Christian Decker answered this at Advancing Bitcoin 2022.
Custodial wallets are then further split into account based and hosted channels, sometimes also called multi-tenancy systems, built on top of a single Lightning node that is under the control of some operator.
On the non-custodial side we have the self hosted version which has been so far the go-to case for many of you I believe. In that case you have to learn about how to operate a Lightning node, how to set up all of the infrastructure: databases, watchtowers, backups etc. If I drop my phone in the lake what do I do now? With great flexibility comes a lot of responsibility as well.
Then we have the split into do we want to have a node per device? That is often a choice that has been made so far where we build a node into the Lightning application. There are now really good tools to do that, LDK is an excellent example of how to do that, but it also means that if you use more than one app you are now operating two wallets. You are splitting funds across these two wallets. If you have 50 here and 50 here you can’t pay 60. There is no way of combining them. It also means that the management overhead that you have is multiplied by the number of apps that you have. If you have two apps you now have to manage twice the number of channels, you have to manage twice the number of backups, you have to pay twice the watchtowers and so on and so forth. It also means that if you drop your phone in the lake, bye bye funds basically.
Then there is the remote control node scenario where you have some sort of box at home. You are remoting into that node from the outside. Personally I quite like this because it means that I can have multiple apps be frontends to the same node. The funds are concentrated on a single node and I don’t run into this issue that I might not be able to pay an invoice despite having sufficient funds, if only they were combinable. The upside is I can drop my phone in the lake again and my funds are still safe. That’s kind of nice.
Today I am going to present a mix between these scenarios. That is what I call remote control and remote signer. We will see how this can be used to get the best of both worlds. Make it easier to assist new users until they have learnt about the Lightning Network to take on responsibility for their own node and how they can migrate from this scenario over to this scenario. It enables a lot of flexibility and at a later point in time, once you have seen the upside of what this can do for you, you are incentivized to learn and upgrade your experience to take care of your own node. What I didn’t mention is that remote controlled node and remote control/remote signer setups also have a way smaller capture feature. Namely if you integrate the node into the app then you don’t have the flexibility of trying out the new app that might have a new cool interface. You have to tear down the entire node, transfer funds and then spin up the entire node again just to find out this UI actually doesn’t work for me so I’ll migrate back. With the remote setups you can switch between front ends and even use them concurrently as often as you want. You could have the same node be fronted by a web browser and a mobile app. Or you could give your kids access to parts of that node in the form of an allowance for example.
Greenlight is an example of the remote control / signer option. It is a service provided by Blockstream but others are free to provide similar services.
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