Reading Assignment: Lightning Details

It’s time for another reading assignment on the lightning network. Read through the this blog post 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”?
  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

  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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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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  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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  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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  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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  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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