Reading Assignment: Lightning Details

Lightning Network, Lapps & Segwit
#61
  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 the transaction
  1. How are you punished if you try to do an invalid transaction?
  • You BTC or LTC or whatever crypto your using will be taken and given to the other party in the transaction. If a watchtower caught the fraud, part of the “profit” will go to the watch tower. This gives incentive to keep an honest network.
  1. What is the purpose of “watchtowers”?
  • Watchtowers are LN nodes that look out for dishonest transactions being broadcasted.
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#62

  1. How do two parties start a payment channel?
    They start a payment channel by making a funding transaction to a multisignature wallet (2 out of 2) on bitcoin blockchain. with Funding transaction they also create first commitment transaction that allow them to continue work on channel without trusting each other.

  2. How are you punished if you try to do an invalid transaction?
    Most probably i will lose all my funds by giving secret to other person in channel.

  3. What is the purpose of “watchtowers”?
    they keep an eye on network to find out any fraudulent transaction being broadcast. By doing this they provide protection to the funds of an offline participant in the network and during their watch if they find any fraudulent transaction being broadcast they can response and protect the funds plus get some reward out of it.

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#63
  1. How do two parties start a payment channel?
  • at least one party must fund the channel
  1. How are you punished if you try to do an invalid transaction?
  • the other party can invoke BRTX and claim all funds in the channel
  1. What is the purpose of “watchtowers”?
  • in case the other party is offline when the fraudulent activity takes place watchtowers can claim on behalf of the affected party and cash out the channel to the victim (via BRTX)
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#64
  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 the transaction
  1. How are you punished if you try to do an invalid transaction?
  • You BTC or LTC or whatever crypto your using will be taken and given to the other party in the transaction. If a watchtower caught the fraud, part of the “profit” will go to the watch tower. This gives incentive to keep an honest network.
  1. What is the purpose of “watchtowers”?
  • Watchtowers are LN nodes that look out for dishonest transactions being broadcasted.
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#65

  1. by creating a multisig transaction on the Bitcoin blockchain

  2. you probably lose the amount you otherwise would have received after correctly closing the channel. The punishment is called a penalty transaction.

  3. watchtowers seek the LN for people who try to scam other participants. If a watchtower detects a scammer who tries to close a channel by signing an old balance, it can proceed to do a penalty transaction and will receive a share of the penalty tx.

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#66

  1. Either one party, or both parties may send funds to a 2/2 multisig address. This is a funding transaction and effectively establishes a lightning network payment channel.

  2. You are punished by losing all of the funds that you’ve personally committed to the channel. The other party in the channel may broadcast the breach remedy (anti-cheat) transaction, and take all of your money.

  3. The purpose of watchtowers is to look for entities trying to broadcast a transaction that is not the latest transaction that has occurred between two entities. Watchtowers are incentivized to exist because they will receive a portion of the fraudulent actors funds.

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#67

1. How do two parties start a payment channel?

To start a payment channel, users have to create a multi-signature transaction on the Bitcoin network where at least one party commits funds.

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

Invalid transactions are punished by completely wiping a bad actor’s funds, effectively transferring them to the targeted party. Thereby, there’s a considerable incentive to remain honest.

3. What is the purpose of “watchtowers”?

Watchtowers act as referees or guardians of honest transactions. If there’s an attempt at broadcasting an invalid transaction where the attacked party is unresponsive or unavailable/offline, then watchtowers intervene to ensure that the attacker’s attempt is denied.

Watchtowers are incentivized by being rewarded a percentage of a channel’s funds in case it is being attacked.

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#68

  1. 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.

  2. The counterparty would do a brach remedy transaction. If proven to be an invalid transaction, I would lose my funds in the payments channel.

  3. LN nodes that look out for dishonest transactions being broadcast

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#69

  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. At least one party must commit funds to this transaction.”

  2. How are you punished if you try to do an invalid transaction?
    Your counterparty gets the opportunity to get all the funds of the payment channel.

  3. What is the purpose of “watchtowers”?
    Making sure that fraudulent transactions are detected and that fraudulent actors are punished.

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#70

  1. Two parties open a channel by funding a 2/2 multisig address on the Bitcoin blockchain with a funding transaction. Subsequent commitment transactions then require the signature of both parties to be valid.

  2. Breach remedy transactions are created for current commitment transactions when a new commitment transaction is created. Once the new commitment transaction is shared between the two parties then attempting to broadcast old commitment transactions will result in the broadcasting of the breach remedy transaction which is disadvantageous to the party attempting to broadcast the old commitment transaction. Relative timelocks are used to promote the confirmation of the breach remedy transaction over the old commitment transaction.

  3. A watchtower are a third party that remains online constantly and monitors the network on behalf of two parties that share a multisig channel when those parties are offline. In the event of having to broadcast a breach remedy transaction the watchtower shares a percentage of the reward.

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#71

The blog post is no longer available. I got a 404 error from Medium. I answered these based on the previous videos.

  1. How do two parties start a payment channel?
    adding funds to a multisig wallet

  2. How are you punished if you try to do an invalid transaction?
    Breach remedy gives the other person 100 blocks to not only redeem their funds, but also collect your portion which would lead to you receiving none

  3. What is the purpose of “watchtowers”?
    watchtowers try to catch people who are trying to do an invalid transaction for a fee. They help in case the potential victim is offline.

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#72
  1. Two parties start a payment channel through a funding transaction
  2. When trying to broadcast an old and invalid transaction, you also expose the secret allowing the other participant to take all the funds in the channel
  3. The purpose of watchtowers is to monitor the lightning network if any participant tries to cheat the other participant by broadcasting an older state of the payment channel. The watchtower will then help to broadcast the Breach Remedy TX, in case the other participant is offline at the moment
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#73

  1. How do two parties start a payment channel?
    Create Multisig Address
    Perform Funding Transaction
    Perform First Commitment Transaction

  2. How are you punished if you try to do an invalid transaction?
    A breach remedy transaction can result in the loss of bitcoin

  3. What is the purpose of “watchtowers”?
    Network Enforcement by incentivizing monitoring and submitting breach remedy transactions

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#74

@filip The article for this course is giving me 404 error. Seems the post was taken down.

#75

Hey @Baidis, thanks for letting us know. Yes the article also doesn’t work for me. We’ll try to replace it with another one. Sorry for the inconvenience. :slight_smile:

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#76
  1. Both parties start a payment channel by funding a multi-sig transaction with (equal?) amounts of bitcoin, which costs a gas fee.
  2. A penalty transaction is created for each “expired” transaction which, when broadcasted, sends the funds from the offending user’s wallet to the second user’s wallet
  3. To identify fraudulent/expired transactions before they can be added to the blockchain in the case of a victim party’s node being offline, adding another (although somewhat flimsy) layer of security to the lightning network.
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#77

A.1. Two parties start a Lightning Network payment channel through an initial transaction to open/ funding a channel. This locks up an amount of BTC on the main blockchain and guarantees future payments that will flow through the opened channel without depending on the BTC blockchain throughput.

Transactions on the Lightning Network payment channel are not recorded on the main blockchain but the opening and closing of the funding channel is recorded. The two parties’ payment channel requires multisig wallet addresses in order to spend BTC.

A.2. The attempt to do an invalid transaction i.e. double-spending, is met with punishment by total removal of funds (money) from the wallet address that attempted to do the invalid transaction. This rule is similar to the BTC PoW consensus game theory–play by the rules.

A.3. The purpose of Watchtowers is to provide reward incentives to people to monitor the network in an exchange for BTC. Watchtowers are responsible for automatically submitting BRTX (Breach Remedy TX) if double-spending is attempted. In order increase the chances of being rewarded, Watchtowers should keep their nodes online 24-7-365.

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#78
  • Reading Assignment
    1. How do two parties start a payment channel?
      • They each send funds to a multig address and update the off chain tx until the updated balances of the offline tx are broadcast to the Bitcoin mainchain for settlement
    2. How are you punished if you try to do an invalid transaction?
      • A Breach Remedy tx can be broadcast and the victim receives all the funds within the channel
    3. What is the purpose of “watchtowers”?
      • To safe guard against channel attacks against offline nodes
        • Watchtowers can earn a fee from the attackers portion of a channel
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#79

  1. Two parties start a payment channel by creating a multisig transaction on the bitcoin network

  2. invalid transactions on lightning are punished by the use of a breach remedy transaction. The bad actor will loose their funds

  3. Watchtowers are in the lightning network to protect nodes that are offline in the case of fraudulent activity.

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#80

1. How do two parties start a payment channel?
By setting up a multisig address with one signed unpublished redeem-payment transaction for each participant.
2. How are you punished if you try to do an invalid transaction?
A Breach Remedy Transaction can be triggered by the other party that redeems all the channel’s funds to the victim.
3. What is the purpose of “watchtowers”?
If a victim of a cheat is off-line, a watchtower can scan for these cheat transactions and trigger the BRTX on behalf of the victim.

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