==== Process for people who already own bitcoin ====
* send bitcoin to lightning wallet (1 onchain transaction - soon nodes / wallets may support funding a channel directly without sending bitcoins to the lightning network wallet first)
* send bitcoin to lightning wallet (1 onchain transaction - soon nodes / wallets may support funding a channel directly without sending bitcoin to the lightning network wallet first)
* find a node to open a channel with (Node explorer / Autopilots / ...)
@ -118,7 +118,7 @@ The two scripts together would form the combined validation script:
==== Funding Transaction
You already learnt that one of the most important building blocks of a payment channel is a 2-2 multisignature address.
To open a payment channel one must send bitcoins to that address.
To open a payment channel one must send bitcoin to that address.
The Bitcoin transaction - which will be included to the Bitcoin Blockchain - that sends the bitcoin to that 2-2 multisignature address is called the funding transaction.
While there is the possibility for 2 participants of the Lightning Network to open a private payment channel, this transaction will always be publicly visible to the Bitcoin network.
The amount of bitcoin sent to the multisignature address is called the capacity of the channel.
@ -132,7 +132,7 @@ You will often hear that people complain about bitcoin being locked to the Light
This is obviously a lie.
One can use the Bitcoin network to send bitcoin from a P2PKH address as well as sending bitcoin from a 2-2 multisignature address with a P2WSH transaction.
In both cases transfer of ownership might be expensive in bitcoin fees if there is a lot of demand from people to utilize the Bitcoin Network.
However once the Bitcoins are used to open a payment channel they can freely flow within the Lightning Network from one participant to another one.
However once the bitcoin are used to open a payment channel they can freely flow within the Lightning Network from one participant to another one.
If a channel partner should not respond, one will always have the chance to fall back to the onchain transactions without the necessity for the channel partner to help to do so.
Due to the potentially high fees and confirmation times, bitcoin on the Bitcoin Network are way more rigid and harder to move than bitcoin on the Lightning Network.
@ -37,7 +37,7 @@ In the common case, both parties can update their channels off-chain and never n
In July of 2011, on the bitcointalk.org forum, a pseudonymous user by the name of _hashcoin_ suggested using Timelocks via the `nLockTime` function of the Bitcoin network to solve the custody problem of exchanges.footnote:[Hashcoin on Bitcoin talk on July 4th 2011 - Instant TX for established business relationships (need replacements/nLockTime) http://web.archive.org/web/20190419103503/https://bitcointalk.org/index.php?topic=25786.0]
The goal was to build a conduit for quick trades, without the necessity to send bitcoins to an exchange in the first place.
The goal was to build a conduit for quick trades, without the necessity to send bitcoin to an exchange in the first place.
What Hashcoin proposed would eventually be termed a unidirectional payment channel.
With this mechanism, user "Alice" could fund a multi-signature address between herself and another user, "Bob", together with a timelocked transaction that 'refunded' the bitcoin back to Alice.
In their scenario, Hashcoin imagined Bob to represent an exchange.
Bitcoin Improvement Proposals. A set of proposals that members of the Bitcoin community have submitted to improve Bitcoin. For example, BIP-21 is a proposal to improve the Bitcoin uniform resource identifier (URI) scheme.
Bitcoin::
Depending on context, bitcoin could refer to the name of the currency unit (the coin), the network or the underlying enabling protocol. Written as bitcoin with a "b" in lowercase usually refers to the currency unit.
Depending on context, could refer to the name of the currency unit (the coin), the network or the underlying enabling protocol. Written as bitcoin with a "b" in lowercase usually refers to the currency unit.
Bitcoin Mining::
Bitcoin mining serves two purposes.
Firstly, Bitcoin transactions are validated and fixed in the sense that they cannot be double-spent.
Secondly, new bitcoins are being created within the coinbase of each block.
Secondly, new bitcoin are being created within the coinbase of each block.
block::
A grouping of transactions, marked with a timestamp, and a fingerprint of the previous block. The block header is hashed to produce a proof of work, thereby validating the transactions. Valid blocks are added to the main blockchain by network consensus.
@ -285,7 +285,7 @@ payment channels::
Payment Channel::
Payment Channels are the core building blocks of the Lightning Network.
They can be used to send a predefined amount of bitcoin back and forth between two parties.
Sending bitcoins over a payment channel happens off chain, so only the funding transaction and either the commitment or closing transaction is stored in the blockchain.
Sending bitcoin over a payment channel happens off chain, so only the funding transaction and either the commitment or closing transaction is stored in the blockchain.
There are currently three methods known to construct a fully duplex bidirectional payment channel.
Christian Decker proposed a method in his PhD thesis based on invalidation trees.
In the Lightning Network whitepaper, Joseph Poon and Tadge Dryja describe the Revocable Sequence Maturity Contract based method that is currently being implemented on the Lightning Network.
@ -401,10 +401,10 @@ timelocks::
A timelock is a type of encumbrance that restricts the spending of some bitcoin until a specified future time or block height. Timelocks feature prominently in many Bitcoin contracts, including payment channels and hashed timelock contracts.
Transaction::
Transactions are a binary format used by the Bitcoin protocol to transfer bitcoins from one address to another.
Transactions are a binary format used by the Bitcoin protocol to transfer bitcoin from one address to another.
Several transactions are built into a block which has to be confirmed by the Bitcoin network through the process of mining.
Transactions can only be included in a block if they contain a valid signature (more precisely a valid input script) matching the output script defined by the previous owner.
The first transaction in each block is called the coinbase and generates new bitcoins.
The first transaction in each block is called the coinbase and generates new bitcoin.
Transactions can also contain contracts and should not be confused with payments.
Andreas M. Antonopoulos
4 years ago
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