Why run these services yourself?

Using third-party servers and services to monitor addresses or watch Lightning channels exposes metadata. That metadata can be used to link your identity to your funds. Running your own Electrum Personal Server (EPS) and a watchtower gives you three big benefits:

• Privacy - your wallet queries and channel state stay on infrastructure you control.
• Security - you reduce attack surfaces by avoiding centralized or hosted servers that could go offline or be coerced.
• Resilience - you can verify your own history and help recover transactions without relying on third-party indexers.

Overview - How the pieces fit together

At a high level the stack looks like this:

• Bitcoin Core - the trusted full node that validates and stores the blockchain.
• Electrum Personal Server (EPS) - an indexer that talks to Bitcoin Core and serves wallet queries to Electrum-compatible wallets in a way that exposes only your own addresses.
• Watchtower - a service that monitors Lightning commitments and can broadcast penalty or recovery transactions if a counterparty cheats.
• Hardware cold wallet / watch-only wallet - your private keys remain offline while you use EPS to query balances and craft PSBTs.

Hardware and cost considerations

You can run this stack on modest hardware. Typical builds include a Raspberry Pi 4 or similar single-board computer with an external SSD. If you plan to host Lightning or a long-term watchtower with many channels, choose more RAM and a reliable SSD. Consider the following:

• Raspberry Pi 4 or small dedicated server - 4 GB or 8 GB RAM recommended for comfort.
• SSD (250-1000 GB) - a full Bitcoin Core node requires significant space; pruning is optional but not recommended if you want full index functionality for EPS.
• Uninterruptible power supply (UPS) - protects against data corruption during outages.
• Reliable internet connection - static IP or Dynamic DNS helps if you plan remote access.

Operating costs in Canada will depend on hardware and electricity. For a small Pi-based node the incremental annual electricity cost is typically low, but if you use a full server or run many Lightning channels, factor that in.

Preparing Bitcoin Core for Electrum Personal Server

EPS relies on a properly configured Bitcoin Core. These are the key configuration choices to make:

• Disable pruning - to serve a complete index, run Bitcoin Core with no pruning so historical UTXO data remains available.
• Enable RPC and server mode - EPS talks to Bitcoin Core over RPC, so set server=1 and valid rpcuser and rpcpassword values in bitcoin.conf.
• txindex=1 - enable transaction indexing to allow fast lookups by EPS.
• Tor (optional) - run your node as a Tor hidden service to hide your IP from block explorers and remote clients.

Testing tip - let Bitcoin Core fully sync before starting EPS. Indexing and initial sync are the most resource-intensive operations.

Installing and configuring Electrum Personal Server

Electrum Personal Server is designed to serve Electrum-compatible wallets while keeping privacy by only answering queries for your own xpubs or addresses. Key points:

• Wallet compatibility - EPS works with many popular wallets that support Electrum servers. You use EPS with a watch-only wallet derived from your hardware wallet's xpubs.
• Access control - EPS can be bound to localhost or a private network. If you expose it externally, use Tor or strong authentication.
• Performance - EPS reduces reliance on public Electrum servers and improves privacy, but initial address scans take time.

Operational steps at a high level:

1. Install prerequisites and create a service user for EPS.
2. Configure EPS with your Bitcoin Core RPC credentials and list of wallet xpubs.
3. Start EPS and point your Electrum wallet to its host and port, or connect over Tor for added privacy.

Practical tip - create a watch-only Electrum wallet using the xpub from your hardware wallet. That way EPS only exposes scripts you actually own.

Watchtowers - why Lightning needs them and what to run

On Lightning, a counterparty could attempt to broadcast an old commitment transaction to steal funds. A watchtower is an off-chain guardian that monitors the chain and broadcasts a penalty transaction if a cheating attempt occurs. Running your own watchtower gives you control and privacy.

Watchtower options

• LND watchtower - if you use LND for Lightning, it supports watchtower functionality (as client and server).
• Core Lightning watchtower plugin - Core Lightning (formerly c-lightning) also offers watchtower services via plugins.
• Third-party watchtowers - possible, but self-hosting is recommended for privacy.

Key properties to consider: uptime, secure storage of any keys used by the watchtower, and connectivity to your Lightning node. A watchtower should be highly available and ideally run in a separate process or host than your node to reduce correlated failure risk.

Integration - combining cold wallets, EPS, and watchtowers

One powerful configuration is to keep private keys offline on a hardware wallet while running EPS as a watch-only interface for on-chain monitoring, and a watchtower to protect Lightning channels. A typical workflow:

• Generate seed and keys on a hardware wallet (Ledger, Coldcard, etc.).
• Export the xpub and import into a watch-only Electrum wallet connected to your EPS.
• If you use Lightning, open channels from a separate hot wallet but register your watchtower to protect channels that involve funds you control.
• Sign PSBTs on the hardware wallet offline, broadcast the signed transaction through your node or EPS as needed.

This approach preserves private-key air-gapping while giving you full visibility and automated protection on Lightning.

Security and privacy best practices - Canadian context

Running these services increases your operational responsibility. Here are essential controls and Canada-specific notes:

• Secure RPC credentials - never expose rpcuser or rpcpassword. Use file permissions and firewall rules.
• Network segregation - place your node and watchtower on a private network or VPN if you run other services from the same host.
• Tor for privacy - consider running your Electrum server and node over Tor to avoid linking your IP to wallet queries.
• Backups and recovery - maintain offline backups of wallet descriptors, xpubs, and watchtower state if applicable. Test recovery procedures regularly.
• Regulatory awareness - running a personal node is a self-custody tool and does not change tax or reporting obligations under Canadian law. Keep accurate records of trades for CRA reporting and be mindful of FINTRAC rules if you operate a business that exchanges fiat and crypto.

Testing, maintenance, and disaster drills

Operational readiness matters as much as initial setup. Regular tests give you confidence that your watchtower will act and that EPS will serve correct history.

• Run periodic test transactions on testnet to verify EPS and watchtower behavior without risking mainnet funds.
• Perform recovery drills: restore a watch-only wallet from your backups and confirm balances match what you expect.
• Monitor logs and set alerts for low disk space, Bitcoin Core reindexing needs, or watchtower failures.

Common pitfalls and how to avoid them

• Expect initial indexing delays - EPS needs time to scan addresses and build its index; be patient the first time.
• Do not expose sensitive ports - if you must access services remotely, use Tor or strong authentication rather than opening RPC or Electrum ports to the internet.
• Watchtower availability - a watchtower that is offline provides no protection. Use monitoring and redundancy if possible.

A Canadian use-case example

Imagine a small Canadian entrepreneur who accepts Bitcoin payments. They run Bitcoin Core and EPS at home or on a small co-located server. Their phone wallet connects to EPS over Tor as a watch-only Electrum wallet for payment monitoring. Separately, the entrepreneur runs a watchtower for any Lightning channels used for fast checkout. When a customer pays, the business verifies receipts via their EPS and, for channel breaches, relies on the watchtower to act automatically. Personal keys remain offline for larger treasury holdings, and all on-chain movement is PSBT-signed on hardware wallets.

Conclusion - privacy and control are within reach

Running your own Electrum Personal Server and a watchtower is a practical way to harden privacy and security for Canadians and global users alike. With modest hardware and careful configuration, you gain the ability to monitor addresses privately, recover and verify transaction history, and protect Lightning channels from cheating attempts. This is not a one-click solution - it requires maintenance, testing, and operational discipline - but for anyone serious about Bitcoin self-custody, the control and privacy payoff is substantial.

Start small: synchronize a Bitcoin Core node, configure EPS in watch-only mode, and run a test watchtower on testnet. Build your production setup only after validating your procedures.

If you want, I can provide a step-by-step checklist tailored to a Raspberry Pi 4 setup, a suggested bitcoin.conf and EPS config snippet, or a troubleshooting playbook for common startup errors. Which would you like next?