In the backdrop of the FTX debacle and the ongoing regulatory war against crypto, a non-custodial way to swap your precious BTC from its blockchain to the Lightning Network can be beneficial.
Well, Boltz does exactly that! Boltz provides its users with an instant, account-free, and non-custodial way to swap BTC- all without the hassle of KYC! It is particularly advantageous for people who practice dollar cost averaging but wish to avoid the burden of on-chain fees, especially during high fee scenarios.
But What Is The Lightning Network, And Why Is It Relevant?
The Lightning Network (LN), or “Lightning,” is a decentralized system designed for swift and high-volume micropayments, ensuring that users don’t need to entrust their funds to third-party intermediaries. Operating as a layer-2 protocol built on top of the Bitcoin base layer (layer 1), which is the underlying blockchain, the Lightning Network leverages the robust security standards of Bitcoin to safeguard its operations.
While a reliable payment system, Bitcoin is limited to slow transaction processing, taking up to one hour for final confirmation. This delay results from Bitcoin assembling transactions into blocks spaced approximately 10 minutes apart, with six confirmations needed for payment security, totaling about an hour. This slowness poses challenges for micropayments and smaller transfers due to high fees on the base layer.
— Chirk (@chirk991) July 14, 2022
Imagine the inconvenience of waiting an hour to pay for a coffee or a train ticket through a mobile phone at the station gate. The accumulation of high fees makes the entire payment process cumbersome, inefficient, and impractical for everyday Bitcoin network transactions. What a hassle!
The Lightning Network effectively addresses these issues as one of the earliest implementations of a multi-party smart contract using Bitcoin’s built-in scripting capabilities. On the Lightning Network, payments are instant, atomic, and do not require recording on the blockchain, eliminating the need for block confirmations.
What Is Boltz?
Boltz, launched in 2019, stands out as a privacy-focused, account-free crypto exchange built on advanced second-layer scaling technologies like the Lightning Network. It offers users an instant, non-custodial, and account-free method to exchange BTC without compromising their identity.
Notably, Boltz has formed strategic partnerships with prominent entities such as Blockstream, Diamond Hands, and Vulpem Ventures. It has seamlessly integrated with Core Lighting, Breez, Electrum, LNbits, and more.
Today we are introducing our all-new web app:
🏠 Uniting Liquid & mainchain swaps in one web app
🥕 Swap to Taproot addresses
🧅 Liquid swaps now available via onion domain
⬆️ Increasing Liquid Swap Limits to 0.1 BTC
— Boltz – Non-Custodial Bitcoin Exchange (@Boltzhq) June 19, 2023
By leveraging the foundation laid by Alex Bosworth’s Submarine Swaps, Boltz acts as a bridge between the two layers, allowing users to conduct trust-minimized coin exchanges. Lightning channels require inbound capacity to receive funds, and Boltz addresses the challenge of acquiring inbound liquidity for lightning node operators with a solution built on trust minimization.
How Does Boltz Work?
As mentioned earlier, Boltz employs Submarine Swaps to achieve its trust-minimized properties. But what exactly is a Submarine Swap? It means sending Bitcoin directly from a lightning channel to a regular on-chain address is not straightforward. Submarine Swaps offers a solution to this challenge by utilizing the principles of regular atomic swaps.
Essentially, a Submarine Swap is a secure and trustless method to exchange coins between lightning and on-chain addresses. Facilitated through a service provider like Boltz.
The process of a Submarine Swap involves using a Hashed Time Locked Contract (HTLC), which links the ownership of an Unspent Transaction Output (UTXO) to the successful payment of an invoice on the lightning network.
Let’s explore the reasons and prerequisites for utilizing Boltz to facilitate swaps between Lightning, Liquid, and on-chain transactions.
One significant reason is the increasing fees on the main chain Bitcoin Network, partly caused by activities like Ordinal NFTs. As more people adopt Bitcoin, the on-chain fees will likely continue to rise due to limited block space. It is where the Lightning Network proves valuable.
However, if you prefer to purchase and self-custody your Bitcoin, you may hesitate to keep all your holdings in a Lightning wallet due to its hot nature, meaning it’s connected to the internet, which carries some risk. To address this, individuals often migrate to cold wallets like the ColdCard to enhance security.
When building up your holdings through dollar cost averaging, high on-chain fees can become prohibitively expensive. Here, a dilemma arises – should you keep everything in a hot Lightning wallet to benefit from lower fees while transacting, or should you bear the cost of on-chain transactions?
There is an in-between option (although not without trade-offs) which some find appealing to continue DCA without exposing their funds to the risks of a hot wallet. This option involves utilizing the Liquid Network.
But What Are The Prerequisites For Using Boltz?
Regarding prerequisites, you must interact with exchanges allowing you to purchase and receive Bitcoin via Lightning. Some options include Bull Bitcoin, Strike, Cash App, and CoinCorner. You’ll also need to be familiar with how to do Lightning transactions and have a Lightning wallet, such as Alby, and a Liquid wallet, like Marina Wallet or Blockstream Green. You can read our guide on Lightning Network for more info.
Steps To Swap Lighting and Liquid BTC
Let’s get to swapping some BTC, shall we? All you need to do is follow the below steps.
On the swap page, you will find “Lightning” at the top, and below it, you can choose between “Liquid” or “Bitcoin”. Use the drop-down arrow for the desired swap.
To initiate the swap, specify the amount of Lightning BTC you wish to send and the amount of Liquid or on-chain Bitcoin you expect to receive. There will be a small network fee, and Boltz charges a service fee for providing liquidity and facilitating the swap, but overall, the costs are minimal.
For instance, if you want to exchange one hundred thousand SATs from your Lightning wallet, you’ll notice negligible on-chain fees for the swap. The Lightning transaction might incur a few SATs, and the Liquid fees are quite low. The network fee is around 428 SATs, while Boltz’s fee is approximately 0.25% (250 SATs), making it reasonable.
Start the swap by providing your Liquid Bitcoin address. You can find this address in your wallet, such as through a browser plugin like Marina Wallet.
Click “receive,” copy the address, and paste it into the designated field on Boltz.
Click on “Create Atomic Swap.” This action will generate a QR code or an invoice for you to pay via Lightning. You can scan the QR code with a mobile wallet or pay the invoice using WebLN. Alternatively, you can click “Copy Lightning Invoice” to use it with your Lightning wallet extension.
For instance, if you use the Alby extension, paste the invoice and proceed with the payment. Upon completing the swap, your balance on the Liquid Bitcoin wallet will change accordingly.
That’s it! The balance in your Liquid wallet is now updated. You can initiate a new swap or view the transaction details in a block explorer.
Following these steps, you can seamlessly and efficiently swap between Lightning and Liquid or on-chain Bitcoin on Boltz’s user-friendly platform.
Now, let’s imagine that some time has elapsed, and due to your dollar-cost averaging strategy, you have accumulated a significant amount of Bitcoin in your Liquid wallet. At this point, you decide to transfer it to the mainchain and are okay with paying for an on-chain transaction fee. What should you do?
Unfortunately, Boltz does not currently support Liquid-to-on-chain swaps. Thankfully, alternative options, such as Sideshift.ai, are available, which can facilitate the conversion from Liquid to on-chain Bitcoin.
Boltz emerges as a promising solution for users seeking efficient and cost-effective ways to navigate the complexities of Bitcoin swaps. By enabling seamless exchanges between Lightning, Liquid, and on-chain Bitcoin, it addresses the challenges posed by high on-chain fees and offers greater flexibility in managing digital assets.
That said, as with any financial decision, it is crucial for individuals to carefully weigh the trade-offs, considering factors such as risk tolerance and specific needs.
As the cryptocurrency landscape continues to evolve amid CEX crashes and regulator challenges, Boltz is a compelling option for those seeking a secure and non-custodial way of swapping the most vital digital asset- BTC.
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