Reading Assignment: Lightning Details

Lightning Network, Lapps & Segwit
#1

It’s time for another reading assignment on the lightning network. Read through the this blog article , watch this video and answer the following questions. Make sure to post your answers in this forum thread before you continue.

  1. How do two parties start a payment channel?
  2. How are you punished if you try to do an invalid transaction?
  3. What is the purpose of “watchtowers”?
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#2
  1. How do two parties start a payment channel?
  2. How are you punished if you try to do an invalid transaction?
    breach transaction remedy; the victim of the transaction gets the perpetrators balance. So there is a financial incentive or punishment not to cheat.
  3. What is the purpose of “watchtowers”?
    Police network as a node and ensure the correct reward or over sea the share of profits and ensure any breaches in TXN are correctly awarded to good party in that transaction.

draft to return too

#3
  1. Both parties open a payment channel buy a multi-signature transaction on the blockchain.
  2. Breach remedy transaction: When trying to broadcast an invalid transaction, a secret is exposed, and the other party can use the secret to sign a transaction to get all funds, therefore counter attacking the bad actor.
  3. In case of a fraudulent transaction, the victim has to be online to counter the fraud. But watchtowers can keep an eye on fraudulent transaction instead and sign the breach remedy transaction, and also get a share of the reward.
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#4

How do two parties start a payment channel?
By creating a multi-signature transaction on the blockchain.

How are you punished if you try to do an invalid transaction?
By locking the funds for the instigator and allowing the other party to execute a Breach Remedy Transaction.

What is the purpose of “watchtowers”?
Watchtowers enable third parties to detect fraudulant transansactions and then collect a fee for executing a Breach REmedy Transaction on behalf of the injured party.

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#5

  1. How do two parties start a payment channel?
    By setting up a multisig transaction on the bitcoin blockchain

  2. How are you punished if you try to do an invalid transaction?
    The other party is able to publish a “penalty” transaction that will send the entire capacity of the payment channel to himself.

  3. What is the purpose of “watchtowers”?
    When you are not online and a party on the other site of the channel want cheat on you they are able to sign the penalty transaction and be paid a small proportion of the penalty transaction as a reward for keeping users honest

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#6
  1. By publishing a funding transaction on the blockchain.
  2. You loose all the funds in the channel.
  3. They are guard towers that are watching for malicious transactions on the network.
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#7
  1. How do two parties start a payment channel? Two parties can initiate a payment channel by creating a multi-signature transaction on the blockchain.
  2. How are you punished if you try to do an invalid transaction? If Alice tries to publish any balance sheet other than the most recent one, her funds will be locked while Bob will be given the opportunity to publish a “penalty” transaction that will send the entire capacity of the payment channel to himself. This serves as a deterrent to cheating. In case Bob cannot access the internet, there are “watchtowers”, which are LN nodes that look out for dishonest transactions being broadcast.
  3. What is the purpose of “watchtowers”? LN nodes that look out for dishonest transactions being broadcast, and get paid for this service from part of the “recovery” funds.
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#8
  1. by both parties each creating a signed btc funding multisig transaction and broadcasting them to the btc network.
  2. You will forfeit your current balance to the other party (or a party/watchtower combination). This is done by a breach remedy transaction. When an invalid transaction is detected, a ‘secret’ is exposed and this ‘secret’ allows the ‘good-actor’ to get all the funds transferred to them.
  3. watchtowers are nodes that specifically look out for fraudulent activity and when they detect it, issue breach-remedy transactions. The watchtower gets a % of the reward for providing this service.
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#9
  1. By committing a multi-sig transaction to the base layer, funded by at least one of the two parties.
  2. If you try to broadcast an invalid/old transaction you have a relative timelock on that transaction, and during that timelock the other party can broadcast the bread remedy transaction that will give itself all the funds in the channel, as a punishment for your sins :smiling_imp:
  3. Watchtowers are like keepers of the network that listen for possible fraudulent transactions and act on the behalf of the party that is being cheated, broadcasting the breach remedy transaction on their behalf and earning a partial part of those funds as a compensation for the good work :angel:
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#10
  1. How do two parties start a payment channel?
    -> By creating a multi-signature transaction on the blockchain. At least one party must commit funds to this transaction.
  2. How are you punished if you try to do an invalid transaction?
    -> funds will be locked while the other participant will be given the opportunity to publish a “penalty” transaction that will send the entire capacity of the payment channel to himself.
  3. What is the purpose of “watchtowers”?
    -> They look out for dishonest transactions being broadcast. If the watchtowers detect that one user tried to publish a dishonest transaction, they can sign the penalty transaction and be paid a small proportion of the penalty transaction as a reward for keeping users honest.
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#11

  1. How do two parties start a payment channel?
    Two parties can initiate a payment channel by creating a multi-signature transaction on the blockchain.

  2. How are you punished if you try to do an invalid transaction?
    The other party of the channel will be given the opportunity to publish a “penalty” transaction that will send the entire capacity of the payment channel to himself.

  3. What is the purpose of “watchtowers”?
    They are LN nodes that look out for dishonest transactions being broadcast. If the watchtowers detect that one participant tried to publish a dishonest transaction, they can sign the penalty transaction for the other one and be paid a small proportion of the penalty transaction as a reward for keeping users honest.

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#12
  1. How do two parties start a payment channel?

Both parties have to open multi-signature transaction. At least 1 of the 2 parties has to commit funds to this transaction.

  1. How are you punished if you try to do an invalid transaction?

The remaining party can use a Breach Transaction remedy contract - publish “penalty” transaction. In that case, the person that fraudulently wanted to use other than the most recent commitment contract is blocked for the time of 100 blocks - as a result, the party in defense can claim all of the funds the fraudulent party has.

  1. What is the purpose of “watchtowers”?

Watchtowers are supposed to automate supervision of the transactional activities - making sure that no one is trying to benefit from publishing other than the most recent commitment contract. If someone does try to benefit, the watchtower can enforce Breach Remedy contract and share the profits with the party that has been defended - by getting a percentage from the sum of money the fraudulent party had.

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#13
  1. they create a channel with an onchain funding transaction
  2. there is a 100 block time lock, which allows the other party to redeem the remedy transaction and take all your funds
  3. they look for fraudulent transactions and can use the remedy transaction to punish the fraudster
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#14
  1. 2 parties will create a multisig transaction on the blockchain and at least one person will fund it.
  2. The total capacity of the channel will be sent to the other person being cheated.
  3. Watchtowers are actors who will sign a breach remedy transaction for an offline party if they suspect the other is trying to cheat. They will get a small cut of the channel’s capacity as reward.
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#15
  1. How do two parties start a payment channel?
  • Alice and Bob open a channel to each other with multi sig and found it with the wanted amount of BTC.
  1. How are you punished if you try to do an invalid transaction?
  • By either the anti cheat protocol or watchtowers the first tx record will be paid out. You will loose your BTC since there is a delay of 100 trx.
  1. What is the purpose of “watchtowers”?
  • Check if there is fraudulent transactions and handle this in case a node is down.
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#16
  1. How do two parties start a payment channel?
  • Both make a TX to a multi-sig account and create a temporary balance sheet which do not broadcasted to main BTC network
  1. How are you punished if you try to do an invalid transaction?
  • you will lose all your BTC in the multi-sig account
  1. What is the purpose of “watchtowers”?
  • to provide extra protection to node that may sometimes offline by signing BRTX.
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#17

1 multi sig on blockchain
2 breach remedy transaction
3 keep an eye on transactions

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#18

  1. They create a multi-signature transaction on the blockchain, to which at least one party needs to commit funds. At this stage the channel is opened.

  2. In this case, my funds will be locked while the other party will be able to publish a “penalty” transaction and subsequently receive the whole channel capacity, including the funds I had committed. However, he/she will only be able to do so if he/she is online. If he is not, the “watchtowers” come into play (see below).

  3. Watchtowers are LN nodes that look out for dishonest transactions being broadcast. If they detect one, they can sign the penalty transaction for the prejudiced party (when they do so, they are paid a small fee that reward their work).

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#19

  1. Two parties start a payment channel by creating a multisig transaction.

  2. Each transaction has as relative time lock of 100 blocks and a breach remedy transaction (BRTX) associated with it. The BRTX has no timelock and can be used when a secret is exposed. The secret is exposed when 1 party attempts to broadcast an older transaction which has a different balance. Because they are now time locked the other party as that time to broadcast the BRTX and take all the funds. So there is a large economic incentive to not cheat and steal funds.

  3. Watchtowers are lightning nodes which try and detect if someone is trying to claim an older fraudulent transaction in case someone is not online or doesn’t notice someone is trying to steal funds. They would then it that case be the ones that broadcast the BRTX.

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#20
  1. You create a multisig address on the blockchain.
  2. You can forfeit your entire balance for the fraudulent transaction
  3. The are there to ensure that no fraudulent channel closes occur while your node is possibly offline. The watchtower then claims some of the proceeds of the claimed balance.
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