Payment Forwarding in Lightning Network
How Payment Forwarding Works
Payment forwarding is a fundamental concept in the Lightning Network that enables the routing of payments across multiple hops. When a payment is routed through your node, you're acting as an intermediary, helping move funds from the sender to the recipient.
Each routing node receives an incoming HTLC (Hashed Time-Locked Contract) and creates a corresponding outgoing HTLC. The node earns fees for this service, which incentivizes participation in the routing network.
HTLC Flow
- Incoming HTLC: Your node receives a payment with a hash lock.
- Outgoing HTLC: You create an identical HTLC (minus your fee) to the next node.
- Secret Revealed: When payment reaches the recipient, they reveal the secret.
- Backpropagation: The secret propagates backwards, unlocking each HTLC.
- Settlement: Funds move forward, and you collect your fee.
Optimizing Your Node for Forwarding
To maximize your node's forwarding potential and earn more in routing fees:
Channel Selection
- Open channels with well-connected nodes
- Prioritize nodes that route significant payment volume
- Maintain channels with diverse nodes across the network
- Consider geographic diversity for resilience
Liquidity Management
- Balance incoming and outgoing capacity
- Regularly rebalance channels to maintain flow
- Monitor channel usage patterns
- Close underperforming channels
Fee Strategies for Payment Forwarding
Setting appropriate fees is crucial for a successful routing node. The goal is to find the balance between competitive fees that attract payment flow and profitable fees that compensate for your node's service.
Base Fee
A flat fee charged per forwarded payment regardless of amount. Typically set between 1-10 satoshis. Good for covering fixed costs.
Fee Rate
A percentage fee charged on the payment amount. Expressed in parts per million (ppm). Common ranges are 100-1000 ppm (0.01% to 0.1%).
Advanced Forwarding Techniques
Just-In-Time Routing
Opening channels on demand to fulfill specific payment paths, maximizing capital efficiency for large payment routing.
Fee Optimization Algorithms
Using dynamic fee adjustment based on network congestion, payment size, and channel liquidity status.
Multi-Path Payments (MPP)
Routing larger payments by splitting them across multiple channels, increasing success rates and efficiency.