Hash Time Locked Contracts

2017-09-26T21:20:23Z

Gunar: Fix: Bob -> Charlie

A '''Hashed TimeLock Contract''' or '''HTLC''' is a class of payments that use [[hashlock]]s and [[timelock]]s to require that the receiver of a payment either acknowledge receiving the payment prior to a deadline by generating cryptographic proof of payment or forfeit the ability to claim the payment, returning it to the payer.<ref name="russell_htlc" />

The cryptographic proof of payment the receiver generates can then be used to trigger other actions in other payments, making HTLCs a powerful technique for producing
conditional payments in Bitcoin.

== HTLCs in cross-chain atomic swaps ==

[[Atomic cross-chain trading]] allows some amount of one cryptocurrency (such as bitcoin on [[mainnet]]) to be traded for some amount of cryptocurrency on another block chain (such as bitcoin on a [[sidechain]]).

Descriptions of cross-chain atomic swaps are probably the origin of the technique now called HTLCs.{{citation needed}}

== HTLCs in payment channels ==

[[Payment channels]] already use timelocks, and it can be relatively simple conceptually to extend them with hashlocks. This provides the useful benefit of making payments routable across two or more payment channels.

=== Example ===

# Alice opens a payment channel to Bob, and Bob opens a payment channel to Charlie.
# Alice wants to buy something from Charlie for 1000 satoshis.
# Charlie generates a random number and generates its SHA256 hash. Charlie gives that hash to Alice.
# Alice uses her payment channel to Bob to pay him 1,000 satoshis, but she adds the hash Charlie gave her to the payment along with an extra condition: in order for Bob to claim the payment, he has to provide the data which was used to produce that hash.
# Bob uses his payment channel to Charlie to pay Charlie 1,000 satoshis, and Bob adds a copy of the same condition that Alice put on the payment she gave Bob.
# Charlie has the original data that was used to produce the hash (called a pre-image), so Charlie can use it to finalize his payment and fully receive the payment from Bob. By doing so, Charlie necessarily makes the pre-image available to Bob.
# Bob uses the pre-image to finalize his payment from Alice

== References ==
<references>
<ref name="russell_htlc">[https://rusty.ozlabs.org/?p=462 Lightning Networks Part II: Hashed Timelock Contracts (HTLCs)]
</references>

Bitcoin Wiki - User contributions [en]

Hash Time Locked Contracts