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self hosted lightning - i agree. But most people use third party hosted lightning, which offers no privacy at all as the wallet provider sees every transaction

Perhaps, but that's not all that different from the VPN market. Turns out there's a huge market for privacy, so it's not a stretch to think that people will host wallets on the basis of upholding privacy for people that aren't tech savvy enough to do it on their own.

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nobody goes to jail for you in the end. not your vpn provider, not your wallet provider. And a good chunk of the anon wallet providers will exit scam.