This document is written for people who are eager to do something with the Lightning Network Daemon (lnd). This folder uses docker-compose to package lnd and btcd together to make deploying the two daemons as easy as typing a few commands. All configuration between lnd and btcd are handled automatically by their docker-compose config file.

Prerequisites

Name	Version
docker-compose	1.9.0
docker	1.13.0

Table of content

• Create lightning network cluster
• Connect to faucet lightning node
• Questions

Create lightning network cluster

This section describes a workflow on simnet, a development/test network that's similar to Bitcoin Core's regtest mode. In simnet mode blocks can be generated at will, as the difficulty is very low. This makes it an ideal environment for testing as one doesn't need to wait tens of minutes for blocks to arrive in order to test channel related functionality. Additionally, it's possible to spin up an arbitrary number of lnd instances within containers to create a mini development cluster. All state is saved between instances using a shared volume.

Current workflow is big because we recreate the whole network by ourselves, next versions will use the started btcd bitcoin node in testnet and faucet wallet from which you will get the bitcoins.

In the workflow below, we describe the steps required to recreate the following topology, and send a payment from Alice to Bob.

+ ----- +                   + --- +
| Alice | <--- channel ---> | Bob |  <---   Bob and Alice are the lightning network daemons which 
+ ----- +                   + --- +         create channels and interact with each other using the   
    |                          |            Bitcoin network as source of truth. 
    |                          |            
    + - - - -  - + - - - - - - +            
                 |
        + --------------- +
        | Bitcoin network |  <---  In the current scenario for simplicity we create only one  
        + --------------- +        "btcd" node which represents the Bitcoin network, in a 
                                    real situation Alice and Bob will likely be 
                                    connected to different Bitcoin nodes.

General workflow is the following:

• Create a btcd node running on a private simnet.
• Create Alice, one of the lnd nodes in our simulation network.
• Create Bob, the other lnd node in our simulation network.
• Mine some blocks to send Alice some bitcoins.
• Open channel between Alice and Bob.
• Send payment from Alice to Bob.
• Close the channel between Alice and Bob.
• Check that on-chain Bob balance was changed.

Start btcd, and then create an address for Alice that we'll directly mine bitcoin into.

# Init bitcoin network env variable:
$ export NETWORK="simnet" 

# Create persistent volumes for alice and bob.
$ docker volume create simnet_lnd_alice
$ docker volume create simnet_lnd_bob

# Run the "Alice" container and log into it:
$ docker-compose run -d --name alice --volume simnet_lnd_alice:/root/.lnd lnd
$ docker exec -i -t alice bash

# Generate a new backward compatible nested p2sh address for Alice:
alice$ lncli --network=simnet newaddress np2wkh 

# Recreate "btcd" node and set Alice's address as mining address:
$ MINING_ADDRESS=<alice_address> docker-compose up -d btcd

# Generate 400 blocks (we need at least "100 >=" blocks because of coinbase 
# block maturity and "300 ~=" in order to activate segwit):
$ docker exec -it btcd /start-btcctl.sh generate 400

# Check that segwit is active:
$ docker exec -it btcd /start-btcctl.sh getblockchaininfo | grep -A 1 segwit

Check Alice balance:

alice$ lncli --network=simnet walletbalance

Connect Bob node to Alice node.

# Run "Bob" node and log into it:
$ docker-compose run -d --name bob --volume simnet_lnd_bob:/root/.lnd lnd
$ docker exec -i -t bob bash

# Get the identity pubkey of "Bob" node:
bob$ lncli --network=simnet getinfo

{
    ----->"identity_pubkey": "0343bc80b914aebf8e50eb0b8e445fc79b9e6e8e5e018fa8c5f85c7d429c117b38",
    "alias": "",
    "num_pending_channels": 0,
    "num_active_channels": 0,
    "num_inactive_channels": 0,
    "num_peers": 0,
    "block_height": 1215,
    "block_hash": "7d0bc86ea4151ed3b5be908ea883d2ac3073263537bcf8ca2dca4bec22e79d50",
    "synced_to_chain": true,
    "testnet": false
    "chains": [
        "bitcoin"
    ]
}

# Get the IP address of "Bob" node:
$ docker inspect bob | grep IPAddress

# Connect "Alice" to the "Bob" node:
alice$ lncli --network=simnet connect <bob_pubkey>@<bob_host>

# Check list of peers on "Alice" side:
alice$ lncli --network=simnet listpeers
{
    "peers": [
        {
            "pub_key": "0343bc80b914aebf8e50eb0b8e445fc79b9e6e8e5e018fa8c5f85c7d429c117b38",
            "address": "172.19.0.4:9735",
            "bytes_sent": "357",
            "bytes_recv": "357",
            "sat_sent": "0",
            "sat_recv": "0",
            "inbound": true,
            "ping_time": "0"
        }
    ]
}

# Check list of peers on "Bob" side:
bob$ lncli --network=simnet listpeers
{
    "peers": [
        {
            "pub_key": "03d0cd35b761f789983f3cfe82c68170cd1c3266b39220c24f7dd72ef4be0883eb",
            "address": "172.19.0.3:51932",
            "bytes_sent": "357",
            "bytes_recv": "357",
            "sat_sent": "0",
            "sat_recv": "0",
            "inbound": false,
            "ping_time": "0"
        }
    ]
}

Create the Alice<->Bob channel.

# Open the channel with "Bob":
alice$ lncli --network=simnet openchannel --node_key=<bob_identity_pubkey> --local_amt=1000000

# Include funding transaction in block thereby opening the channel:
$ docker exec -it btcd /start-btcctl.sh generate 3

# Check that channel with "Bob" was opened:
alice$ lncli --network=simnet listchannels
{
    "channels": [
        {
            "active": true,
            "remote_pubkey": "0343bc80b914aebf8e50eb0b8e445fc79b9e6e8e5e018fa8c5f85c7d429c117b38",
            "channel_point": "3511ae8a52c97d957eaf65f828504e68d0991f0276adff94c6ba91c7f6cd4275:0",
            "chan_id": "1337006139441152",
            "capacity": "1005000",
            "local_balance": "1000000",
            "remote_balance": "0",
            "commit_fee": "8688",
            "commit_weight": "600",
            "fee_per_kw": "12000",
            "unsettled_balance": "0",
            "total_satoshis_sent": "0",
            "total_satoshis_received": "0",
            "num_updates": "0",
             "pending_htlcs": [
            ],
            "csv_delay": 4
        }
    ]
}

Send the payment from Alice to Bob.

# Add invoice on "Bob" side:
bob$ lncli --network=simnet addinvoice --amt=10000
{
        "r_hash": "<your_random_rhash_here>", 
        "pay_req": "<encoded_invoice>", 
}

# Send payment from "Alice" to "Bob":
alice$ lncli --network=simnet sendpayment --pay_req=<encoded_invoice>

# Check "Alice"'s channel balance
alice$ lncli --network=simnet channelbalance

# Check "Bob"'s channel balance
bob$ lncli --network=simnet channelbalance

Now we have open channel in which we sent only one payment, let's imagine that we sent lots of them and we'd now like to close the channel. Let's do it!

# List the "Alice" channel and retrieve "channel_point" which represents
# the opened channel:
alice$ lncli --network=simnet listchannels
{
    "channels": [
        {
            "active": true,
            "remote_pubkey": "0343bc80b914aebf8e50eb0b8e445fc79b9e6e8e5e018fa8c5f85c7d429c117b38",
       ---->"channel_point": "3511ae8a52c97d957eaf65f828504e68d0991f0276adff94c6ba91c7f6cd4275:0",
            "chan_id": "1337006139441152",
            "capacity": "1005000",
            "local_balance": "990000",
            "remote_balance": "10000",
            "commit_fee": "8688",
            "commit_weight": "724",
            "fee_per_kw": "12000",
            "unsettled_balance": "0",
            "total_satoshis_sent": "10000",
            "total_satoshis_received": "0",
            "num_updates": "2",
            "pending_htlcs": [
            ],
            "csv_delay": 4
        }
    ]
}

# Channel point consists of two numbers separated by a colon. The first one 
# is "funding_txid" and the second one is "output_index":
alice$ lncli --network=simnet closechannel --funding_txid=<funding_txid> --output_index=<output_index>

# Include close transaction in a block thereby closing the channel:
$ docker exec -it btcd /start-btcctl.sh generate 3

# Check "Alice" on-chain balance was credited by her settled amount in the channel:
alice$ lncli --network=simnet walletbalance

# Check "Bob" on-chain balance was credited with the funds he received in the
# channel:
bob$ lncli --network=simnet walletbalance
{
    "total_balance": "10000",
    "confirmed_balance": "10000",
    "unconfirmed_balance": "0"
}

Connect to faucet lightning node

In order to be more confident with lnd commands I suggest you to try to create a mini lightning network cluster (Create lightning network cluster).

In this section we will try to connect our node to the faucet/hub node which we will create a channel with and send some amount of bitcoins. The schema will be following:

+ ----- +                   + ------ +         (1)        + --- +
| Alice | <--- channel ---> | Faucet |  <--- channel ---> | Bob |    
+ ----- +                   + ------ +                    + --- +        
    |                            |                           |           
    |                            |                           |      <---  (2)         
    + - - - -  - - - - - - - - - + - - - - - - - - - - - - - +            
                                 |
                       + --------------- +
                       | Bitcoin network |  <---  (3)   
                       + --------------- +        
        
        
 (1) You may connect an additional node "Bob" and make the multihop
 payment Alice->Faucet->Bob
  
 (2) "Faucet", "Alice" and "Bob" are the lightning network daemons which 
 create channels to interact with each other using the Bitcoin network 
 as source of truth.
 
 (3) In current scenario "Alice" and "Faucet" lightning network nodes 
 connect to different Bitcoin nodes. If you decide to connect "Bob"
 to "Faucet" then the already created "btcd" node would be sufficient.

First of all you need to run btcd node in testnet and wait for it to be synced with test network (May the Force and Patience be with you).

# Init bitcoin network env variable:
$ NETWORK="testnet" docker-compose up

After btcd synced, connect Alice to the Faucet node.

The Faucet node address can be found at the Faucet Lightning Community webpage.

# Run "Alice" container and log into it:
$ docker-compose run -d --name alice lnd_btc; docker exec -i -t "alice" bash

# Connect "Alice" to the "Faucet" node:
alice$ lncli --network=testnet connect <faucet_identity_address>@<faucet_host>

After a connection is achieved, the Faucet node should create the channel and send some amount of bitcoins to Alice.

What you may do next?:

• Send some amount to Faucet node back.
• Connect Bob node to the Faucet and make multihop payment (Alice->Faucet->Bob)
• Close channel with Faucet and check the onchain balance.

Questions

• How to see alice | bob | btcd logs?

docker-compose logs <alice|bob|btcd>