning node and all the things you can and should do, it can be overwhelming but take your time to learn more about each app and why you would want it added to your bitcoin stack.
Applications like Faraday should be one of the first on your list to explore because it impacts not only how efficient your non-custodial Lightning experience will be but also the hit you take on your pocket when managing your channels.
Finally, It’s important to note that Faraday requires LND to be built with all of its sub-servers and requires running at least v0.11.1. Download the official release binary or see the instructions in the LND repo for more detailed installation instructions.
If you choose to build LND from source, follow the command to enable all the relevant sub-servers:
If you want to learn more about Lightning Loop and dive down the rabbit hole, we recommend checking out the following resources.
Are you a bitcoin and lightning fan?
Have you been using Lightning to make micro-payments? Stream sats or engage with apps? Which app is your favourite? Have you tried all the forms of Lightning payments? Which one do you prefer? Let us know in the comments down below.