The counterparty risk for Custodial wallet and Cashu users is that the server operator might run away with the funds.
Liquid users face the risk that multiple federation members might collude to steal the funds.
Spark users face the risk that the service providers might collude with the previous sender to double-spend the received funds.
The counterparty risk for Ark is that if the user stays offline for too long and their VTXO expires, the service provider may be able to take control of it.
The counterparty risk for Lightning channel users is that if the channel counterparty broadcasts an old state (a settlement transaction favorable to them) on-chain, and the user fails to come online and publish the latest state within the dispute period to contest it.
The security of off-chain BTC is not uniform—counterparty risk increases in the following order: Lightning-Channel BTC → Ark BTC → Spark BTC → Liquid BTC → Cashu BTC → Custodial BTC.
The Lightning Network is a channel layer plus a routing layer. If you run your own channel, the routing layer lets you settle payments directly.
For the other five off-chain wallets, the operator shares its own Lightning channels with users, allowing them to send and receive Lightning payments.
Liquid example
• Paying — your wallet sends the same amount of L-BTC, and the operator pays the invoice through its channels.
• Receiving — the operator first receives BTC over Lightning, then sends you the equivalent L-BTC.
Liquid, Spark, and Ark can make users’ sending and receiving of Lightning payments atomic.
Lightning is the transport network—other off-chain solutions plug in as special nodes.
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