Intro. to Lightning Network (Bitcoin/Litecoin) - Blockchain Developers Malaysia
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The document provides an introduction to the Lightning Network, a proposed layer 2 solution for scaling Bitcoin, designed to enable fast and low-cost transactions through payment channels. It discusses various applications like micropayments and payment streaming, the mechanics of opening and closing channels, and the technology behind it such as multisig addresses and hash time-lock contracts. It emphasizes that Lightning Network transactions are off-chain and trustless, allowing users to transact without relying on third parties.
Intro. to Lightning Network (Bitcoin/Litecoin) - Blockchain Developers Malaysia
- 1. Intro. to Lightning Network TM Lee, co-founder at Github: @tmlee | Blockchain Developers Malaysia, Sep 6th, 2017
- 3. Bitcoin Situation Bitcoin SegWit (Segregated Witness) 2MB Block (Later this year) Bitcoin Cash No SegWit BIG Blocks Hardfork Scaling Debate
- 4. What is the Lightning Network (LN) ? - Proposed by Joseph Poon & Thaddeus Dryja (https://lightning.network/lightning-network-paper.pdf) - Specifications for a Payment Channel on top of the bitcoin/litecoin blockchain - Layer 2 - “Decentralized”, Trustless, High Volume, Instant Micropayment
- 5. Implementations of the LN Specs => Follow the BOLTs spec https://github.com/lightningnetwork/lightning-rfc 1. LND (GoLang) by Lightning 2. Eclair (Scala) by ACINQ 3. Lightning-C (C) by Blockstream 4. Thunder (Java) by Blockchain.com
- 6. Applications 1. Micropayments ○ Send satoshis with small transaction fees 2. Payment Streaming ○ Sending small amount of money frequently (ie. secondly, minutely, hourly) ○ Eg. pay per second when watching video on Youtube 3. Machine-to-Machine Payments ○ Bandwidth, data, storage, cpu times, data, can be traded ○ API endpoints usages 4. There could be more...
- 9. CheckLockTimeVerify (CLTV) - Specific time - Eg. at Block N, specific date/time Time-Lock Source: https://bitcoinmagazine.com/articles/understanding-the-lightning-network-part-building-a-bidirectional-payment-channel-1464710791/ CheckSequenceVerify (CSV) - Relative time - N blocks from now, time from now
- 10. Typical on-chain bitcoin transaction ALICE BOB
- 11. Transaction in a lightning network ALICE BOB Open Channel TX Payment Channel Remains Open…. microTX 10m฿ microTX 10m฿ microTX 10m฿ Close Channel TX
- 12. 1. Alice opens payment channel with Bob 2. Bob opens payment channel with Alice 3. Alice & Bob both stake 5 BTC each to a multisig address 4. TX broadcast and mined into Blockchain 5. Once the TX is confirmed, the payment channel is now OPEN! Open Payment Channel Source: https://bitcoinmagazine.com/articles/understanding-the-lightning-network-part-building-a-bidirectional-payment-channel-1464710791/
- 13. 1. Alice sends 1 BTC to Bob via payment channel 2. Alice creates a TX a. Input from Open TX Multisig b. Outputs i. 4 BTC to herself ii. 6 BTC to a New Special Multisig c. Creates a key1 d. Alice signs the TX 3. Instead of broadcast, Alice hands TX directly to Bob 4. Bob does the same, creates a TX a. Input from Open TX Multisig b. Outputs i. 6 BTC to himself ii. 4 BTC to a New Special Multisig c. Creates a key1 d. Bob signs the TX 5. Instead of broadcast, Bob hands TX directly to Alice Source: https://bitcoinmagazine.com/articles/understanding-the-lightning-network-part-building-a-bidirectional-payment-channel-1464710791/
- 14. 1. Bob sends 1 BTC to Alice via payment channel 2. Bob creates a new TX a. Input from Open TX Multisig b. Outputs i. 5 BTC to himself ii. 5 BTC to a New Special Multisig c. Creates a new key2 d. Bob signs the TX 3. Instead of broadcast, Bob hands TX directly to Alice & key1 4. Alice does the same, creates a TX a. Input from Open TX Multisig b. Outputs i. 5 BTC to herself ii. 5 BTC to a New Special Multisig c. Creates a new key2 d. Alice signs the TX 5. Instead of broadcast, Alice hands TX directly to Bob & key1 Source: https://bitcoinmagazine.com/articles/understanding-the-lightning-network-part-building-a-bidirectional-payment-channel-1464710791/
- 16. Close Payment Channel (Usual Case) Source: https://bitcoinmagazine.com/articles/understanding-the-lightning-network-part-building-a-bidirectional-payment-channel-1464710791/
- 17. #1 “Double Spend” Problem tn tn+1 Alice sends 1 BTC to Bob Bob sends 1 BTC to Alice Bob buys a Car from Alice Previous Event Source: https://bitcoinmagazine.com/articles/understanding-the-lightning-network-part-building-a-bidirectional-payment-channel-1464710791/
- 18. #1 “Double Spend” Problem tn tn+1 Alice sends 1 BTC to Bob Bob sends 1 BTC to Alice Bob buys a Car from Alice Previous Event Bob Signs Source: https://bitcoinmagazine.com/articles/understanding-the-lightning-network-part-building-a-bidirectional-payment-channel-1464710791/
- 19. Time-locks - Locks spending this UTXO to a later time Bob Signs Bob Signs Source: https://bitcoinmagazine.com/articles/understanding-the-lightning-network-part-building-a-bidirectional-payment-channel-1464710791/
- 20. Bob Signs Bob Signs If Bob cheats... Alice gets to sweep all the funds! Source: https://bitcoinmagazine.com/articles/understanding-the-lightning-network-part-building-a-bidirectional-payment-channel-1464710791/
- 21. #2 Payment Network ALICE CAROL Open Channel... ALICE BOB Open Channel...
- 22. #2 Payment Network ALICE BOB CAROL Open Channel... Open Channel... 1. Alice wants to send 1 BTC to Carol via Bob 2. Alice pays 1 BTC to Bob, Bob pays 1 BTC to Carol Things that may go wrong here... - Alice does not trust Bob or Carol - Alice can pay Bob, Bob can choose not to pay Carol - Bob can pay Carol, but Carol can claim that she did not receive the funds
- 23. #2 Payment Network Alice wants to send 1 BTC to Carol 1. Carol needs to create an Invoice consists of a. Vrandom & hash(Vrandom ) b. Carol sends the hash(Vrandom ) to Alice Alice tells Carol to receive 1 BTC from Bob 2. Alice tells Bob that she will pay him 1 BTC if he can produce hash(Vrandom ), Bob needs Vrandom 3. Bob gives 1 BTC to Carol Carol gives the Vrandom to Bob 4. Bob gives the Vrandom to Alice as a proof Alice gives 1 BTC to Bob Source: https://bitcoinmagazine.com/articles/understanding-the-lightning-network-part-creating-the-network-1465326903/
- 24. - Decentralized, Instant, Off-chain transfer of Bitcoin without Trust - 1 On-Chain TX to Open Channel, 1 On-Chain TX to Close Channel - Bitcoin can be transferred between parties, without broadcasting to network - New TX replaces Old TX locally within the parties, as long as Channel is Open To Summarize... ALICE BOB CAROL Open Channel (on-chain) Close Channel (on-chain) Open Channel (on-chain) Close Channel (on-chain) Transfer Funds (off-chain) Transfer Funds (off-chain)
- 25. Things you can do as a developer 1. Spin up a Lightning Network node 2. Full node to watch blockchain for Lightning users 3. Build hardware/apps that transacts off-chain 4. Implement authentication & paywall using Lightning 5. Contribute to the Lightning implementations ○ Ie. LND, Eclair, Lightning-C, Thunder 6. List of resources https://github.com/tmlee/awesome-lightning-network
- 26. To Summarize... ➔ Is Lightning a new coin? ◆ No, LN is a play on the way transaction works; uses the bitcoin or litecoin blockchain ➔ Custodian Risk? Trust 3rd Party? ◆ No, LN is designed to not require that; using MultiSig & Hash Time Lock Contracts ➔ Will Lightning lock up my fund? ◆ Yes, you will not be able spend the fund on-chain while the channel is open ◆ No, you will be able to participate in the LN network and send zero confirmation tx ➔ Will there be a block explorer for Lightning? ◆ No, all tx records are stored locally between the 2 parties ◆ Blockchain only records the transaction to Open and Close a channel ➔ Is there mining required? ◆ No, LN transactions are instant ◆ When open/closing the channel, needs to be mined. In this case by bitcoin/litecoin miners ➔ Who collects the fees in the LN? ◆ Middlemen facilitating LN tx between parties
- 27. Appendix
- 28. Hash Time-Lock Contract 1. Bob generates Vrandom and produces 2. Bob creates and signs a TX a. Input i. MultiSig b. Outputs i. 5 BTC to Bob (himself) ii. 4 BTC to New Multisig iii. 1 BTC to HTLC Multisig 3. Bob hands the TX to Alice 4. Alice creates and signs a TX a. Input i. MultiSig b. Outputs i. 4 BTC to Alice (herself) ii. 5 BTC to New Multisig iii. 1 BTC to HTLC Multisig Source: https://bitcoinmagazine.com/articles/understanding-the-lightning-network-part-completing-the-puzzle-and-closing-the-channel-1466178980/
- 29. Time-locks - Allows locking of spending UTXO to a later point in time - CheckLockTimeVerify (CLTV) - Specific time - At Block N, On Date Hash Time-Lock Contract Source: https://bitcoinmagazine.com/articles/understanding-the-lightning-network-part-completing-the-puzzle-and-closing-the-channel-1466178980/