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Phoenix wallet is a unique Lightning wallet in that, among other things, it allows the user to restore channels by simply entering their seed. According to ACINQ's blogpost, this is how they achieve it:

TL; DR: Each time channels are updated, Phoenix sends an encrypted version of their data to its peer. This allows for easy backup/restore of channels while maintaining privacy.

In the case of Phoenix wallet, the peer is always ACINQ, but my question applies to any similar peer backup solutions: what's to stop the peer from making me recover an old channel state, and claim all my funds when I try to close it?

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Nothing.

If you have lost the last state and are recovering it from your peer then you are trusting it, no matter if it's encrypted or not.

This could include having you close the channel with a previous state where they had a higher balance, or for Phoenix (if i read the blog post correctly) even continuing the channel operation from a past state when they had a higher balance, or even the catastrophic scenario you mentioned (if Phoenix is at all able to force close..).

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The fact that the data is encrypted with a key derived from your seed. So the peer cannot use that data it can only back it up for you. After you recover you will need to request that data and decrypt it yourself

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  • That's right, the peer cannot use the backup data to close the channel in my name. But the question was, can the peer send me an old backup and therefore trick me into closing the channel using an old state, allowing them to claim all the funds? – Vojtěch Strnad Jun 3 at 13:50
  • Oh sorry misread that. I think that is actually a pretty valid concern your question raises. I guess a (not optimal) solution would be to have backups with several peers and compare them – Rene Pickhardt Jun 3 at 20:46

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