Lightning Network Wallet Alby Faces Uproar Over Inactivity Fees and Unauthorized Bitcoin Withdrawals

The Lightning Network wallet Alby is under fire as users express outrage over a policy that has led to unexpected Bitcoin withdrawals from inactive accounts. Labeled as “inactivity fees,” these deductions have sparked heated debates about transparency, custodial risks, and the broader challenges facing the Lightning Network. The controversy, which gained significant attention in June 2025, highlights tensions between user expectations and the operational realities of custodial services in the crypto space.

The issue stems from a policy update Alby introduced (section 12, Term and Fees) in 2025, which allows the wallet to deduct funds from accounts inactive for 12 months or more. According to various reports, Alby notified users of this change via an email sent on May 1, 2025, but many claim they were caught off guard when funds were withdrawn without their explicit consent.

The backlash intensified after prominent figures in the crypto community, including Yu Xian, co-founder of blockchain security firm SlowMist, reported losses. Xian revealed that approximately $192 worth of Bitcoin was removed from his Alby account on May 26, 2025, without his approval. According to CryptoSlate, other users reported even larger deductions, with one user losing over $590 and another claiming a staggering $5,400 loss. These incidents have fueled concerns that many users may have overlooked the email notifications, raising questions about the clarity and effectiveness of Alby’s communication.

Custodial Risks and the Lightning Network’s Centralization Debate

The Alby controversy has reignited discussions about the custodial nature of many Lightning Network wallets and the risks they pose to users. Crypto advocate Joel Valenzuela criticized Alby’s actions, stating that the wallet’s seizure of funds under the guise of inactivity fees mirrors traditional banking practices. Valenzuela argued that the Lightning Network, initially designed as a decentralized layer two scaling solution for Bitcoin, has increasingly become centralized due to the dominance of custodial wallets.

Estimates are that around 90% of Lightning Network users rely on custodial wallet and services, which control user funds and can act without direct user consent, as seen in Alby’s case. This centralization undermines the core Bitcoin ethos of “not your keys, not your coins,” where users are encouraged to maintain full control over their assets.

The Lightning Network was started in 2015 to enable faster and cheaper Bitcoin transactions by processing them offchain while leveraging Bitcoin’s security. However, its evolution has been fraught with challenges, including technical complexities and bugs, and a reliance on third-party custodians. Critics, including Valenzuela, argue that the network’s promise of decentralization has been eroded as most users opt for custodial wallets like Alby for convenience. These wallets, while user-friendly, expose funds to risks such as policy changes or mismanagement by the provider. The Alby incident underscores these vulnerabilities, as the wallet’s ability to deduct funds from legacy custodial accounts highlights the lack of user control in such setups.

Alby has defended its policy, with co-founder Michael Bumann stating that the inactivity fees were part of a broader transition to self-custodial services like Alby Hub and Alby Go. The company claims it sent multiple notifications over 18 months, urging users to migrate their funds to self-custodial wallets, which give users full control over their private keys. Affected users can reportedly recover their funds by contacting Alby’s support team, though some remain skeptical about the process. Despite these assurances, the crypto community remains critical, with many arguing that the deductions, even if disclosed, resemble unauthorized seizures and erode trust in custodial services.

The broader Lightning Network faces ongoing scrutiny for its technical and operational shortcomings. Over the years, it has been plagued by errors, exploits, and usability issues, falling short of its goal to serve as a fully functional decentralized payments network. Critics contend that Bitcoin’s layer one blockchain, with its robust security and decentralization, could suffice for many use cases if properly optimized and scaled, rendering the Lightning Network’s complexities unnecessary. The Alby controversy has amplified these concerns, prompting calls for greater transparency and a renewed focus on self-custodial solutions that align with Bitcoin’s principles of sovereignty and decentralization.