Hosted channels are distinguished from traditional LN channels primarily by their inability to settle disputes on-chain. Unlike classical LN channels which have an inbuilt dispute resolution mechanism leveraging the blockchain, hosted channels only offer a proof of misbehavior without any automatic on-chain dispute resolution capabilities. This distinction underlines the unique operational mechanisms and limitations inherent to each type of channel, arguing against the oversimplification or misunderstanding of equating one with the other merely because they share some functionalities or are part of the same network architecture.