2.If i am trying to invalidate a transaction i will lose all my funds and the other node will get as my penalty . This happens has each transaction is “backed up” in the Breach Remedy Transaction.
1. How do two parties start a payment channel?
By funding a multisig address with 2 transactions (each from the 2 participants) with an on-chain transaction (broadcast to the network to be appended to blockchain).
2. How are you punished if you try to do an invalid transaction?
Activating the “Breach Remedy Transaction (BRTX)” mechanism, that will create a transaction with a secret that will be exposed if you try to send a fraudulent transaction, after a timelock of 100 blocks (to give time to the other participant[s] to take action[s] for the fraud tx). If for any reason the other participant node is offline, that is when “Watch Towers” mechanism is designed to take action.
3. What is the purpose of “watchtowers”?
The goal is that other people (nodes) in the network will monitor the network and if they find a fraud tx, they can send out the “BRTX” and get a share of the profits, meaning an incentive to people to “watch” for fraudulent transactions over the network.
Two parties can initiate a payment channel by creating a multi-signature transaction on the blockchain.
The funds will be locked while other party will be given the opportunity to publish a “penalty” transaction that will send the entire capacity of the payment channel to himself.
Watchtowers are LN nodes that look out for dishonest transactions being broadcast.
By creating and initiating a funding transaction with multisig requirements
One is punished by loosing all of their initial funds via a triggered breach remedy (anti-cheat) transaction
To encourage network participants to be watchdogs for fraudulent activities by providing incentives and rewards
By creating a multi-signature transaction on the blockchain with at least one person committing funds.
You will lose your funds to the other person in the chain you tried to steal funds off.
Watchtowers keep an eye out for fraudulent transaction attempts and are incentivised by getting a small fee as a reward.
Two parties must create a multi signature transaction on the blockchain and at least one party must commit funds.
The perpetrator’s funds will be locked while the victim is given the opportunity to execute a Breach Remedy Transaction and receive the entire balance of the channel.
Watchtowers monitor for fraudulent transactions and when one is detected the watchtower executes the BRTX on behalf of the victim and collects a fee.
Two parties initiate a payment channel by creating a multi-signature transaction. At least one party must commit funds to this transaction.
Your funds are locked and the other party of the channel will be given the opportunity to broadcast a “penalty” transaction to transfer all the channel’s funds to himself.
The node “victim” of a dishonest party who tried to cheat must be online to sign the “penalty” transaction (and claim all the funds of the channel). Watchtowers are LN nodes that look out for dishonest transactions and sign (for a fee, so the profit from it) those penalty transactions on behalf of the “victim” nodes that had the right to do it.
How do two parties start a payment channel?
First they need to open a channel between them (with a funding transaction), Secondly at least on of them (who wants to send BTC to the other party) lock-up some BTC on the Bitcoin blockchain (this is the party’s capital buffer on this channel) using a shared multisig address.
The parties are now able to transact over the channel (subject to maintaining their capital buffer at a sufficient level to cover each transaction between them).
How are you punished if you try to do an invalid transaction?
Upon submitting a fraudulent transaction (i.e. an old superseded commitment transaction) to the Bitcoin network, the victim (or a watchtower) can submit the associated ‘Breach Remedy’ transaction. This BRTx sends all the funds that the fraudster was trying to take to the victim (including any funds associated with the channel that actually belong to the fraudster). This works as because the fraudsters funds are obtained with a 100 block time-lock in place, meaning that if the BRTx is submitted before this time-lock expires the funds are sent to the victim before the fraudster can spend the funds he is trying to take.
What is the purpose of “watchtowers”?
They monitor for fraudulent transactions (old commit transactions being submitted to the network to try to illicitly obtain funds for the fraudster). When such a fraudulent transaction is detected, they submit the corresponding Breach Remedy transaction that will take the all the funds from the fraudster (not just the victims funds but also the fraudsters). Watchtowers do this on behalf of the fraud victim, as they will obtain a share of the funds obtained from the fraudster.
They have to create a multi-signature transaction and at least one party have to send funds to this transaction. When the payment channel is opened the two parties can send and recieve funds between each other (fast and with extremely low fees)
If you want to use an invalid old transaction you will loose your entire balance from the payment channel and the other party will receive its balance and your balance. The mechanism is called breach transaction remedy. In order to receive the balance from the cheating party you have to be online and provide the secret key. When you are not online there is another mechanism which “scan” the LN for fraudulent transactions, the so called watchtowers.
Watchtowers “scan” the network for fraudulent (invalid) transaction. If they detect a fraudulent transaction they can sign this transaction and as a reward they get a small proportion of the balance which the deceived party receive.
1. How do two parties start a payment channel? They have to create a multi-signature transaction on the blockchain with funds. This transaction on the blockchain will be updated every time the parties will make a new transaction on the Lightening Network.
2. How are you punished if you try to do an invalid transaction? Funds will be locked and to the other party will be given the opportunity to punish for fraudulent behaviour.
3. What is the purpose of “watchtowers”? Helps the parties that cannot be online in order to discover and punish the frouds.
Two parties can initiate a payment channel by creating a multi-signature transaction on the blockchain. At least one party must commit funds to this transaction. Once this channel is open and a payment channel is established on the LN, the participants can transfer funds between each other, instantly and with extremely low fees. Each transaction updates a “temporary” balance sheet, signed by each party’s private key. This balance sheet can be broadcast as a Bitcoin transaction at any time if either or both parties wants to close the channel. LN payments are done peer-to-peer, with no intermediary.
In the event that one party tries to be dishonest, there is recourse for the other party. If one party belonging to a payment channel tries to publish any balance sheet other than the most recent one (e.g., one in which that party owns more BTC than in the most recent balance sheet), that party’s funds will be locked while the other party will be given the opportunity to publish a “penalty” transaction that will send the entire capacity of the payment channel to the other party. This serves as a deterrent to cheating.
To do this, the other party would have to be online.
If a party of a payment channel cannot access the internet, there are “watchtowers”, which are LN nodes that look out for dishonest transactions being broadcast. If the watchtowers detect that a party tried to publish a dishonest transaction, they can sign the penalty transaction for the offline party and be paid a small proportion of the penalty transaction as a reward for keeping users honest.
Two parties start a payment channel by creating a multi-signature transaction on the blockchain.
If you try to do a invalid transaction you will be punished by having the entire capacity of the payment channel sent to the other person.
The purpose of watchtowers is to look out for dishonest transactions being broadcast.