Payment channels

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Bitcoin, having no discernible faults, comes equipped with several different time locks. These tools allow you to specify time-based conditions under which transactions are valid. Using time locks you make a transaction now that pays someone next week, add a mandatory waiting period for coin movements, set up complex smart contracts that flow across several transactions, or accidentally lock up your coins for centuries.

Most of these time locks were added to Bitcoin quite recently. They're built into the structure of transactions, and have more than a few idiosyncrasies left over from buggy code written by cltv bitcoin miner favorite anonymous cypherpunk, Mr. The corresponding Bitcoin Improvement Proposals BIPs are wonderful and detailed, but assume a lot of background knowledge.

This is an attempt to compile all the information I can find on the time locks, and explain it in depth. Before we dive into the tools themselves, let's figure out how to describe their operation. Time locks have three important attributes: Every transaction has multiple time lock fields they're present cltv bitcoin miner when not used. Scripts, on the other hand, can cltv bitcoin miner zero or many time locks.

In terms of functionality, transaction-level and script-level locks are superficially similar, but perform very different cltv bitcoin miner. Transaction -level time locks cause cltv bitcoin miner transaction to be invalid until a certain time, regardless of the validity of the signatures and scripts.

Script -level time locks will cause script evaluation to fail unless the transaction is also locked. A failed script evaluation makes the transaction invalid. In a nutshell, transaction-level locks determine when a transaction may be confirmed, while script-level locks determine whether a given scriptsig is valid. The major difference between them is what exactly they lock.

A transaction-level lock constrains only a specific transaction. Think of transaction-level locks as future-dating a check: I can write you a check that becomes valid later, but the date applies only to that check, and I could spend the money cltv bitcoin miner ways you don't know about. Script-level locks sets conditions on all transactions spending an output. In other words, Transaction-level locks affect what you can do with a transaction cltv bitcoin miner it's constructed, but Script-level locks determine cltv bitcoin miner transactions can be made in the first place.

Transaction locks aren't as useful as you might think. They don't control coins, only spends. This provides a lot of versatility to P2SH transactions. Script-level time locks require that a corresponding transaction-level time lock is also included. Script-level locks rely on transaction-level locks for enforcement. Rather than checking the time from within the script, script-level locks check the transaction's lock.

This is elegant and economical, if a bit un-intuitive. The script checks that the transaction is locked at least as long as the script path. It treats the transaction lock as a guarantee that time has passed. Well, really, they're both relative. You get to choose arbitrary-origin-point-relative or previous-output-relative. But that's the kind of meaningless pedantry I love. When we time lock coins, we set a target for their release. Absolute locks define this target in terms of a set time.

They pick an exact moment when the lock expires. Relative time locks define it as an amount of time elapsed since the previous output confirmed. It's the difference between "meet me at Transactions that are locked to an absolute time are invalid until that time has passed.

This means that I can make a transaction years in advance, sign it, share it, and even post it publicly with a guarantee that it won't be confirmed before its lock expires. I might use an absolute timestamp to send money to my children or create a savings account that you can deposit to, but can't withdraw from until next year.

Relative locks, cltv bitcoin miner the other hand, mark a transaction invalid until a certain amount of time has passed since the transaction's previous outputs cltv bitcoin miner confirmed.

This is a subtle and powerful feature. The real beauty of relative lock-times is setting locks relative to un-broadcast, un-confirmed transactions. Once a transaction is confirmed, we can always set an absolute lock-time in its future. But to do that, you have to wait for it to confirm, and learn its confirmation time.

Or set up a long lock in advance, which becomes an expiration time for your entire smart contract. Relative locks can be set on un-confirmed transactions, meaning that you can create and sign an entire multi-step cltv bitcoin miner contract in advance, and be guaranteed that its transactions will confirm in the order you expect, no cltv bitcoin miner when you execute it.

In Bitcoin, time is a consensual hallucination and lunchtime never comes. Transactions can't exactly look at a clock on the wall, so we need to decide what "time" is. Bitcoin has two ways of measuring "time": These were implemented as modes of operation for each time lock, instead of full separate lock mechanisms.

You can specify a number of blocks for the lock, or a number of seconds. Both of these have their own complications. In practice, both of these metrics are accurate enough for real-world uses. But it's important to understand their idiosyncrasies. We often say that blocks follow a poisson distribution: But cltv bitcoin miner isn't quite right.

When hashpower is increasing, blocks come faster than expected. Hashpower goes offline or is pointed at other chains, blocks come slower. Difficulty adjusts every blocks about every 2 weeks to target 10 minutes, but blocks can slip a significant amount from where you'd expect them to be due to network conditions, or just random chance.

Timestamps are just as finicky. You see, in Bitcoin, time doesn't always go forward. Due cltv bitcoin miner consensus rules for block timestamps, time can sometimes reverse itself for a block or cltv bitcoin miner. Or just stop for a minute. There are reasons for this, I promise. It pretty much always stays within a couple hours of "real" time.

To make timestamp-based locks reliable in spite of this, they measure using 'median time past' MTP method described in BIP Rather than using the current block's timestamp, timestamp-based locks use the median timestamp of the previous 11 blocks. This smooths out time's advance, and ensures that time never goes backwards.

Now that we understand what we're talking about, let's talk about the tools themselves. There are four time lock options right now: Cltv bitcoin miner of them are cltv bitcoin miner, two are transaction-level. Cltv bitcoin miner transaction is a simple datastructure that contains fields for version, inputs, outputs, and a few other things. It specifies a block number or time stamp. The transaction is not valid until that time has passed.

Times are expressed as an unsigned 32 bit integer. If it is , or above, it's treated as a unix timestamp. So nLocktime can lock transactions for a years using block numbers, or until ish using timestamps.

And at this point we'd have to hard fork to change that. The idea was that you could create a transaction with a lock-time, and then replace it by sending a new version with at least one higher sequence number. Miners were supposed to drop transactions with lower sequence numbers from the mempool.

If all inputs had the maximum sequence number, it meant there could be no more updates, and the transaction could clear regardless of the time lock. This was never fully implemented, and later abandoned. In a curios slip up, Satoshi seems to have assumed good behavior, which is cltv bitcoin miner a reasonable assumption in Bitcoin. It's impossible to guarantee that miners will see updated transactions, or drop older version if they do see newer ones.

Miners will mine the most profitable version of a transaction, not the latest. Cltv bitcoin miner gave us lemons, and we made nSequence time locks. Sequence numbers have been around since the beginning. But because transaction replacement was never implemented and wouldn't have worked in the long run cltv bitcoin minerthey became cltv bitcoin miner.

For years, the only thing they could do was disable nLocktime. Now, sequence numbers are used to enforce relative time locks on the the transaction level as described in BIP This means that several different time lock conditions can be specified on the same transaction.

In order for a transaction to be valid, all conditions must be satisfied. If even a single sequence lock is not met, the entire transaction will be rejected. Bitcoin developers are amazing at upcycling, but sometimes you end up with a few knots in the wood.

The sequence field is 32 bits, cltv bitcoin miner we can't use all of them, as it would interfere with nLocktime and RBF signaling. To balance these demands, nSequence was built to use only 18 of the 32 bits.

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A Micropayment Channel or Payment Channel is class of techniques designed to allow users to make multiple Bitcoin transactions without commiting all of the transactions to the Bitcoin block chain. Several channel designs have been proposed or implemented over the years. This article describes some of them. Many designs are vulnerable to transaction malleability.

Specifically, many designs require a way to be able to spend an unsigned transaction, in order to ensure that the channel can be opened atomically. Thus, these designs require a malleability fix that separates the signatures from the part of the transaction that is hashed to form the txid. Implemented in Bitcoin 0. Satoshi Nakamoto described the technique to a Bitcoin developer in a personal email: An unrecorded open transaction can keep being replaced until nLockTime.

It may contain payments by multiple parties. Each input owner signs their input. For a new version to be written, each must sign a higher sequence number see IsNewerThan. By signing, an input owner says "I agree to put my money in, if everyone puts their money in and the outputs are this.

The parties hold this tx in reserve and if need be, pass it around until it has enough signatures. One use of nLockTime is high frequency trades between a set of parties.

They can keep updating a tx by unanimous agreement. The party giving money would be the first to sign the next version. If one party stops agreeing to changes, then the last state will be recorded at nLockTime.

If desired, a default transaction can be prepared after each version so n-1 parties can push an unresponsive party out. Intermediate transactions do not need to be broadcast.

Only the final outcome gets recorded by the network. Just before nLockTime, the parties and a few witness nodes broadcast the highest sequence tx they saw. This design was not secure: Discussed on the bitcoin-development mailing list [4] and implemented in BitcoinJ, [5] this one transaction to create a secured deposit and a second transaction to release the deposit funds in the manner agreed to by both parties, preventing miners from being able to commit a non-final version of the transaction.

However, opening a channel in the Spillman model exposed the depositor to malleability risk where the counter party would be able to hold the depositor's funds hostage.

A full description of the protocol is in example 7 of the Contract page. Spillman payment channels are unidirectional there is a payer and a payee, and it is not possible to transfer money back in the reverse direction. Spillman payment channels expire after a specific time, and the receiver needs to close the channel before the expiration.

Were made possible in Decemember by the activation of the CLTV soft fork [ citation needed ] after discussion that began in the bitcoin-wizards IRC channel [ citation needed ] , moved to the bitcoin-development and bitcoin-dev mailing lists [7] , and included a design specification in BIP Like Spillman payment channels, CLTV-style payment channels are unidirectional and expire after a specific time. Poon-Dryja payment channels were presented in the paper [8] that also introduced the Lightning Network.

Channel backing funds are locked into a 2-of-2 multisig, but before the funding transaction is even signed, commitment transactions for each party are first written and signed.

As it requires referring to transactions that have not been signed yet, it requires using a transaction format that separates signatures from the part of the transaction that is hashed to generate the txid, such as Segregated Witness. Poon-Dryja channels may be closed unilaterally requires the participation of only one party or bilaterally requires the participation of both parties. When closed bilaterally Poon-Dryja channels are indistinguishable on-chain from 2-of-2 multisig address spends.

When closed unilaterally, the funds of the party that closed the channel is temporarily timelocked; this allows the other party to dispute the state transmitted by the closing party who might have given old state on closing. Poon-Dryja payment channels have indefinite lifetime. Duplex payment channels were presented in a paper [9] by Christian Decker and Roger Wattenhofer. This type of payment channel requires the new BIP68 [10] meaning of nSequence.

As the name implies, a duplex payment channel is composed of two unidirectional payment channels, one in both directions. The unidirectional payment channels are essentially Spillman channels, but using relative lock time nSequence instead of nLockTime. However, instead of funding unidirectional payment channels directly from an on-chain funding transaction, there is an "invalidation tree" of off-chain transactions between the funding transaction and the payment channel finalization transactions.

The invalidation tree transactions also use relative lock time; the first version of the transaction has a large relative lock time, and the next version of the transaction which invalidates the first uses a slightly smaller relative lock time, and so on. There is also a "kick-off" transaction that starts the timeout for the relative locktime.

The sequence of transactions is thus: Initially, the invalidation transaction may have a relative lock time of days, and then its outputs go to two unidirectional payment channels, one in either direction.

Both parties may then use the payment channels until one channel is exhausted. The parties may then reset the payment channels, creating a new invalidation transaction with a relative lock time of 99 days that redistributes the money correctly, but with the unidirectional payment channels reset.

The payment channel may be closed at any time by either party without the help of the other by broadcasting the kickoff transaction on the blockchain. In case of such a unilateral close, both parties must wait out the relative lock times until they can broadcast the payment channel finalization transactions.

Parties should prefer the bilateral cooperative close, which collapses the kickoff, invalidation tree, and payment channel transactions into a single simple transaction that pays out the funds to both parties. Duplex payment channels have indefinite lifetime, but there is a limit on number of updates possible due to the invalidation tree. This limit can be multiplied by adding additional layers to the invalidation tree, with resetting of the lower layers. Finally, in case of a unilateral close duplex payment channels require significant wait times and significant number of transactions to be published on the blockchain.

The invalidation tree structure may actually have more than two participants; it would be possible for groups of 3 or more parties to build multiple payment channels between them that are backed by this invalidation tree structure, and to rebalance their payment channels without hitting the blockchain.

Roughly, each update of the channel requires creating two transactions: Thus even if an attacker or disrupter publishes an old update transaction, it cannot get the old state published since the latest transaction can still be published while the CSV-delay on the old settlement transaction hasn't completed yet.

Each update transaction's output SCRIPT has an "update" branch that allows any update transaction to spend it, as long as that update transaction has a higher nLockTime than it currently has.

If an old update transaction is spent, it will allow any later update transaction to spend it, thus preventing publication of old settlement transactions. This has the advantage of not requiring a punishment branch unlike Poon-Dryja , simplifying watchtower design and reducing the punishment of accidentally using old state which would lead to total loss of funds under Poon-Dryja, but will only lead to wasting of fees in Decker-Russell-Osuntokun.

A technique that can allow payments to be securely routed across multiple payment channels. HTLCs are integral to the design of more advanced payment channels such as those used by the Lightning Network. Retrieved from " https: Navigation menu Personal tools Create account Log in.

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