Hashed TimeLock Contract or HTLC is a class of payments that use hashlocks and timelocks to require that the receiver of a payment either acknowledge receiving the payment prior to a deadline by generating cryptographic proof of payment or forfeit the ability to claim the payment, returning it to the payer.
The cryptographic proof of payment the receiver generates can then be used to trigger other actions in other payments, making HTLCs a powerful technique for producing conditional payments in Bitcoin.
This implementation of Hashed Timelock Contracts as part of atomic cross-chain trading goes by the name of HTLC. It is also possible to use HTLC in payment channels moving forward. Even though payment channels use timelocks by default, they can be “extended” with hashlocks. As a result, one would be able to route [Bitcoin] payments through two or more payment channels.
All of this sounds great and exciting, but there is a secondary aspect to Hashed Timelock Contracts when it comes to cryptocurrency payments. This technology also allows the recipient of a payment to forfeit the ability to claim the pending transfer. In doing so, they will effectively return the money to the sender. Up until now, that seemed very improbable where bitcoin is concerned, although it could prove to be quite useful in the long run.
In the end, it is not hard to see why developers are excited about Hashed Timelock Contracts. The opportunities for this technological feature are virtually limitless, and it is an area of development well worth exploring further. Conditional payments can be quite beneficial to cryptocurrency as a whole in the future.
Hashed Timelocked Contracts (HTLC) are a well-known and simple technique for building protocols for atomic swaps. They allow you to pay another party for some information (generally, a key) with a condition that allows you to receive your money back if the party does not cooperate.
HTLCs are a fundamental tool in the Lightning network, in zero-knowledge contingent payments (ZKCP) like the one we performed last year at FC’16, and in our XCAT project that we announced last month. One of the first steps forward is the inclusion of general HTLC functionality in the Bitcoin Core wallet.
A contract is a certain type of agreement that is enforced by a third party. Hashed-Timelock Agreements (HTLAs) generalize the idea of HTLCs to include agreements that are enforced by a ledger. The principle has been in use in Interledger since the project was started but the HTLA term was proposed more recently in this thread on the Interledger mailing list. HTLAs enable secure Interledger payments through all types of ledgers, including those that do not support conditional transfers.
Atomic cross-chain trading allows some amount of one cryptocurrency (such as bitcoin on mainnet) to be traded for some amount of cryptocurrency on another block chain (such as bitcoin on a sidechain).
Descriptions of cross-chain atomic swaps are probably the origin of the technique now called HTLCs.
Payment channels already use timelocks, and it can be relatively simple conceptually to extend them with hashlocks. This provides the useful benefit of making payments routable across two or more payment channels.