Lightning Network Trust Model in Plain Terms

To prevent channel theft while offline, you must trust a third-party Watchtower. This reintroduces a trusted custodian, undermining the non-custodial narrative.

• Centralizes risk: A compromised watchtower can fail to act or be censored.
• Economic misalignment: Watchtower incentives are often unclear and not bonded.
• User complexity: Most users rely on their wallet's default, opaque watchtower service.

Channel liquidity isn't magic; it's a managed service. Large Liquidity Providers (LSPs) like Lightning Pool operators become essential intermediaries.

• Gatekeepers: LSPs control capital routing, creating central points of failure.
• Rent-seeking: Fees for inbound liquidity create a banking-like fee structure.
• Surveillance: LSPs have a full graph view of your channel and potential transaction flows.

Efficient routing requires large, well-connected nodes. This leads to topological centralization where a handful of nodes (e.g., ACINQ, Blockstream) dominate the network.

• Censorship vectors: Major routing nodes can blacklist certain transactions or counterparties.
• Single points of failure: An attack on a few large nodes can partition the network.
• Protocol ossification: These entities have disproportionate influence over protocol upgrades (like Taproot Assets integration).

The UX forces custodial trade-offs. Most users access Lightning via custodial wallets (e.g., Wallet of Satoshi, Cash App) or semi-custodial mobile apps that manage channels for them.

• Key control: In custodial mode, you do not hold your private keys.
• Regulatory attack surface: Custodial providers are KYC/AML choke points.
• False narrative: This reality directly contradicts the "be your own bank" ethos of Bitcoin.

The network's HTLC-based routing is vulnerable to a low-cost, protocol-level griefing attack. An adversary can lock up a channel's liquidity with worthless pending payments.

• Denial-of-Service: Renders channels unusable without stealing funds.
• Economic attack: Costs attacker minimal on-chain fees to inflict disproportionate damage.
• No solution in sight: Proposed fixes (like PTLCs) require complex protocol upgrades and introduce new trade-offs.

Closing a channel requires an on-chain transaction, reintroducing base layer constraints. In a mempool congestion event, your exit is not guaranteed.

• Fee market risk: You must outbid others for block space to reclaim your funds.
• Timelock race conditions: Malicious counterparties can force disadvantageous settlements during high-fee periods.
• L1 dependency: Ultimately, Lightning's security and exit liquidity are 100% dependent on Bitcoin's own scalability and fee predictability.

Bitcoin's base layer is secure but slow and expensive for microtransactions. Architecting a fast L2 requires moving value off-chain, which introduces a new trust problem: how do you ensure participants don't steal or disappear with funds?

The core cryptographic primitive that enables conditional, trust-minimized payments. It's a smart contract enforced by the Bitcoin blockchain.

• Key Benefit 1: Atomicity. Payment either completes fully along the route or fails entirely, preventing partial settlement.
• Key Benefit 2: Time-bound Disputes. If a counterparty stalls, you have a guaranteed timeframe (e.g., ~144 blocks) to reclaim your funds on-chain.

The model isn't purely trustless; it's custodial within a channel. If your peer goes offline maliciously during a dispute, you must be online to enforce the HTLC. This creates a liveness assumption.

• Key Benefit 1: Watchtowers (e.g., Lightning Labs, ACINQ) act as third-party sentinels to monitor channels, outsourcing liveness.
• Key Benefit 2: This shifts trust from counterparty honesty to watchtower availability and honesty, a more manageable and incentivized service.

Capital is locked in bidirectional payment channels, creating localized liquidity pools. Routing payments requires finding a path with sufficient inbound/outbound capacity, a complex multi-hop problem.

• Key Benefit 1: Nodes like Voltage, River operate as liquidity hubs, abstracting complexity for end-users.
• Key Benefit 2: The network effect: as more nodes and channels form, the ~$200M+ in public capacity creates a dense, resilient mesh where trust is distributed.