Getting a Lightning Network routing node going is daunting. Various challenging questions must be answered such as, “How many channels should I open?”, “How much capital do I need?”, and “How do I get inbound liquidity?”, to name a few. A lot of node strategies revolve around getting started as fast as possible. Some want to deploy capital, open channels, buy inbound liquidity, or do some other method where they are immediately in the negative due to paying for fees, channels, or submarine swaps. However, there is a way to build out a high reputation routing node without having to succumb to the value tradeoffs.
This is the Low Time preference Lightning Routing node strategy. The ultimate goal of this strategy is to have a well-connected routing node without having to do fancy, expensive, and time-consuming liquidity management. This strategy can be used not only with your Voltage node, but with any node hardware/software including Umbrel, MyNode, or custom. The tradeoff you will make by choosing this strategy is that your node will not be a high-value node in the first few weeks like with normal routing node bootstrap strategies. Instead, it focuses on utility, low-cost to ourselves, and quality.
What is a high-value node? A high-value node is a node that is competitive in the market of capital allocation. The higher your value, the more likely it is to get favorable liquidity from another node on the network without solicitation. Factors that contribute to a high-value node include uptime, connectivity/centrality, capacity, and number of channels.
This guide will cover several phases:
Phase 1: Get your Node online.
Phase 2: Open channels to well-connected routing nodes.
Phase 3: Use your node. Donate, buy gift cards, pay your bills, and buy physical visa gift cards using your node. By spending your sats on things you would buy anyway, your channels will shift from outbound to inbound, and your node will start routing payments and earning routing fees.
Phase 4: When your node’s total outbound and inbound are about a 50:50 ratio, you will be able to get paid for opening channels using channel marketplace Magma in conjunction with your normal routing fees.
Let’s get started!
Phase 1: Install and gain access to your new Lightning Node.
For the purpose of this guide, we will be mostly referring to the LND implementation, but the strategies can be used on CLN as well. We recommend using Thunderhub for your node’s management. You can access this directly on Voltage, MyNode, Umbrel, etc. Or if you are using a custom build, you can install it manually. For the how-to on opening your first channels, see the multi-part Thunderhub guide here.
Phase 2: Open channels
Because this is the low-time preference node, you do not have to deploy a lot of capital at the start. Determine how much bitcoin you are willing to spend for a time frame, such as a month, and then open channels based on that size. The basic strategy for this is to use Lightning Terminal to find a node that has the six green checkmarks, and a centrality of 70 or higher.
Example:
After you have identified a node with these features, go to Amboss and make sure that their average channel size is appropriate for the capacity you wish to open, and that their fee rates are reasonable. The higher their fees, the less likely they will route traffic for you in the future. Keep an eye on that.
Once you get the hang of it, this process should not take more than a few minutes. Since this is meant to be a simple strategy, I would just make sure they don’t have an average fee rate higher than 500. Feel free to do more research based on your own preferences at your discretion.
Once you have identified a peer that looks good for you, you may initiate the channel open.
As we spend out of our channels, the liquidity will shift from outbound to inbound, and our node will begin to route payments for the network. You can monitor this activity in the Forwards area of your Thunderhub dashboard.
Phase 3: Spend some sats to get inbound liquidity
A few spots to spend sats: Use The Bitcoin Company for gift cards and also physical visa gift cards, and paywithmoon for virtual visa gift cards. There are other places but these three will cover the vast majority of your needs.
Over time, your channels will gradually shift towards the inbound side as you spend. This inbound is very valuable and we will be monetizing it through the Amboss Magma marketplace.
Note: If your payments are failing, you may need to open more channels to gain a wider connection to the network. This is normal. You can open one channel, and if the payment fails, it doesn’t mean the channel is bad, it just means it cannot route your payment to the final destination. This is why it is recommended to over time, have over 10 or even 20 or more channels. This can be a long-term goal.
Phase 4: Sell channels and repeat.
Over time, the node will gain channels, and they will drain from spending, and then if I can open channels through Magma, my node’s total channels will grow, and my spot on the network will grow as well. This is the magic of the low-time preference strategy. By the end, you will be earning sats on routing fees, and from channel sales on Magma. After opening a channel that was purchased from you on Magma, you can still earn a fee on top of that channel (just make sure you do not go above the fee you promised as part of the Magma order)! If you would like to get a thorough overview of Magma, there is a great tutorial video here.
If no one is buying your channels, you may need to lower the fee you are charging for the channel, or build out your node more. Usually bigger nodes have an easier time selling channels but there is no penalty to trying to sell channels as a smaller node. Thankfully, if you just keep up the process of opening new channels, spending, etc. you will eventually have a node completely packed full of inbound liquidity.
The people who go to Magma to buy channels are looking for a few things:
- Well connectedness: What is your node centrality and how many channels do you have? Generally, you will get the most out of having a node with at least 40,000,000 sats capacity and 20+ channels. This can be a long-term goal. Have low time preference, you will get there.
- Low-ish fee rates when the channel is open. On Magma you promise not to have your routing fee above a certain amount at the time of order. If you increase this fee during the time of the contract, Magma will alert you via telegram and may ding your reputation.
- History. It may be wise to charge lower costs for the channel at the beginning so you can begin building your reputation. Over time, that reputation may command a premium and people may be willing to pay higher fees to buy a channel from you.
Example of the full cycle:
Step 1 – Open: Opened 5 channels of 2,000,000 sats each to various high-quality peers.
Step 2 – Spend on: Bitrefill, The Bitcoin Company, Paywithmoon, etc.
Step 3 – Liquidity Movement: Over time, instead of having a total of 10,000,000 sats of outbound on my node, the liquidity will move over to the inbound side due to spending, and I will begin routing payments for others. I will earn routing fees from these forwarded payments.
Step 4 – Capitalize Further with Magma, Lightning Pool, or Liquidity Ads. When your node has near a 50:50 ratio of outbound : inbound, it is time to stop opening channels randomly and start opening channels to peers who are willing to pay you for the channel.
Alright, there you have it. You can start a Lightning Node and build it up over time to be not only well connected and contribute to the growth of the network, but your node will actually earn sats in the long run through routing fees and being paid to open channels to others. Anyone can do this. The first step is always the hardest, but running a Lightning node doesn’t have to be a headache. It can actually be a lot of fun.
As always, stay up to date with Voltage at https://voltage.cloud and if you have any questions please join our Discord server. Thanks for reading.
