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Final figure references and small edits
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@ -332,9 +332,9 @@ In this section we explain how Hash Time Locked Contracts (HTLCs) work.
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The first part of a Hash Time-Locked Contract is the "Hash". This refers to the use of a cryptographic hash algorithm to commit to a randomly generated secret. Knowledge of the secret allows redemption of the payment. The cryptographic hash function, guarantees that while it's infeasible for anyone to guess the secret pre-image, it's easy for anyone to verify the hash, and there's only one possible pre-image that resolves the payment condition.
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Alice has a Lightning invoice from Dina. Inside that invoice Dina has encoded a _payment hash_, which is the cryptographic hash of a secret that Dina's node produced. Dina's secret is called the _payment pre-image_. The payment hash acts as an identifier that can be used to route the payment to Dina. The payment pre-image acts as a receipt and proof of payment once the payment is complete.
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In <<alice_dina_invoice_2>> we see Alice getting a Lightning invoice from Dina. Inside that invoice Dina has encoded a _payment hash_, which is the cryptographic hash of a secret that Dina's node produced. Dina's secret is called the _payment pre-image_. The payment hash acts as an identifier that can be used to route the payment to Dina. The payment pre-image acts as a receipt and proof of payment once the payment is complete.
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[[alice-dina-invoice-2]]
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[[alice_dina_invoice_2]]
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.Alice gets a payment hash from Dina
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image:images/alice-dina-invoice-2.png["Alice gets a payment hash from Dina"]
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@ -350,7 +350,7 @@ H = SHA256(R)
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In <<payment_hash_and_preimage>> +H+ is the hash, or _payment hash_ and +R+ is the secret or _payment pre-image_.
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The use of a cryptographic hash function is one element that guarantees _trustless operation_. The payment intermediaries do not need to trust each other because they know that no one can guess the secret or fake it.
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The use of a cryptographic hash function is one element that guarantees ((("trustless")))_trustless operation_. The payment intermediaries do not need to trust each other because they know that no one can guess the secret or fake it.
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==== HTLCs in Bitcoin Script
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@ -385,7 +385,7 @@ OP_ELSE
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OP_ENDIF
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----
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Wow that looks complicated! Don't worry though, we will take it one step at a time and simplfy it.
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Wow that looks complicated! Don't worry though, we will take it one step at a time and simplify it.
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The Bitcoin Script currently used in the Lightning Network is quite complex because it is optimized for on-chain space efficiency, which makes very compact but difficult to read.
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@ -410,11 +410,9 @@ Alice can create a transaction output that pays, 50,200 satoshi with a locking s
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OP_SHA256 0575...f6b3 OP_EQUAL
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----
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Bob can't spend this HTLC until he knows Dina's secret, so spending the HTLC is conditional on Bob's fulfillment of the payment all the way to Dina.
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Bob can't spend this HTLC until he knows Dina's secret, so spending the HTLC is conditional on Bob's fullfilment of the payment all the way to Dina.
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Once Bob has Dina's secret, Bob can spend this output with an unlocking script containing the secrect pre-image value +R+
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Once Bob has Dina's secret, Bob can spend this output with an unlocking script containing the secret pre-image value +R+
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The unlocking script and locking script would combined to produce:
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@ -433,11 +431,11 @@ The Bitcoin Script engine would evaluate this script as follows:
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Alice will now extend the HTLC across the network so that it reaches Dina.
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[[alice-dina-htlc-1]]
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[[alice_dina_htlc_1]]
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.Propagating the HTLC across the network
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image:images/alice-dina-htlc-1.png["Propagating the HTLC across the network"]
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Alice has given Bob an HTLC for 50,200 satoshi. Bob can now create an HTLC for 50,100 satoshi and give it to Chan.
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In <<alice_dina_htlc_1>> we see te HTLC propagated across the network from Alice to Dina. Alice has given Bob an HTLC for 50,200 satoshi. Bob can now create an HTLC for 50,100 satoshi and give it to Chan.
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Bob knows that Chan can't redeem Bob's HTLC without broadcasting the secret, at which point Bob can also use the secret to redeem Alice's HTLC. This is a really important point, because it ensures end-to-end _atomicity_ of the HTLC. To spend the HTLC, one needs to reveal the secret, which then makes it possible for others to spend their HTLC also. Either all the HTLCs are spendable, or none of the HTLCs are spendable: atomicity!
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@ -449,31 +447,35 @@ Similarly, Chan can extend a 50,000 HTLC to Dina. He isn't risking anything or t
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==== Back-propagating the secret
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Once Dina receives a 50,000 HTLC from Chan, she can now get paid. Dina could simply commit this HTLC on-chain and spend it by revealing the secret in the spending transaction. Or, instead, Dina can update the channel balance with Chan by giving him the secret. There's no reason to incur a transaction fee and go on-chain. So, instead, Dina sends the secret to Chan and they agree to update their channel balances to reflect a 50,000 satoshi Lightning payment to Dina.
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Once Dina receives a 50,000 HTLC from Chan, she can now get paid. Dina could simply commit this HTLC on-chain and spend it by revealing the secret in the spending transaction. Or, instead, Dina can update the channel balance with Chan by giving him the secret. There's no reason to incur a transaction fee and go on-chain. So, instead, Dina sends the secret to Chan and they agree to update their channel balances to reflect a 50,000 satoshi Lightning payment to Dina. In <<alice_dina_htlc_redeem_1>> we see Dina giving the secret to Chan, thereby fulfilling the HTLC.
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Notice Dina's channel balance goes from 50,000 satoshi to 100,000 satoshi. Chan's channel balance is reduced from 200,000 satoshi to 150,000 satoshi. The channel capacity hasn't changed, but 50,000 has moved from Chan's side of the channel to Dina's side of the channel.
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[[alice-dina-htlc-redeem-1]]
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[[alice_dina_htlc_redeem_1]]
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.Dina settles Chan's HTLC off-chain
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image:images/alice-dina-htlc-redeem-1.png["Dina settles Chan's HTLC off-chain"]
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Chan now has the secret and has paid Dina 50,000 satoshi. He can do this without any risk, because the secret allows Chan to redeem the 50,100 HTLC from Bob. Chan has the option to commit that HTLC on chain and spend it by revealing the secret on the Bitcoin blockchain. But, like Dina, he'd rather avoid transaction fees. So instead, he sends the secret to Bob so they can update their channel balances to reflect a 50,100 satoshi Lightning payment from Bob to Chan. Chan has paid Dina 50,000 satoshi, and received 50,100 satoshi from Bob. So Chan has 100 satoshi more in his channel balances, which he earned as a routing fee.
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Notice Dina's channel balance goes from 50,000 satoshi to 100,000 satoshi. Chan's channel balance is reduced from 200,000 satoshi to 150,000 satoshi. The channel capacity hasn't changed, but 50,000 has moved from Chan's side of the channel to Dina's side of the channel.
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[[alice-dina-htlc-redeem-2]]
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Chan now has the secret and has paid Dina 50,000 satoshi. He can do this without any risk, because the secret allows Chan to redeem the 50,100 HTLC from Bob. Chan has the option to commit that HTLC on chain and spend it by revealing the secret on the Bitcoin blockchain. But, like Dina, he'd rather avoid transaction fees. So instead, he sends the secret to Bob so they can update their channel balances to reflect a 50,100 satoshi Lightning payment from Bob to Chan. In <<alice_dina_htlc_redeem_2>> we see Chan sending the secret to Bob and receiving a payment in return.
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[[alice_dina_htlc_redeem_2]]
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.Chan settles Bob's HTLC off-chain
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image:images/alice-dina-htlc-redeem-2.png["Chan settles Bob's HTLC off-chain"]
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Bob now has the secret too. He can use it to spend Alice's HTLC on-chain. Or, he can avoid transaction fees by settling the HTLC in the channel with Alice. Bob sends the secret to Alice and they update the channel balance to reflect a 50,200 satoshi Lightning payment from Alice to Bob. Bob has recieved 50,200 satoshi from Alice and paid 50,100 satoshi to Chan, so he has an extra 100 satoshi in his channel balances from routing fees.
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Chan has paid Dina 50,000 satoshi, and received 50,100 satoshi from Bob. So Chan has 100 satoshi more in his channel balances, which he earned as a routing fee.
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[[alice-dina-htlc-redeem-3]]
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Bob now has the secret too. He can use it to spend Alice's HTLC on-chain. Or, he can avoid transaction fees by settling the HTLC in the channel with Alice. In <<alice_dina_htlc_redeem_3>> we see that Bob sends the secret to Alice and they update the channel balance to reflect a 50,200 satoshi Lightning payment from Alice to Bob.
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[[alice_dina_htlc_redeem_3]]
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.Bob settles Alice's HTLC off-chain
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image:images/alice-dina-htlc-redeem-3.png["Bob settles Alice's HTLC off-chain"]
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Bob has recieved 50,200 satoshi from Alice and paid 50,100 satoshi to Chan, so he has an extra 100 satoshi in his channel balances from routing fees.
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Alice receives the secret and has settled the 50,200 satoshi HTLC. The secret can be used as a _receipt_ to prove that Dina got paid for that specific payment hash.
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The final channel balances reflect Alice's payment to Dina and the routing fees paid at each hop
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The final channel balances reflect Alice's payment to Dina and the routing fees paid at each hop, as shown in <<alice_dina_htlc_redeem_4>>
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[[alice-dina-htlc-redeem-4]]
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[[alice_dina_htlc_redeem_4]]
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.Channel balances after the payment
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image:images/alice-dina-htlc-redeem-4.png["Channel balances after the payment"]
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