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Susan Githaiga
Susan Githaiga

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Building an Anchor Output Fee Bumping Service - Part 3: Setup & Implementation

#api #backend #bitcoin #tutorial

Part 3 of my anchor outputs learning series - getting the service running and seeing it in action

Quick Recap

Part 1: The problem - commitment transactions with outdated fees get stuck

Part 2: The solution - anchor outputs let you boost fees later using CPFP

Part 3 (this one): Actually building a service that does this

What We're Building

A service that:

  1. Monitors the Bitcoin mempool for commitment transactions
  2. Detects anchor outputs (330 sat outputs)
  3. Calculates CPFP fee requirements
  4. Provides a REST API to estimate and request fee bumps

Important: We're using Bitcoin regtest network for this.

GitHub Repository: lightning-anchor-fee-outputs

System Requirements

Before you start:

  • Node.js 18 or higher
  • Docker Desktop (for Bitcoin Core and LND)

Operating Systems: Works on macOS, Linux, and Windows (with WSL2)

Setup Instructions

Step 1: Clone and Install

git clone https://github.com/SusanGithaigaN/lightning-anchor-fee-outputs.git
cd lightning-anchor-fee-service
npm install
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Step 2: Start Docker Services

docker compose up -d
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This starts:

  • Bitcoin Core (regtest network)
  • LND (Lightning node)
  • PostgreSQL
  • Redis

Lightning Network Anchor Outputs

Step 3: Setup Bitcoin Regtest

i) Create Bitcoin wallet

docker compose exec bitcoin bitcoin-cli -regtest -rpcuser=bitcoinrpc -rpcpassword=changeme createwallet "mywallet"
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Create lightning wallet

ii) Mine 101 blocks

docker compose exec bitcoin bitcoin-cli -regtest -rpcuser=bitcoinrpc -rpcpassword=changeme -generate 101
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Mine 101 blocks

If you already created the LND wallet before (you'll get this error), just verify it's working:

docker compose exec lnd lncli --network=regtest getinfo
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Step 4: Setup LND Wallet

docker compose exec lnd lncli --network=regtest create
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Follow the prompts:

  1. Enter a password
  2. Select n to create a new seed
  3. Write down the 24 words (optional for regtest)
  4. Press Enter for cipher passphrase

Step 5: Start the Service

npm run dev
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You should see:

Server running on port 3000
Connected to Bitcoin Core
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Testing the Service

Test 1: Health Check

curl http://localhost:3000/health
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Expected: {"status":"ok"}

Test 2: Bitcoin Connection

curl http://localhost:3000/api/v1/bitcoin/info
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You should see: Chain info showing regtest network with 101 blocks.

Test 3: LND Connection

curl http://localhost:3000/api/v1/lightning/info
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You should see: Node info with anchor outputs feature enabled (check for "anchors-zero-fee-htlc-tx").

Node info with anchor outputs

Test 4: Start Monitoring

curl -X POST http://localhost:3000/api/v1/monitor/start \
  -H "Content-Type: application/json" \
  -d '{"intervalMs": 3000}'
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Expected: {"success":true,"message":"Monitoring started","intervalMs":3000}

Monitoring

Test 5: Create Test Transaction

# Get a new address
ADDR=$(docker compose exec bitcoin bitcoin-cli -regtest -rpcuser=bitcoinrpc -rpcpassword=changeme getnewaddress)

# Send 330 sats (creates anchor-like output)
TXID=$(docker compose exec bitcoin bitcoin-cli -regtest -rpcuser=bitcoinrpc -rpcpassword=changeme sendtoaddress $ADDR 0.00000330)

echo "Transaction ID: $TXID"
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Create Test Transaction

Test 6: Check Monitor Status

Wait 5 seconds, then:

curl http://localhost:3000/api/v1/monitor/status
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You should see: Your transaction being tracked with detected anchor output.

Example response:

{"success":true,"data":{"isMonitoring":true,"trackedCount":1,"transactions":[{"txid":"b3f593509ba7efa9eabeedd159bcc158980917f4804f6a1be8163708c5542c5b","hex":"02000000000101c1de4dab5c406faad339b4e7ed3998a2c9286ee8d7e08eecc4cdd56cb1f98d980000000000fdffffff0243f8029500000000160014ba6345572da5d28ea9830dfc0476826c4bb10c8b4a010000000000001600142935034b935612bc85089f89fca385ba9a78791e0247304402205abef31db372537d0f3ab2f4b5240dbdc6dd7367fe64384e1e58669f4a1a686e022049e7e8d418d18b8328070dad0251b6aefc6b0023b6ed914f34797a40111a9df5012103bb47542f3fe2dd313e221de0620dd733f0766e00d52eb90e222c06aa090aec9e30010000","fee":0,"size":141,"feeRate":0,"anchorOutputs":[{"vout":1,"value":330,"scriptPubKey":"00142935034b935612bc85089f89fca385ba9a78791e"}]}]}}
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Test 7: Estimate Fee Bump

curl -X POST http://localhost:3000/api/v1/feebump/estimate \
  -H "Content-Type: application/json" \
  -d "{\"txid\": \"$TXID\", \"targetFeeRate\": 10}"
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You should see: Fee calculations showing that 10 sats/vbyte is NOT feasible with just the 330 sat anchor alone. This proves the limitation.

Expected result: "feasible": false

This means you'd need to add ~2,180 sats from your own wallet to bump to 10 sats/vbyte.

Example result

susan@susan-githaiga:~/development/projects/lightning-anchor-fee-outputs$ curl -X POST http://localhost:3000/api/v1/feebump/estimate \uts$ curl -X POST http://localhost:3000/api/v1/feebump/estimate \
  -H "Content-Type: application/json" \
  -d "{\"txid\": \"$TXID\", \"targetFeeRate\": 10}"
{"success":true,"data":{"txid":"b3f593509ba7efa9eabeedd159bcc158980917f4804f6a1be8163708c5542c5b","parentSize":141,"parentFee":0,"parentFeeRate":0,"childSize":110,"totalSize":251,"targetFeeRate":10,"totalFeeNeeded":2510,"childFeeNeeded":2510,"anchorValue":330,"feasible":false}}
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Test with a lower fee rate (should be feasible):

curl -X POST http://localhost:3000/api/v1/feebump/estimate \
  -H "Content-Type: application/json" \
  -d "{\"txid\": \"$TXID\", \"targetFeeRate\": 1}"
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Result

susan@susan-githaiga:~/development/projects/lightning-anchor-fee-outputs$ # Test with 1 sat/vbyte (should be feasible)ts$ # Test with 1 sat/vbyte (should be feasible)
curl -X POST http://localhost:3000/api/v1/feebump/estimate \
  -H "Content-Type: application/json" \
  -d "{\"txid\": \"$TXID\", \"targetFeeRate\": 1}"
{"success":true,"data":{"txid":"b3f593509ba7efa9eabeedd159bcc158980917f4804f6a1be8163708c5542c5b","parentSize":141,"parentFee":0,"parentFeeRate":0,"childSize":110,"totalSize":251,"targetFeeRate":1,"totalFeeNeeded":251,"childFeeNeeded":251,"anchorValue":330,"feasible":true}}
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This should show "feasible": true because 251 vbytes × 1 sat/vbyte = only 251 sats needed

Understanding the Results

When you check the monitor status, look for:

✅ trackedCount: 1 - Service detected your transaction

✅ value: 330 - Confirmed it's an anchor output

✅ anchorOutputs array - Shows which outputs are anchors

When you estimate fees:

✅ feasible: true - Can bump with just the anchor

❌ feasible: false - Need additional inputs from wallet

Key insight: 330 sats can only bump to about 10-20 sats/vbyte maximum.

Troubleshooting

Port conflicts?

sudo systemctl stop redis-server postgresql
docker compose restart
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Services not starting?

docker compose logs bitcoin
docker compose logs lnd
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Monitor not detecting transactions?

Make sure the transaction is in mempool (not confirmed yet). Don't mine blocks immediately after sending!

What We Built

Here's what the service does:

1. Bitcoin Integration

  • Connects to Bitcoin Core via RPC
  • Monitors mempool every 3-10 seconds
  • Fetches transaction details

2. Anchor Detection

  • Scans all transaction outputs
  • Identifies 330 satoshi outputs
  • Tracks them as potential anchors

3. Fee Estimation

  • Calculates parent transaction size
  • Estimates child transaction size (~110 vbytes)
  • Computes package fee rate
  • Determines if anchor alone is sufficient

4. REST API

  • Start/stop monitoring
  • Check status and tracked transactions
  • Estimate fee bump requirements
  • Bitcoin and Lightning info endpoints

Key Learnings

1. The 330 Sat Limitation is Real

Anchor outputs can only bump fees to ~10-20 sats/vbyte. For higher rates, you need additional UTXOs from your wallet.

Example:

  • Target: 50 sats/vbyte
  • Parent + Child: 330 vbytes
  • Total fee needed: 16,500 sats
  • Anchor provides: 330 sats
  • Need to add: 16,170 sats from wallet

2. Regtest Makes Testing Easy

  • Free Bitcoin (just mine blocks)
  • Instant blocks (no waiting)
  • No risk of losing real money
  • Perfect for learning and development

3. Monitoring is the Easy Part

Detecting 330 sat outputs in the mempool is straightforward. The hard part comes next: signing and broadcasting CPFP transactions.

4. Production Needs Reserve Funds

Real implementations maintain a pool of UTXOs specifically for fee bumping. You can't rely on the anchor alone.

5. Docker Simplifies Setup

Bitcoin Core and LND in Docker means:

  • No system pollution
  • Easy cleanup
  • Consistent environment
  • Works everywhere

What's Next

Current Status: ✅ Monitoring and estimation work

Still Missing: ❌ Actual transaction signing and broadcasting

Part 4 will cover:

  • Wallet integration for additional inputs
  • Building and signing CPFP transactions
  • Broadcasting to Bitcoin mainnet network
  • Testing with real Lightning channels
  • Accepting Lightning payments for the service

Future improvements:

  • Automatic fee bumping (no manual trigger)
  • Multiple channel support
  • Reserve fund management
  • Web dashboard
  • Mainnet deployment

Resources

If you have any questions or suggestions, drop them in the comments

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