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Author: Admin | 2025-04-28
BTC to Steve because she’s just really nice like that–seriously, what a peach. In order to do so, Steve must create a string of cryptographic numbers called a value (essentially a confirmation code or key). He then creates a hash of this value to send to Molly. To simplify this written illustration, we’ll represent value with V and hash with H.When Molly receives H, she shares it with Chuck. At this point, Molly will only send Chuck the 0.5 BTC if he reveals V. To get V, Chuck sends 0.5 of his own BTC to Steve in exchange for V. Once he has this number, he sends V to Molly who then sends 0.5 BTC to Chuck. And there you have it–Molly effectively transferred 0.5 BTC to Steve.In case you got lost, here’s how it went down:Steve creates V and H→ Steve sends H to Molly→ Molly sends H to Chuck→ Chuck sends BTC to Steve→ Steve sends V to Chuck→ Chuck sends V to Molly→ Molly sends BTC to ChuckThus, the value (V) serves as a confirmation code/key for the hash (H), which represents a receipt/lock for the transaction.“That’s all fine and dandy, but how does Molly know that the value Chuck sends her is legit, and what’s keeping Steve from running away with the BTC Chuck pays him?”Again, good questions. Just as nLockTime keeps everyone honest in a bidirectional payment channel, Hash Time Locked Contracts keep parties accountable in this model.With HTLCs, the Bitcoin funds being transacted are locked up yet again in a multi-signature wallet and can only be unlocked a) after the value (V) and hash (H) are presented or b) the contract expires after a timeout period.In effect, this means that, when Molly and Chuck go into an agreement for Molly to pay Steve, she locks the Bitcoin she owes Chuck in a multi-signature wallet using the HTLC. Once Chuck pays Steve and receives V, he can then enter V and H into the HTLC to be reimbursed with the Bitcoin Molly committed to the contract. Alternatively, if Chuck fails to hold up his end
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