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HTLC

Hash Time Locked Contract (HTLC) is a conditional payment that can be spent in two ways:

  • by the sender (the person who locked the funds in) can unlock them after some number of blocks have been mined
  • by the receiver (the person whom the funds are intended for), when he received a revealed secret code that only sender knows

There are different ways one can construct an HTLC, here's one simple example.

OP_IF
    OP_SHA256 <preimage> OP_EQUALVERIFY OP_DUP OP_HASH160 Hash160(<recipientpubkey>)
OP_ELSE
    <10> OP_CHECKSEQUENCEVERIFY OP_DROP OP_DUP OP_HASH160 Hash160(<senderpubkey>)
OP_ENDIF
OP_EQUALVERIFY
OP_CHECKSIG

We have a guide how to contruct the above HTLC contract and how to spend from it.

warning

Above script is not really the best to use in production. One problem is that after the 10 block confirmation both recipient and sender can spend the funds, which usually isn't desirabled.

HTLC usecases?​

  1. Atomic Swaps: Allow for the exchange of one cryptocurrency for another without needing a trusted third party. This is crucial for decentralized exchanges and cross-chain transactions.
  2. Payment Channels and Lightning Network: These channels facilitate instant, high-volume microtransactions, which are a cornerstone of the Lightning Network. This helps to scale blockchain networks by taking numerous small transactions off-chain.
  3. Conditional Payments: The funds are locked in the contract and can only be released if specific conditions are met, typically proven by providing a cryptographic hash.
  4. Cross-Chain Interoperability: Facilitate interoperability between different blockchain networks, allowing for the transfer of assets and information across chains in a secure and trustless manner.
  5. Escrow Services: They can be used for creating decentralized escrow services, where funds are locked until all parties fulfill their contractual obligations.
  6. Time-Bound Transactions: They can enforce time-bound conditions on transactions, meaning that if a certain condition is not met within a specified timeframe, the funds are returned to the sender.