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We analyze Phoenix, the second generation Lightning wallet

Key facts:
  • Phoenix is ​​a simple wallet to download, install and use.

  • The wallet allows you to manage funds on both the Lighting network and the Bitcoin blockchain.

Phoenix is ​​a second-generation custodian-less Lightning wallet, which could basically be defined as a plug-and-play wallet, as there is no need to manually manage payment channels. It is also defined as a wallet without a custodian, since it is a real Lightning node that runs on your phone, but with a very small size of only a few megabytes.

If you have time to use Lightning wallets, which allow you to transact bitcoins off-chain, instantly and with low fees, At first, you will be aware of how complicated it is to usealthough this is clearly justified by the novelty of Lightning network technology.

Take as an example Eclair – a wallet belonging to ACINQ, the same developer company Phoenix – which was one of the first Lightning wallets. Although its user experience has improved significantly, In the beginning, practically everything was done by hand. For example: when installing, you had to deposit BTC to open the channel manually later. After that you had to wait for 6 confirmations for it to be operational. Once the channel was ready, the balance in your Bitcoin wallet and your Lightning wallet had to be managed individually. Pretty complicated, right?

Based on that experience, Phoenix The interaction with Lightning Wallet has changed. First of all, you just install the wallet, secure your recovery seed and you can start using it. Once installed, you will be able to receive payments either through the blockchain (on-chain transactions) or through the Lightning network (off-chain transactions). Balance management is also made easier, regardless of where you receive it, since the wallet reflects a single amount.

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Phoenix Wallet Features

  • Easy to install and create, so you can start receiving payments right away.
  • It’s a wallet without a guard.
  • It allows you to automatically create payment channels when creating a new wallet.
  • If you receive payments that exceed the capacity of your current payment channels, Phoenix will automatically create a new payment channel without waiting for confirmations.
  • Send payments now.
  • With seed recovery, you also support your BTC on-chain and your payment channels.
  • It is zero reserve, which means that you can spend the entire balance of your wallet, regardless of whether it is spread over different payment channels.
  • Automatic generation of invoices for payment.
  • Manage on-chain and off-chain funds in the same amount.
  • Light and easy to handle.

What’s under the hood of the Phoenix

in the first case, as ACINQ correctly states, Phoenix is ​​not a replacement for Eclair, because although the latter is one of the predecessors of the Lightning wallet, it currently has several interesting features that distinguish it from the others. That’s why Phoenix is ​​aimed more at users who want to start using this micropayment network.but without the technical complications that were associated with using this type of wallet.

It should also be clarified that the Lightning network is a very young technology and there were no wallets that offered instant installation and use natively, because there were technical limitations that slowed it down. To solve this, ACINQ achieved offers a fairly sleek and easy-to-use product while maintaining a non-preservable format.

To achieve this, ACINQ has developed a number of features that enable the current operation of Phoenix, including the following:

Improved user experience

One of the first changes that the ACINQ team wanted to offer its users was an improved user experience. Mainly, reducing the need for technical knowledge that a novice user had to have to use payment channels through the Lightning network.

To achieve this implementation and to be able to preserve the non-custodian concept, ACINQ set some guidelines regarding the use of Phoenix:

  • You can only connect to ACINQ nodes. The app inside your device is a real node, but it can only sync with an ACINQ node, to allow for greater trust and counter cheating by third-party nodes. It also makes it easier to create a more secure network and ensures a better user experience.
  • Users cannot fund payment channels themselves.
  • Swap payments (on-chain transactions) are made from the ACINQ node. More details in the on-chain and off-chain fund management section.
  • Payment information (destination, amount) is currently filtered in the ACINQ node.

On-chain and off-chain fund management

First of all, it must be clarified that all funds within Phoenix are held in payment channels. This means that there is an intermediate step in terms of on-chain fund management.

for this to happen basically we pay ACINQ and they send the funds to the appropriate address. This allows, in terms of user experience, to maintain ease of use in terms of on-chain transactions, as all the user needs to do is paste or scan the destination address and enter the amount, as shown. wallet.

Within Phoenix, this type of transaction is called a swap or exchange because, as we explained, there is an internal exchange because the funds are inside the payment channel, and currently Lightning technology does not allow direct transfers from the micropayment network to the Bitcoin blockchain.

Receive funds on chain

Likewise, when receiving funds on-chain, in order for them to be reflected and used to send via the Lightning network, they only need to receive confirmation within the Bitcoin blockchain.

Of course, the funds are not sent directly to the payment channel, but the ACINQ node is in charge of performing the said conversion. The same happens when withdrawing funds.

Financing when opening a payment channel

While we commented on the limitations of Lightning network technology today, the wait time with funding when opening a payment channel can be confusing for new users in traditional Lightning wallets.

The traditional operation is as follows: First, part of our balance on the chain is blocked. Then you have to wait for at least 3 confirmations from the network for the channel to become operational. Once the channel opening is confirmed, it will be fully populatedmeaning that if you want to receive a transaction, you have to empty it a bit by sending the funds somewhere else.

However, Inside Phoenix, things are changing a bit. For starters, as soon as you create your wallet you can immediately start receiving payments through the Lighting network. To make this possible, after you create your wallet, Phoenix will automatically create a payment channel if you don’t have enough liquidity.

Regarding the latter, since payment channels have a limit, it may happen that you receive a payment that exceeds this limit. To handle this upon receipt, Phoenix will notify you of the payment (as can be seen in the image) and will charge you a commission, deducted directly from the amount received. This is for opening a new channel. Of course, you won’t have to wait for confirmations within the Bitcoin network, because ACINQ will automatically assign you a payment channel. And you will be able to have your funds immediately.

You can learn more about how payment channels work in Phoenix here.

Backup seed for everyone

In the case of Eclair at its beginnings, the on-chain and off-chain balances were managed separately. This meant that the recovery seed was only useful for on-chain balance as payment channels were supported in another way.

Inside Phoenix we will have seeds recovery from the BIP39 standard that follows the BIP84 bypass. This implies that when you return your Phoenix wallet from the recovery seed, you have the entire balance, both deposited in the traditional way (on-chain) and that received through the Lightningt network.

In an extreme case, Phoenix would stop working, leading to a forced shutdown of the payment channel.you can restore your wallet to any recovery seed compatible wallet such as Electrum. After the return, you will only have to wait, after the forced shutdown, for 750 confirmations on the blockchain (or about 5 days) to see your available funds. This assumes that all funds within Phoenix are in payment channels.

Payment springboard

One of the main new features that Phoenix offers are stepping stone payments, which significantly improve the way our wallet is synced with the Lightning node network. Furthermore, this allows for the preservation of the concept of non-custody.

Thanks to this model implemented by ACINQ, Phoenix is ​​a true Lightning node that works on your phone without having to carry the full weight of a full node. Of course, due to current limitations, this only connects to the ACINQ node.

Traditionally, a Lightning wallet needs to know all the nodes on the network to get the fastest route when sending a payment. This requires our wallet to be synced, which can involve wasting time and consuming bandwidth. To solve this, Phoenix, through springboard payments, makes it so that the wallet does not need to know all the nodes on the network. Knowing only a few and a few remote springboard nodes, you can make a payment immediately without any synchronization.

For now, this model is under development, as the ACINQ node is the only one that currently allows this type of transaction.

Regarding his work we have:

  • At the time of sending, Phoenix examines all the channels and divides the payment depending on the liquidity that each channel has and sends it to the ACINQ node.
  • The ACINQ node consolidates incoming payments and sends the payment to the final recipient.
  • If the recipient is a Phoenix wallet, ACINQ resends the payment or uses the initial payment.
  • In case the recipient is not a Phoenix wallet – which due to current development is not compatible with bounce payments – ACINQ will be in charge of routing and sending the payment in the traditional way.

One of the biggest disadvantages of this model is privacy, because the only one who organizes and directs is the ACINQ node, which means that it can know who receives and the amount. To solve this, it is proposed to increase the number of springboard nodes in the future and thus prevent one node from knowing all the information.

As there are more springboard nodes, the number of hops is higher, thus increasing the privacy of both sender and receiver.

If you want to learn more about how the Lightning Network payment model works, visit The official Phoenix blog.

Commissions in Phoenix

Commission rates in Phoenix are as follows:

  • Payment transfers via the Lightning network: from 1 hour + 0.01% to the total sent up to 5 hours + 0.12%. The amount to pay depends on the route within the Lightning network.
  • Creating a payment channel: 0.1% of the total received.
  • Incoming transaction on the chain: 0.1% of the amount received. It must be remembered that it is the ACINQ node that allocates the received funds on the chain to the payment channels.
  • Sending via chain from Phoenix to Bitcoin address: Depends on network congestion and mining payout rate.

Final comments about Phoenix

As they describe well in their blog, giving higher priority to user experience is one of ACINQ’s premises when developing Phoenix.

Within Phoenix, we can have a simple wallet, which leaves aside synchronization and manual creation of payment channels, one of the limitations that has turned many users away from the Lightning network payment experience.

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