Published on: 2016-01-18T00:00:30+00:00
The Lightning Network, a decentralized off-chain network for Bitcoin transactions, has developed a 2-of-3 party escrow system that allows for the use of a third-party mediator in verifying payment for goods and services. This system functions similarly to on-chain "2-of-3 multisig" escrow systems, but without the need for the third party to act as a custodian for any funds. In this system, two out of three parties involved in the transaction must agree before the hashed timelocked contract (HTLC) is fulfilled. Each step in the payment process requires the 2-of-3 condition, with long timeouts implemented to ensure security and allow sufficient time for the escrow service. The sender and receiver have the ability to authorize payment in most cases where there is cooperation between them. The escrow service is only contacted when non-cooperation arises. The proposed HTLC wire message determines the type of resolution states, which include recipient being paid, sender being refunded via timeout, and immediate cancellation of payment with a refund for the sender. Joseph Poon explains how this 2-of-3 party escrow can be achieved in Lightning, utilizing Bitcoin transactions and scripts. He emphasizes that the number of values per contract is crucial from an inter-node transport perspective. Poon also acknowledges the work of Tadge, Laolu, and Joseph on Lightning and expresses plans to create a list of wire protocol differences to bring the project closer to its final version.
Updated on: 2023-07-31T18:44:38.770773+00:00