Lightning Network – can your channel funds be…

Fractional?

No. Not unless you change it radically. Your funds are in your channels, and that is the only thing you really need to care about. What happens further out in the network isn’t something that concerns the safety of your funds. When you do a payment, you give your channel partner a cryptographic promise that he’ll get money when he can prove to you that he has paid the bill to the end. The only thing that has happened until this time is that your funds is in a HTLC, which can be said to be some sort of escrow – that will timeout automatically. When he presents you with this proof, you co-sign a new commitment transaction that rules the distribution of the funds in the channel. Totally on-chain funds.

Held back?

Now, in a way. A malicious actor can refuse to play ball with you. But the most he can do, is to keep you from using them in LN. He can’t keep you from using other channels, and most people will probably end up closing channels that never route any payments for them. A channel partner can not prevent you from closing a channel. Though he might force you to force-close it.

 

Stolen?

The only way lightning funds move if you sign off on a transaction to move them! And every transaction invalidates the last one, a proof that either you and someone else (watchtowers) can spend. There’s ample time limit on force-closing channels, so currently, without watchtowers, you should be online once a day or so if you receive funds. This is the reason Eclair hasn’t implemented receiving funds, yet. In LND, watchtowers is coming soon, so this should be even safer after that. I love free bitcoin! If someone tried this on me, he’d in effect give me his bitcoins in the channel! And the chance of actually getting away with it is only going to get smaller and smaller. With watchtowers, it’s also going to be pretty impossible to guess when it would be “safe” to try this, too.

Picture the wild west. Picture a guy sitting in the middle of the town square, with a large sign saying, “I robbed the bank!”. Picture hundreds of people in the town square, each and every one of them could be a bounty hunter, and you have no gun. The only thing you can do if you are caught is to go directly to jail. Picture that you are obliged to sit still for at least 24 hours! You can’t move. That’s the safety level we are talking about, and *that’s* the disincentive to trying to steal.

Lost?

Less and less possible. Right now, the backup possibilities aren’t that great. The backup we’ll see will be cryptographic backups posted to special nodes – possibly same as watchtowers. But right now, this is the weakest point. Don’t put your life savings in LN channels, and you’ll be good. And if something strange happens, file a bug report! This is open source, and thing are fixed as we go! And as it’s all backed by on-chain funds, nothing really disappears.

In conclusion: Don’t believe in the FUD. Safety is the primary goal of LN developers1

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