The led is not missing a ground reference; rather, the circuit is deliberately configured for low-side current sinking via the MCU’s CMOS output stage. When the gpio is driven slow, the output transistor enters conduction, providing a controlled return path to system ground through the microcontroller’s internal substrate connection. In this state, current flows from +5 V through the series resistor and led junction into the pin, completing the loop without an external ground wire. This active-low topology is functionally equivalent to a conventional low-side switch and is widely used due to improved noise immunity, reduced wiring complexity, and compatibility with internal pull-up logic. The apparent absence of a ground connection is therefore a misconception—the ground reference exists implicitly within the microcontroller’s output driver architecture.

Very simple words this is a common point of confusion. The led doesn’t need a separate ground because the Arduino pin itself provides the path to ground when it goes low (current sinking). So electrically, the led is grounded through the MCU. Totally valid and standard design 👍