best way to think about it
bitcon is gold. LN is bank notes
to move gold costs you, say $2 meaning at a 1% fee. most people wont want to move less than $200 of gold without incuring more than 1% loss due to fee's
however you can deposit your $200 of gold into a bank and have banknotes to trade in a banknote community where it only costs you maybe 0.1cent fee. so now you can spend 10c-$200
however remember to get a bank note. vaulting up your gold costs you $2 and unlocking your gold cost you $2
so remember it costs you $4 in total to use the bank note system . but then you can enjoy small spend denominations of 10c+ once in that community
..
the flaws are its not a pay the destination system and have everyone audit your payment
its a pay your nextdoor neighbour who pays the milkman who pays his wife that works at the destination
so you have to be reliant on your
naighbour having funds to pay forward
milkman having funds to pay forward
wife who has funds to pay forward
..
this bottlenecking of routes due to lack of funds. then causes centralised hubs with large bank note accounts to route the payment and by pass the friend-friend-fried-friend route
next up is if everyone was to do a friend-friend network they would need to have 5 different friends to have 5 different possible routes to destination where each friend has 5 friends
this means you are not putting $200 into one bank account but puting $40 into 5 accounts each
meaning you can only spend $40 in any direction
again this leads to people prefering to be linked to a hub(bank) that has large reserves so that you can just have one route via them. and let them manage the route so that you can have your whole $200 in one account
the next flaw is that you wont want to have to pay $4 to close and reopen your account every couple months as thats then like having a $4 membership subscription just to use paypal
so what you do is near the end of the month. you swap out your bank notes.. not to exit with gold. but instead to exit and return with silver(ltc) as the close-reopen fee is alot less.
so now you have given up your gold pegged bank notes. given up your gold and now playing with silver(ltc) and silver based bank notes.
and thats the whole game theory hope of the LN kings.
they want people to deposit in gold and then swap out to silver so that the hubs get to keep the gold(btc)
(institutional banks done this with gold<>bank note 1870-1970 and then didnt want to honour gold returns)
LN hopes to do this with btc<>millisats in ~10-20 years, where eventially millsats can only be converted to altcoin)