Crypto glossary
Watchtower (Lightning)
A watchtower is a service that monitors the Bitcoin chain for a user's Lightning channels and punishes a counterparty who cheats while the user is offline.
In a Lightning channel, each update revokes the previous state. If a counterparty broadcasts an old, revoked state that gave them more money, the honest party has a window, set by a timelock, to publish a penalty transaction that claims the entire channel balance. That only works if someone is watching the blockchain during that window.
Mobile and casual users cannot stay online all the time, so watchtowers do the watching for them. The user's wallet sends the tower encrypted data for each channel state; if the tower sees a matching breach on-chain, it can decrypt and broadcast the justice transaction. Some Lightning node implementations include watchtower clients and servers, and users can run their own or rely on a provider.
Towers learn little about the channel until a breach happens, thanks to the encryption, but they must store data for every state update, which grows over time. They also add another party to trust for availability. Newer channel designs, such as eltoo, which would require a soft fork, aim to simplify this by removing the penalty model.
Example
While a user's phone is off for a week, their channel partner broadcasts an outdated state; a watchtower spots it and publishes the penalty transaction, giving the user the whole channel balance.