- The Lightning Network is made up of a system of channels that allows people or companies to move money between each other without the need to use the Bitcoin blockchain to verify the transaction.
- Lightning Network is in charge of a network of nodes that are in charge of processing payments.
- A node is part of the infrastructure of a blockchain and records every transaction on the network and is what makes the blockchain transparent, immutable and decentralized.
The search for means through which passive income can be generated has become a hobby or a necessity for many. Many people dream of the day they can retire quietly and live off their savings, but how is that possible?
Years ago it was possible to save for a quiet retirement from the ordinary salary of working in a large company. However, today the context is very different and, with inflation, savings lose value every day.
So, it is here that the generation of passive income acquires its own relevance, that is, income that is obtained in a way that requires little or no daily effort to obtain it.. Passive income can become your main source of income in situations of crisis and complexity.
The thing with this type of income is that you usually have to be willing to spend a little time in the present in order to set up a stream of passive income and start making money from it in the future. In fact, this would be precisely what anyone who reads this guide or others made by Bitcoin Mexico on how to generate passive income would be doing.
In particular, this guide focuses on how to generate income using a Lightning node and evaluate its profitability. However, in order to understand what a Lightning node is, it is first necessary to explain what the Lightning Network is and how it relates to Bitcoin.
What is the Lightning Network?
The Lightning Network is an off-chain or off-chain solution. Layer 2 since it involves activity that does not occur directly on the main blockchain. In other words, it is a secondary blockchain that works in parallel to the main blockchain with the aim of solving, to a certain extent, the scalability problems that the network presents.
In particular, the Lightning Network is a layer 2 solution for Bitcoin, which was born to solve the scalability problems that the network of the leading cryptocurrency has.
Basically, as Bitcoin has become more popular, the blockchain has experienced slower transaction speeds and higher transaction costs. These issues became apparent in late 2017 when millions of people started investing in Bitcoin.
In fact, at the all-time high BTC reached in December 2017, the average cost for a transaction on the blockchain, whether it was $1 or $2,000 US, was $37.
The Lightning Network is made up of a system of channels that allows people or companies to move money between them without the need to use the Bitcoin blockchain to verify the transaction and to do so, Lightning Network is in charge of a network of nodes that are in charge of processing payments.
This is where so-called ‘nodes’ come in which are managed by ordinary people or corporations, keeping the Lightning Network decentralized.
What is a Lightning node?
A node is part of the infrastructure of a blockchain since the blocks of data that compose it are stored in them and, therefore, it records each transaction in the network and is what makes the blockchain transparent, immutable and decentralized.. Essentially a node is software that connects to the blockchain and exchanges the latest data with each other.
There are different types of nodes in each blockchain network. However, in the case of Bitcoin, the key nodes are the complete and light ones:
- A full node is in charge of keeping a copy of each transaction that occurs on the network, verifying the transactions, accepting new blocks, and transmitting the new transaction to other nodes.
- A light node does not store all the information of a blockchain, only a part of it.
In addition to these two types of nodes, there is another fundamentally important one that is specialized nodes. ANDthese too They are known as miners as they solve math puzzles and add transactions to a block to earn transactions. In fact, this is an important difference from full nodes since full nodes do not collect block rewards.
In this way, a lightning node is linked to the main network and has two key responsibilities:
- Monitor the underlying blockchain (Bitcoin)
- Interact with other Lightning nodes to perform transactions.
A Lightning node are not mining nodes and thus do not mine Bitcoin, yet they are vital to validating Bitcoin blocks.
The biggest difference between these two types of nodes is how transaction verification takes place. A Bitcoin node needs to verify every single transaction running on the network, while a Lightning node only needs to verify the validity of the transactions it is interacting with.
For example, a Bitcoin node must verify every transaction that occurs on the Bitcoin network anywhere in the world. While a Lightning node focuses exclusively on a part of the transactions that are executed.
Why have a node?
There are several reasons why a person might want to maintain a node, be it Bitcoin or Lightning. Here some of them:
- As previously mentioned, the nodes contribute to the decentralization of the network. Therefore, maintaining a node contributes to the growth of Bitcoin and its decentralization.
- Allows you to maintain full custody of your Bitcoin.
- It offers direct access to the Blockchain.
- You can get rewards for it.
It is profitable?
Let’s start by mentioning that the requirements to run this type of node include an amount of Bitcoin to fund your Lightning channel, capital to buy the equipment, a wallet that is Lightning compatible, and of course, time.
So can you make money running a Lightning node? Yes, but it is somewhat complex. The reason is that to be profitable and effective it must be executed correctly. In factthe task of running a node is usually considered an art because it requires personalized care and attention for each case.
To earn revenue from running a Lightning node, you need to set a charge for your own node. However, this should be low enough to still be considered affordable by the network and high enough to actually earn passive income.
Consider this activity as a source of passive income or not can be an extensive debate. Particularly to make it profitable, it is necessary to carry out an analysis of the traffic flow, the rates, which channels to open and close; that is, take the time to understand how traffic moves and how much it costs to move it.
Likewise, the analysis must be carried out with a macro vision over time in order to make decisions in advance of the facts.
In this way, although it is possible to generate certain income from a node, money should not really be the main motivator. The earnings are usually a few cents per month at best and the investment in a node is usually hundreds of US dollars.
final thoughts
Running a Lightning node is often thought of as a great way to contribute to the network for those who rely on Bitcoin, and while it can generate revenue if run correctly, the reality is that it’s not a very profitable activity.
A Lightning node involves an investment cost of US$250 and US$350. Of course, that will depend on the equipment that is purchased and as for the profits, it will depend on how many transactions you manage to route with your node.
There are users who have reported profits between $100 and $4,000 USD per month and, likewise, there are those who report on Reddit to even be at a loss.
Therefore, is it worth it? This will depend on each individual. In particular, those who invest in a Lightning node do so because they believe that the value of Bitcoin will increase over time and how much with the time and attention it takes to run a node.
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