- A key developer on the bitcoin lightning network makes $4,500 a month just from running a node on the system.
- And in just 10 weeks, Erin Malone had setup profitable node in addition to her full-time job.
- Insider breaks down their top tips on running nodes on the network from a recent panel.
El Salvador hit headlinesin June when it announced it would make bitcoin legal tender.
This decision followed a social experiment in 2019 called "bitcoin beach" where certain towns adopted bitcoin as a means of payment and transactions were powered by the lightning network.
Bitcoin has exploded in popularity among investors But the time consuming proof-of-work validation system and the volatility of prices make it challenging to use for everyday payments.
The lightning network aims to fix this. It's essentially a second layer on top of the bitcoin network that speeds up micro payments between users who set up channels to enable payments directly to one another. In some cases, parties might not have direct access to the channel they want to use. S0 the network will then find the shortest route using nodes.
A node is effectively a piece of software that helps process payments between channels and earns a small amount of bitcoin in return.
Lightning Labs infrastructure lead Alex Bosworth reported in February 2019 that a single lightning node could route $10,000 worth of transactions per month and receive a fee of 0.25%, or $25.
So can lightning nodes be profitable?
On a Twitter Spaces event on August 3, Bosworth talked about how much he's making from running lightning nodes.
"I make maybe $4,500 a month on routing fees," said Bosworth, who is infrastructure lead for Lighting Labs
For the most part, however, node operators are not playing for huge stakes, he said.
"If routing dries up tomorrow, you're not going to cry about it," Bosworth said.
Mostly, it's about trying to collect satoshis (sats), which are the smallest unit of bitcoin, equal to one hundred millionth of a single coin (0.00000001 BTC).
Another panelist, Erin Malone, recently went viral on Twitter after discussing how she launched a profitable node in 10 ten weeks. She maintains a clear focus on the maintenance and analysis of node operations.
—Erin Malone (@ErinEMalone) July 18, 2021
Jason Don, creative director at Swan Bitcoin, described his approach as "lazy" at the event, but said he's still able to make on average 40 to 60 sats a day.
"That's just from being well connected and doing the bare minimum," Don said."If someone's just jumping in, and they want to give it a try, it's not that scary."
However, it's important to set up a node with the goal of learning about supporting the network, rather than on profitability because it's tricky, said Michael Levin, panel host and product growth lead at Lightning.
How to get started?
Technology investor Kevin Rooke recently walked through how he got started with lightning nodes on the "Pomp Podcast" with Anthony Pompliano on August 8.
"For 100, or 200 bucks, you can get a lightning node, then you have a wallet, and all of a sudden, you can move funds from the bitcoin basechain to lightning, and you can start routing payments right away," Rooke said.
Tips for profitability
"The part that really makes it fun is that your decisions impact your success," Bosworth said. "It's like you're playing a board game, you'll place your limited capital in certain areas and then if you make the right decision with that capital, if you move your coins where they should be, you're going to get some sats in return."
Setting up and managing a node isn't for the faint-hearted. The network is constantly evolving and there's no passive income stream.
"It's like that Tamagotchi pet, it really requires constant caring and feeding it, especially in the beginning part when you are setting up the node," KP Shukla, another panelist, said.
Shukla recommends being mindful about spending sats and rebalancing, as a lot of the fees associated with nodes can add up over time.
Don says his early strategy was to analyze how people were using the network and how to support that. He connected to some of the larger nodes to try to better facilitate those routes.
Shukla said opening a channel to a node was a long-term investment, rather like stock-picking.
Two tools he recommends for selecting and analyzing nodes and channels are LNnodeinsight.com and lndpytools on Github, which is a collection of python scripts for node management.
Malone also recommends Bosworth's BOS tool, which lets operators view all the routes that currently connect to a channel and see if there is a better alternative.
