How to Use the Lightning Network to Save Money on Bitcoin Fees

How to Use the Lightning Network to Save Money on Bitcoin Fees with Exchanges

On April 1, US-based Kraken became the latest major crypto-exchange to integrate with Lightning, announcing that it now “supports instant Lightning Network transactions.” As it noted in the announcement, the layer-two solution can process millions of transactions per second, largely because it handles large groups of transactions off the Bitcoin blockchain, before sending finalized accounts to the latter for verification.

Kraken joins a growing list of exchanges now letting their users save money on Bitcoin fees with Lightning. This list is likely to change in the future, but for now, here’s a current rundown of all the major platforms supporting the network:

• AAX

• Bitfinex

• BitMex

• Bitstamp

• BullBitcoin

• CoinCorner

• Kraken

• NiceHash

• OKX (formerly OKEx)

• OKCoin

• Paxful

A list including smaller exchanges has now been added to GitHub by tester David Coen. As with the list above, it also shows that not one of Coinbase, Binance or FTX — three of the biggest exchanges in the sector — have integrated with the Lightning Network. And it’s possible they may not add support in the near future, with some observers speculating that Lightning may go against their business interests (e.g. it makes it cheaper to take BTC off their platforms).

As such, anyone wanting to use the Lightning Network to save money on their Bitcoin fees will have to use one of the exchanges listed above. For people who transfer smaller amounts of BTC more regularly, using Lightning is becoming increasingly important, so they may even want to consider switching exchanges.

As an example of what you need to do to actually use the Lightning Network, here’s a rundown of how you use it on Kraken.

First, let’s say you want to withdraw BTC using the network. You’ll need a third-party wallet to send this BTC to, and most importantly, it has to be one compatible with the Lightning Network. Here’s a list of wallets that support Lightning transfers:

• Exodus (non-custodial)

• Blue Wallet (custodial)

• Wallet of Satoshi (custodial)

• Phoenix (non-custodial)

• Electrum (non-custodial)

• Éclair (non-custodial)

• Breez (non-custodial)

• Muun (non-custodial)

Assuming that you’ve set yourself up with one of these wallets, you can then proceed with actually using the Lightning Network to withdraw funds from Kraken to it. Here’s what you do:

1. Go to kraken.com, click Sign in and sign into your account.

2. Click Funding at the top of the home screen.

3. Under Account balances, find your bitcoin and click the Withdraw icon (it’s an arrow pointing upwards).

4. On the left-hand side of the screen, you now have two options for withdrawing BTC: the Bitcoin Network, and the Lightning Network. Click Lightning Network.

5. At this point, you’ll have to add a withdrawal request in your Lightning-compatible BTC wallet. You can do this by opening the wallet, choosing Receive (or something similar, depending on the wallet). Next, enter the specific amount you want to receive, and enter a description (e.g. ‘BTC withdrawal from Kraken’). Then copy the withdrawal request (it’s a long alphanumeric code, much like a Bitcoin address).

6. Click Add withdrawal request at the bottom of the Funding screen on Kraken. Then copy the withdrawal request you created in your wallet into the Withdrawal request field. Also enter a Request label (e.g. ‘BTC withdrawal to Muun’).

7. Once the two fields have been entered, click Add withdrawal request. This will result in a confirmation email being sent to the email address you registered with your Kraken account.

8. Enter your email account and use the email sent by Kraken to confirm the withdrawal request. Then, back on Kraken, click Withdraw to complete the withdrawal.

At first glance, this might seem a little complicated. But all it boils down to is generating a withdrawal request on your Lightning-supported wallet and copying this request into Kraken, or whatever exchange you may be using.

The same basic process also works for deposits, although things proceed the other way around, with you generating a deposit request on Kraken that’s then pasted into your wallet.

Payment Apps and Service Providers That Support the Lightning Network

Aside from exchanges, several crypto-based payment providers and services have begun integrating with the Lightning Network. This includes BitPay, the cryptocurrency payments processor that integrated with the network on April 6, expanding its reach beyond the 80 million people cited in Arcane Research’s report covering up until the end of March.

BitPay’s support for the network means that anyone with a compatible BTC wallet can use that wallet to pay a merchant using Lightning and BitPay. And on top of BitPay, Cash App and Strike are two other major applications that support Lightning-based payments.

While the number of such apps remains small in comparison to exchanges that support the Lightning Network, they nonetheless provide a reliable means of using Lightning to save money on fees. In other words, they’re showing that bitcoin can become a viable medium of payment, even if its reputation still revolves mostly around its status as a ‘store of value’ and ‘digital gold.’

And with Arcane’s research showing that the value of Lightning based payments increased by 400% between Q1 2021 and Q1 2022, it’s probably only a matter of time before more apps support the network, and before bitcoin becomes even more widely used as an alternative currency.