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What Is The Purpose Of Your Node?

As we saw in our little discussion of "Hot Wallets", there is some risk in running a Lightning node.

Instead of your BTC peacefully and securely resting in a hardware wallet, you're going to be playing with the big boys and keeping (some) of your BTC on a computer. This computer, if you make a mistake, could get hacked. That would be bad.

But before we go full-paranoid, it's time for you to decide what the PURPOSE of your node is going to be.

You need to identify your PURPOSE now, because as we build your node, we're going to have to make some important decisions about stuff like hardware, software, security, and most importantly, how much BTC we actually need to keep on the node. We need to know your PURPOSE so we can make these decisions.

Let's buckle up and choose a purpose.

Time to choose a purpose:

  1. "Mostly Send"
  2. "Mostly Receive"
  3. "Routing Node"

1. "Mostly Send"

Unsurprisingly, this purpose means you are typically just sending out payments to other nodes, and merchants connected to those nodes.

Actually, if this is all you want to do, you might not need to set up a Lightning node at all!

Take another look at Let's Try A Mobile Wallet. You can see that sending BTC over the Lightning Network is very simple with a just a mobile phone. And here is the kicker: Because of things like "Face ID", "Touch ID", and other security innovations which are battle-tested on iOS and Android devices... BTC on your phone (as long as it is backed up) can often be considered a lot more secure than BTC on your computer.

In any case: If you are just planning on sending payments from your node (or for that matter, from a mobile wallet), there is something very simple you can do to greatly reduce your security risks.

The dead-simple risk-reduction thing

Keep 98% of your BTC on your hardware wallet, and only 2% (or maybe less) on your Lightning node or mobile wallet. When your Node or your mobile wallet runs out of Bitcoin, just pull out your hardware wallet and "top-up" or "refill" your Lightning node or mobile wallet.

This simple practice -- as long as you actually do it -- greatly reduces your risk. And this advice also applies for...

2. "Mostly Receive"

If you are merchant looking to receive payments (often with the help of something like BTCPay Server or LnBits), then you really should run a Lightning Node, and probably can't get away with just a mobile wallet.

But: you can de-risk your node with the same strategy as with "Mostly Send", except in reverse. Never allow your hot wallet to hold more than 2% of your BTC at any time. Make a simple rule like: "I promise myself that when the balance on my node exceeds 0.1 BTC, I will withdraw 90% of this to my hardware wallet." If you make and follow a rule like this, you'll greatly reduce your risk.

3. "Routing node"

This is the the third "purpose", and it's really different.

A routing node is a specialized node whose job is to interconnect other nodes.

A good-looking, well-mannered, and all-around-awesome example of a routing node is our node, The Megalith Node.

Routing nodes need a lot of channels (ideally 25+). And here is the kicker: They need a lot of BTC!

The number will undoubtedly change in the future, but as of this writing, the general consensus is that unless you can keep at least 5 to 10 BTC on a node, you should not attempt to run a routing node.

5 or 10 BTC is a lot of money. And there are definitely people trying to run routing nodes with less than this. But also, a lot of them try to do it for a few months and then quit. Because a routing node just works better with a lot of BTC.

Gentleman's advantage

OK, fine. But step back and think about this for a second. Remember our heart-to-heart discussion about "Hot Wallets"? Remember how I said that the VAST majority of your BTC should be in a "cold wallet" -- a hardware wallet?

So this is what I am getting at: Right now, unless something big changes, running a routing node is only for people (or, companies) who are BITCOIN RICH.

Yes. I said it. Social justice warriors, feel free to attack now.

This is why I've obnoxiously titled a whole section of this guide as The Gentleman's Guide To Routing Nodes.

Running a routing node requires you to risk a significant amount of BTC, and you should only do this if you (or your company/benefactor), already has a shitload of the stuff, so that you are only risking a SMALL AMOUNT of your total BTC pile.

And, there are other requirements to running a routing node. But we're getting ahead of ourselves.

Let's move on to actually setting up a node, with advice that will apply to you no matter what purpose you have in mind...