Table of Contents
- What Is the Lightning Network?
- What Are Lightning Wallets and How Do They Work?
- The Best 4 Lightning Wallets to Use Right Now
The Bitcoin network is designed to be highly decentralized while featuring one of the most resilient computer systems in the world.
However, the caveat of this architecture is that BTC struggles with limited scalability. Compared to the payment giant Visa that can process up to 65,000 transactions per second (TPS), the Bitcoin network can only handle around 7 TPS.
For that reason and due to the continuously surging demand for the cryptocurrency, the BTC blockchain has been congested for quite some time, which comes with increased transaction fees and processing times for users.
While Bitcoin developers don’t want to sacrifice security and decentralization to improve the scalability of the blockchain, they have been working on implementing layer-two (L2) solutions to enhance the throughput of the main chain.
The most popular L2 scalability solution for Bitcoin is the Lightning Network (LN), which moves BTC transfers off the main chain to offer near-instant and super cheap micropayments for users.
A few years back, the Lightning Network served exclusively as the “playground” of advanced users and developers. However, the layer-two payment solution’s ecosystem has since expanded rapidly with numerous user-friendly apps and services that allow anyone to participate and leverage its benefits without hardcore technical knowledge or experience.
And, in this article, we will introduce you to the essentials of lightning wallets along with the best easy-to-use solutions currently on the market.
What Is the Lightning Network?
Before we take a deep dive into our topic, let’s first recap what the Lightning Network is.
With the potential to scale up to billions of TPS, the Lightning Network is a layer-two, micropayment-focused network that resides on top of the main Bitcoin blockchain (it is also integrated with other blockchains like Litecoin). To facilitate instantaneous and cost-efficient peer-to-peer (P2P) transactions between users, the LN routes BTC transfers off the main chain to its own network to execute them.
While the LN operates as a separate network with its own nodes and software, it communicates with the BTC blockchain. However, there is no need to record every lightning transaction on the main chain. To save block space and relieve some stress from the Bitcoin blockchain, only the transfers in which a user deposits or withdraws BTC from the Lightning Network are registered on the distributed ledger.
What Are Lightning Wallets and How Do They Work?
Lightning wallets are software solutions connected to the Lightning Network that allow users to store, send, and receive BTC over the LN.
It’s important to note that while the fundamentals of lightning transactions are similar to the ones on the main chain, there are some key differences between first- and second-layer Bitcoin transfers.
For example, as there is a limited amount of BTC locked in each channel (a mini-ledger between parties), the Lightning Network is designed to send and receive lower-value transactions or micropayments. For that reason, it’s best to utilize the main chain to transact larger amounts of coins.
Furthermore, if you want to receive Bitcoin over the LN from someone, you have to create a lightning invoice in the form of either an alphanumeric string of digits or a QR code. To make a payment to your lightning wallet, the sender has to scan this invoice via his LN wallet to provide a digital signature and confirm the transaction.
This process is very similar to how you receive funds via your standard Bitcoin address. Also, since the Lightning Network’s ecosystem has improved a lot since its launch, it’s now as easy to transact BTC via a lightning wallet as with an on-chain solution.
Also, while some services require users to create channels manually, many lightning wallets automate this process to provide the best experience for their customers.
There’s also another vital topic to discuss: can you move BTC back and forth between the Lightning Network and the Bitcoin blockchain?
While it’s not possible to send a lightning transaction over the LN to an on-chain wallet without closing your channel or withdrawing your coins to the Bitcoin blockchain first, some wallet solutions offer an easy way for users to move their BTC between the Lightning Network and the main ledger.
Also, you can use an exchange that supports both layer-one and LN Bitcoin transactions or a non-custodial service like Boltz that serves as a bridge between the two networks.
The Best 4 Lightning Wallets to Use Right Now
Now that you know the essentials about the LN, let’s check out the best lightning wallets you can use right now to achieve near-instant and cheap Bitcoin transactions.
1. Phoenix Wallet
Phoenix is a non-custodial Bitcoin wallet that offers one of the easiest and most user-friendly ways to send and receive micropayments over the Lightning Network.
In addition to native integration with the LN, the Phoenix Wallet manages every technical side for the user, which includes automatic channel creations. Available for both iOS and Android, Phoenix operates as a self-contained Lightning node on the users’ smartphones without the requirement to run their own nodes.
While this lightning wallet doesn’t allow users to hold BTC on the main chain, it has a swap-in and swap-out feature that offers the ability to move coins between the LN and the Bitcoin blockchain.
To initialize the wallet, users have to first deposit at least 10,000 satoshis (sats), which is the minimum amount for a new payment channel to be created. While opening a new channel costs 1% with a minimum fee of 3,000 sats, sending a Lightning Network transaction costs 1 sat + 0.01% or up to 12 sats + 0.3% (if no route can be found for the prior price).
Interestingly, Phoenix plans to introduce integration with the Tor network to enhance users’ privacy while they transfer BTC over the LN.
Currently in beta on both iOS and Android, Breez is another mobile lightning wallet that focuses on user-friendly and intuitive design. Also, like Phoenix, it’s a non-custodial solution that doesn’t require users to run their own LN nodes.
Furthermore, Breez features automatic channel creation (for a fee of 0.4% and a minimum of 2,000 sats) and takes care of the other technical stuff for users. You can also deposit and withdraw BTC from the main chain into your Breez wallet, which automatically gets moved to your Lightning Network channel in the prior scenario.
On the other hand, Breez users can take advantage of additional wallet functionality, such as in-app interaction with solutions on the Lightning Network, as well as the option to buy BTC via a credit or debit card.
Interestingly, Breez also has a Point of Sale functionality that allows merchants to accept BTC payments via the Lightning Network in a simple way.
There’s another fun feature that is worth mentioning, which you can leverage to discover and listen to crypto-themed podcasts right from your wallet.
Available for mobile devices (iOS and Android), Muun is a self-custodial Bitcoin wallet that provides a great balance between convenience, security, and efficiency.
Unlike the previous lightning wallets, Muun doesn’t move on-chain BTC transfers automatically into LN channels. Instead, users have access to Bitcoin on both the main chain and the Lightning Network.
However, this also means you have to utilize a third-party service to deposit and withdraw BTC from the LN.
While you don’t have to run your lightning node to utilize the wallet, you can use advanced security features that protect your funds from theft, even in a case when you no longer have access to your device or your Muun wallet.
Also, you can choose to recover your Muun wallet via either a code written on paper or the combination of your email and password.
Another exciting feature – which comes in handy mostly for on-chain BTC transfers – is Muun’s mempool-based fee estimator. According to the service provider, this functionality offers a more precise way to predict transaction costs and save an average of 30% on fees.
4. Blue Wallet
Blue Wallet is a Bitcoin wallet that supports both on-chain and lightning transactions similarly to Muun (without automatic on-chain BTC transfers into LN channels).
However, while the app’s on-chain Bitcoin wallet is non-custodial, its Lightning Network wallet is somewhere between self-custodial and custodial, which the service provider describes as “hosted.”
Instead of utilizing a self-contained LN node on each user’s device, Blue Wallet uses LNDhub, an open-source, multiple account plugin for the Lightning Network. As a result, the solution creates separate accounts for users, but they share the same node in a trust-minimized setup.
However, this is a trade-off that allows Blue Wallet to offer significantly more features than the lightning wallets we have explored earlier. In addition to basic functionality like sending, receiving, and storing BTC, you have access to the following:
- Convenient recovery service that allows users to use numerous data points (e.g., mnemonic, private key, WIF, or other information) to gain access to their wallets
- Send multiple transactions in one batch to save on transfer costs
- Multi-signature (multisig) vaults for additional security
- Transaction fee customizations
- The ability to operate your own Bitcoin full node (on-chain or LN)
- Top up your lightning wallet with your BTC wallet, external wallets, credit card, or decentralized exchange
- Tor connection to enhance your privacy
- A marketplace and a browser to discover and utilize apps on the Lightning Network
Rapid and Cheap Bitcoin Transfers Are Here
While Bitcoin has excellent store of value qualities that makes it an attractive investment for many, the Lightning Network allows the cryptocurrency to be utilized for everyday payments as well.
Even though receiving and sending low-cost and instantaneous BTC transactions on the LN was a distant dream a few years back, it has become a reality after the layer-two scalability network’s ecosystem has grown and user-friendly lightning wallets have appeared on the market. The choice of the wallet platform is very important for the development of the trader’s strategy.
As a result, users don’t need much technical knowledge to settle their everyday payments or utilize dApps on the Lightning Network.