First of all, the very concept of channel may already be alien to you so here’s a short explanation: payment channel is a basic building block of Lightning; interconnected channels is what makes Lightning a payment network. If you want to transfer bitcoin over LN then you need to have an open channel with someone.
Now, BLW supports two kinds of channels: normal and hosted ones. The most important difference between these two is that bitcoins in a normal channel are stored locally in your wallet while coins in a hosted channel are stored on a remote server. In other words: hosted channel involves trusting remote peer to not get away with your money while normal channel is trustless.
An obvious question then is why does BLW support hosted channels if normal ones are better? There are quite a few reasons, the most apparent one is that a normal channel is sort of hard to manage and using it safely requires a rather deep understanding of Lightning mechanics while hosted channels are effortless and can be used right away even by someone who knows nothing about Bitcoin or Lightning at all.
Basically BLW provides the following choice: if you want to know how things work under the hood while having full control over your funds then use normal channels. If you just want to get a payment done now and learn how things work later then go along with a hosted channel which BLW creates automatically.
Hosted channels have attractive privacy and auditability properties when compared against ordinary custodial wallets, as explained in extended post and very technical details can be found in hosted protocol spec.
Besides trust this is all new and experimental stuff, I would very much like to say otherwise but the truth is ultimately loss of funds may occur due to unknown unknowns so use this at your own risk. If this warning feels like too much then just remove a hosted channel and proceed with normal ones.
In a case of phone or data loss fully restoring a hosted channel requires you to have a mnemonic phrase so please do save it somewhere safe shortly after an app is installed!
Once installed an app attempts to establish a default hosted channel with BLW developer’s node.
Here are the important parameters:
| Parameter | What does it mean |
|---|---|
liability-deadline-blockdays365 |
Host will try its best to keep your hosted channel data and obligations for 52560 blocks (365 * 144 blocks per day, about 1 year) since the last payment attempt. This does not mean host will strictly drop a channel once that deadline passes, but don’t count on it and better drain a hosted channel if you don’t plan to use it anymore. |
default-capacity-msat10000000000 |
Hosted channel capacity is limited to 10000000 SAT or 0.1 BTC. If greater capacity is desired then you should get a normal channel. |
fee-proportional-millionths100 |
Host will take 0.01% of payment sum as routing fee for all your incoming and outgoing payments. And then final routing fee may be higher than that because payment may require multiple hops to get to the destination with each hop taking its own fee. |