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# Why the Bitcoin Lightning Network Is Impossible to Fully Decentralize and Risks Becoming a “CBDC 2.0”

The Bitcoin Lightning Network (LN) was designed as a layer-2 scaling solution to enable fast, low-cost off-chain Bitcoin payments while preserving the decentralized and censorship-resistant properties of Bitcoin’s base layer. However, **the LN faces fundamental technical, economic, and structural challenges that make true decentralization impossible today**. This centralization also exposes the network to a high risk of evolving into a centralized digital payment system resembling a “CBDC 2.0” (Central Bank Digital Currency).

## 1. Infrastructure Centralization

A large portion of LN nodes rely on a small number of centralized cloud providers, creating critical points of control and failure external to the Bitcoin ecosystem:

- Nearly **50% of LN nodes run on major cloud platforms**, with **over 30% on Amazon Web Services (AWS)** and roughly **18.5% on Google Cloud**.

- This concentration means outages, policy changes, or government pressure on these providers could disrupt or censor a significant fraction of the network.

- Cloud dependency undermines Bitcoin’s principle of distributed trustlessness by placing network resilience in the hands of a few corporate entities.

## 2. Network Topology and Routing Hubs

Although LN is designed as a peer-to-peer payment network, reality shows a **concentration of liquidity and routing power in a few “hubs”**:

- Large nodes with ample liquidity dominate payment routing because they can efficiently forward transactions.

- Such hubs can censor transactions, impose fees, or become attack targets.

- This “hub-and-spoke” model resembles centralized payment processors, reducing the effective decentralization of the network.

## 3. Dominance of Custodial Wallets

One of the gravest centralization hurdles is the **widespread dependence on custodial Lightning wallets and service providers** for user transactions:

- Industry data and expert analysis estimate that **over 60–70% of Lightning transactions flow through custodial wallets**, which manage channel liquidity and routing for users.

- Custodial wallets hold users’ funds, recreating the very trust relationships LN was intended to eliminate.

- This custody concentration enables censorship, user surveillance, regulatory intervention, and risk of loss from hacks or mismanagement.

## 4. Technical and Economic Barriers for Non-Custodial Adoption

Running a non-custodial Lightning node involves significant complexity:

- Nodes must be online almost 24/7 to receive payments reliably.

- Managing inbound and outbound liquidity and channel rebalancing is a constant challenge.

- Opening and closing channels necessitate on-chain confirmation, incurring fees and delays.

These technical hurdles and economic costs push many users toward simpler custodial solutions, reinforcing centralization.

## 5. Risk of Becoming a “CBDC 2.0”

These centralizing forces pose a serious risk that the Lightning Network will evolve into a **centrally controlled payments platform akin to a CBDC**, undermining Bitcoin’s core values:

- **Custodial wallets replicate the CBDC custody model**, where users surrender direct control of their funds, enabling censorship, freezing, and forced compliance.

- **Centralized infrastructure and dominant routing hubs create chokepoints** vulnerable to governmental or corporate pressure—similar to how CBDCs would enforce regulatory compliance.

- **Routing hubs holding significant liquidity can censor or block transactions**, defeating Bitcoin’s permissionless design.

- **Liquidity lockups and custodial dominance reduce self-sovereignty**, mimicking centralized digital money.

- **Regulatory pressure and technical complexity push most users toward custodians**, accelerating centralization.

This scenario envisions the Lightning Network shifting from a decentralized Bitcoin scaling layer to a **permissioned, surveilled financial network**, a “CBDC 2.0” masquerading as Bitcoin technology.

## Summary Data Highlights

| Aspect | Data / Estimate |

|---------------------------------|---------------------------------------|

| LN nodes on centralized clouds | Nearly 50% (AWS ~30%, Google Cloud ~18.5%) |

| Custodial Lightning wallet usage | Over 60–70% of LN transactions flow through custodial wallets |

| LN transactions as of 2024 | Lightning payments comprise ~16.6% of Bitcoin’s total transaction volume and growing |

## Conclusion

While the Lightning Network promises to scale Bitcoin through decentralized, low-fee micropayments, **the current realities of cloud infrastructure dependence, routing hub centralization, and custodial wallet dominance make full decentralization practically unattainable**. Furthermore, these trends dangerously risk transforming LN into a **centralized, regulated payment system—a “CBDC 2.0” that contradicts Bitcoin’s censorship-resistant, permissionless vision**.

Without significant architectural and economic innovations to mitigate these forces, LN will struggle to fulfill its role as a decentralized scaling solution and may instead become a vehicle of institutional financial control.

## Sources

- Bitcoin Magazine, *Is The Lightning Network Centralized?*

https://bitcoinmagazine.com/culture/is-the-bitcoin-lightning-network-centralized

- SimpleSwap, *What Is Bitcoin Lightning Network and How It Works* (2025)

https://simpleswap.io/blog/what-is-bitcoin-lightning-network

- Bitcoin Magazine, *What Is The Lightning Network?* (2024)

https://bitcoinmagazine.com/guides/lightning-network

- BeinCrypto, *Amazon and Google Power 45% of Bitcoin Lightning Nodes* (June 2025)

https://beincrypto.com/amazon-google-operating-bitcoin-lightning-nodes/

- Forbes, *Bitcoin And The Future Of The Lightning Network* (June 2024)

https://www.forbes.com/sites/digital-assets/2024/06/07/bitcoin-and-the-future-of-the-lightning-network/

#Bitcoin #BTC #LightningNetwork #Crypto #DeFi #Blockchain #CustodialWallets #CryptoNews #BitcoinSecurity #CryptoWallets

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Discussion

Joel Walbert 5mo ago

Fuck Lighning. Were it not for nostr, Id have no use for fake btc

Hodler 5mo ago

It's literally the only 2nd layer of #Bitcoin that's 100% real Bitcoin.

A #Lightning channel is just an unsigned Bitcoin transaction that settled on the Bitcoin blockchain as the last updated state if one of the 2 parties want to.

🤣🤣🤣

Joel Walbert 5mo ago

Thats your opinion. Lighting is garbage is mine. Heaven fucking forbid I prefer actual bitcoin.

m4dire0701 5mo ago

nostr:nprofile1qqsw58n0dqm5rmrnxw69g0ltdyzsv68k6elstufe9r3zdd7nf8lqqpgpzpmhxue69uhh5cts9emkzarrdqhs9jlyjq you probably didn't even read the first article's paragraph... 😅

Hodler 5mo ago

I did: This reaction was about the notion that LN is 'fake Bitcoin', because it's literally a real Bitcoin transaction.

The other message was a direct answer to your article, and my disagreement was on the notion that there is a risk it becomes a CBDC 2.0

The fact that you can choose your own level of sovereignty makes it impossible to make it into a CBDC.

m4dire0701 5mo ago

How could you be sovereign using LN if this network is largely dependent of custodial nodes? It isn't simply "If you want more privacy then you just need to configure your own node and... VOILÀ!" Even your non-custodial node on LN need to pass through centralized hubs. It's not so hard to understand with this picture 👇

Hodler 5mo ago

Ok, so this centralised node gets to route my transaction. Because of onion routing he only get the information important for routing, so he only knows which node it comes from, how many sats and which node he passes it on to. He doesn't know who the initial sender and receiver is. What is he going to do to me?

Exactly, all he CAN do is choosing to route or to sensor. Guess what, If he start censoring he becomes a very unreliable node to route through, so he will lose its dominant position.

Your argument is comparable to people who think we would see all these evil monopolies in a stateless society. This is simply not how it works. Without state coercion monopolies can be exelent and remain, or abuse their position and be disrupted.

Hodler 5mo ago

Disagree, #Lightning the protocol enables people to use it as they wish. I understand that people use custodial wallets for their $3 coffee payments. The key is that they can simply move to non-custodial if they wwant, which is probably when problems arise. There just is no real pressure now.

Centralised hubs, who cares? LN uses onion routing, so they can't surveil you. Worse they can do is censoring payments, guess what? Then people will route around them.

Yes it's not perfect, but like #Bitcoin, Lightning will have growing pains, its only 7 years old. The nice thing about software is that it can be improved over time.

Joel Walbert 5mo ago

Lightning is 100% unusable for most other than using custodial methods. Get an 80 yr old running her own node then talk to me. But you have it figured out so thats all that matters right?

Hodler 5mo ago

You know how technologies get adopted right? Starting with innovators, ending with the laggards. Why would #Lightning be any different than literally ANY other technology?

5 years ago running your own node was the only way to be self-sovreign, today you can use non-custodial wallets like Phoenix or Aqua. Both make some smart trade-offs (there are no solutions, only trade-offs), probably good enough for most people to buy a coffee.

I would say 5 years ago was the innovator stage, today the early adopters. The next phases WILL come and include more people, just like every technology......

Joel Walbert 5mo ago

Dude, Ive used lightning and I hate it. There is literally nothing you can say to change my mind as its based on my experience with it. It serves exactly zero purpose for me other than zaps here. You have your opinion on it, I have mine.

Hodler 5mo ago

Oeff what an emotion about a technology. Looks like you have a problem, not Lightning 🤣🤣🤣

This is the advantage of scaling #Bitcoin in layers. If you don't like it, you can just use Bitcoin. Also, if it fails, Bitcoin will be unaffected

Joel Walbert 5mo ago

And you say you arent in a cult. I criticize lightning, you act like a little bitch and make it about me 🤣🤡

Hodler 5mo ago

Just so you know: The word 'hate' is an expression of emotion, not an argument of your critics.

This is my last answer, not planning to waste my time arguing about this.

Hope you find another purpose than being mad at technology 😆

Joel Walbert 5mo ago

You are seriously fucking pathetic.

m4dire0701 5mo ago

This cult-mentality of btc maxis is beyond stupidity 🤮

Joel Walbert 5mo ago

No fucking doubt about it. Its absurd. I say on-chain is fine for my uses, and still got good enough for this fool. Its laughable yet quite sad.

Joel Walbert 5mo ago

Here, fill this out and go tell daddy I am mean to your precious lightning network

Joel Walbert 5mo ago

Ita also tainted as fuck. You wanna help the enemy, have at it.

https://www.weforum.org/organizations/lightning-labs/

Hodler 5mo ago

LND is one of the three implementations. Saying that the #Lightningnetwork is compromised because one of the centralised parties working on it might be compromised, tells me that you don't understand open source software.

Lightning is an open source, permissionless protocol. Everyone can work on it, everyone can audit it and everyone can run what he want.

Joel Walbert 5mo ago

Onchain only. Try to tell me how there is anything wrong with that. I dont give a fuck what you do or your opinion on this. Why the fuck you care about mine?