Part 7/12:
In Lightning, to prevent fraud or dishonesty, network participants must deploy additional "watchtower" nodes—trusted third parties that monitor channels to ensure honest closures. If a party acts maliciously, watchtowers can penalize dishonest behavior by claiming funds. But this introduces an inherent trust assumption: users must rely on someone to monitor and enforce the rules.
Moreover, large liquidity providers — often big companies — oversee vast numbers of channels. These entities can be targeted by governments, face shutdowns, or be peer to regulatory pressure, risking network collapse if they go offline. This centralization undercuts Bitcoin's core ethos of decentralized trustless transactions.