Stack on LN, store on a chain; setting up self custody Lightning Channels to DCA \ stacker news ~lightning

TLDR;

Open a channel to Bitcoin Well
Swap back to node on-chain at bitcoinwell.com
Open a channel to Wallet of Satoshi (or other prominent node)
Swap to cold storage on-chain at bitcoinwell.com
Start recurring buy on Lightning Network to self custody at bitcoinwell.com

Stack on Lightning, store on chain; a guide to setting up self custody Lightning Channels to DCA safely

As you may know, the hardest part about managing your own Lightning Node is incoming liquidity. Opening a channel gets you outgoing liquidity, and there are services to buy incoming liquidity, but those options cost money. To save money you can get a friend to open a channel your way, but what if you have no friends!? 😭

Liquidity, for those that don’t know, is how bitcoin on the Lightning Network moves around. In other words, you can’t receive any bitcoin on the Lightning Network without incoming liquidity. Conversely, you can’t send any bitcoin on the Lightning Network without outgoing liquidity.

This technical requirement forces people to custodial wallets (which can be unsafe and is not best practice) or buy expensive incoming liquidity from clunky non-custodial lightning wallets. This is one of the biggest problems with the Lightning Network.

However, Bitcoin Well makes this process a little easier. With Bitcoin Well Swaps you can effectively use Bitcoin Well as an incoming liquidity loop; for free!

Full self custody at no cost ✅

There are many reasons to open a Lightning Channel. This strategy is mostly designed for someone who wants to stack on Lightning and store on-chain. What I mean is that you want to buy bitcoin frequently, but don’t want to be exposed to the amount of UTXOs that you accumulate as a result of buying frequently. So, you want to stack on Lightning.

But, you realize that Lightning is not the best solution for long term holdings, so you want to store on chain.

This guide will show you how to get incoming liquidity into your node, and then allow you purchase bitcoin directly to your node, and then move it all to cold storage when the time is right. For free.

Let's dive in

To start, you’ll need a Bitcoin Node with a bitcoin balance held on-chain. You will be committing these bitcoin to the Lightning Network, but you’ll have the ability to get the majority back to cold storage as part of this guide. I am using Umbrel for this example, but any and every node software will work.

Next, you’ll open a channel with the Bitcoin Well node. This will give you an outgoing balance to the Bitcoin Well node.

Here, you can see I have opened a channel with 12.5 million sats (0.125 BTC). This is giving my node the ability to send up to 12.5mn sats (less ~3% for a reserve) via the Lightning Network to the Bitcoin Well node.

However, I don’t want to leave 12,500,000 sats on the Lightning Network! I also want to DCA and receive bitcoin, not send it!

Well, let’s fix that.

Now you’ll get your “swap” address from your Bitcoin Well account. It looks like your-welltag @swap.btcw.app. Send ~75% of your channel capacity to the swap address.

In this photo (from the Swaps page, found on the side menu in your Bitcoin Well account) you can see the following information:

You want to receive bitcoin to the “Bitkey” wallet on-chain. This means swapping from the Lightning Network to the Bitcoin blockchain
I have chosen a “batched” transaction. This means I do not pay a miner fee, but need to wait for the transaction batch to go out once per day.
I have a limit of 6,810,004 sats (this is variable - usually around $9,500 CAD)
My Swap Address - the Lightning Address to send the bitcoin I want swapped

Here is where the magic happens! From the home screen on Thunderhub (a Lightning Node interface) select “⚡️Address” to signal to your node you want to send to a Lightning Address.

Enter the Bitcoin Well Swap Address (your-welltag @swap.btcw.app)

And enter the amount you want to swap, being mindful of the limit as shown in the Bitcoin Well Swap page. I opted to send 6,000,000 sats.

Because of the Lightning Channel we have open to the Bitcoin Well node, this transaction goes through without a hitch, and is reflected nearly instantly on the Bitcoin Well Swap page.

I then sent another 3,000,000 sats in the exact same way, and that too is reflected on the Bitcoin Well Swaps page, nearly instantly.

These two transactions are now waiting to be sent out as part of the batch! They will be consolidated into 1 UTXO and sent as 0.09 BTC.

We can now see that the same Lighting Channel opened with Bitcoin Well has 9,000,000 sats of incoming liquidity! The best part is, you don't have to pay a single sat to Swap OR for a miner fee (as long as you choose a batched transaction!) 🎉

9,000,000 sats in via Lightning turns into 9,000,000 sats out on-chain! All thanks to Bitcoin Well Swaps 🔄

At this point, you will receive Lightning payments flawlessly from the Bitcoin Well Node via Recurring Buy or e-Transfer.

Receiving bitcoin from Bitcoin Well on the Lightning Network

Here you can see I am sending $21 with my Bitcoin Well e-Transfer credentials. I have included my node’s Payment address in the message.

My node is using https://lnaddress.me/ for the Payment Address. This strategy will not work without a payment address/LNURL associated with your node.

Notably, I could have also selected this Payment Address from my Bitcoin Well buy page, but I opted not to log in to the platform and just include it in the message of the e-Transfer.

Within seconds we can see the $21 come directly into my node.

We can also see our “incoming sats” liquidity reduce a little bit.

Now, as you stack off-chain (Lightning Network), you can accumulate bitcoin in small and frequent transactions, without creating UTXO problems. This is the proper way to DCA.

Now repeat the Swap process when you want to get sats off the Lightning Network and into your cold storage on-chain wallet.

As an unintended but happy consequence, your incoming liquidity will force you to Swap your sats to cold storage eventually. Once you have purchased as many sats as your incoming liquidity will allow (in this case ~9,000,000 sats) from Bitcoin Well, payments will have a hard time routing to your node (because the channel will be out of balance).

Don’t worry, they’ll be available for you to redeem from your Bitcoin Well dashboard. But before you can claim them, you’ll need to rebalance your channels by using the “Swap”!

As an added benefit, as long as you have incoming liquidity from the Bitcoin Well node you’ll be able to receive payments from wallets that have channels with the Bitcoin Well node (like Wallet of Satoshi and CoinOS).

You can also “prop up” your node a little bit by sending the bitcoin back to your node (on-chain) and opening a channel with other nodes.

Pro tip

It is strongly recommended to set your Channel fees with the Bitcoin Well node on the high side, so your node doesn’t become a routing machine to/from the Bitcoin Well node.

I set the “Base Fee” to 100 sats and the Fee Rate to 1% (by default it is 1 sat and 0.0001%). This will ensure no node will send bitcoin on the Lightning Network through this channel - it’s only for me!

Thanks for reading, I hope this guide enables your independence.

Stay sovereign 🫡 Adam

TLDR;

Stack on Lightning, store on chain; a guide to setting up self custody Lightning Channels to DCA safely

Why is this important?

Let's dive in

Receiving bitcoin from Bitcoin Well on the Lightning Network

Pro tip