The Bitcoin blockchain

• Event-driven architecture
• Stores Bitcoin transactions
• Alice sends 0.1 BTC to Bob
• Balances are implicit
• Past transactions are never changed
• Broadcast network

A Bitcoin Transaction

A Bitcoin Transaction

Spending outputs

• Outputs become inputs of its child transaction
• Outputs have a script that needs to be satisfied
• That script is often just a signature
• Can have other requirements, e.g. timelock
• May also require multiple signatures

MultiSig/MuSig

• m-of-n signatures are required
• 3-of-5 = 5 privKeys are authorized to sign, 3 of them are required
• 2-of-2 = 2 privKeys are authorized, both are required

Lightning channels [setup]

• Are based on a 2-of-2 MultiSig
• Alice and Bob put 1 Bitcoin onto a 2-of-2 multisig
• Alice gives 0.5 Bitcoin, Bob too
• They broadcast that transaction [tx]
• Both Alice AND Bob need to sign to spend the money
• Both Alice and Bob sign a spending tx (of their 2-of-2 multisig), that sends 0.5 BTC to Alice and 0.5 BTC to Bob
• They do NOT broadcast that tx, but keep it stored on their machines

Lightning channels [use 1]

• Alice wants to pay Bob 0.1 BTC
• Alice and Bob sign another spending transaction that sends 0.4 to Alice and 0.6 to Bob
• They do NOT broadcast that tx, but keep it stored on their machines

Lightning channels [use 2]

• Alice wants to pay Bob 0.1 BTC again
• Alice and Bob sign another spending transaction that sends 0.3 to Alice and 0.7 to Bob
• They do NOT broadcast that tx, but keep it stored on their machines

Lightning channels [use 3]

• Bob wants to pay Alice 0.3 BTC again
• Alice and Bob sign another spending transaction that sends 0.6 to Alice and 0.4 to Bob
• They do NOT broadcast that tx, but keep it stored on their machines

Lightning channels [close]

• Alice and Bob want to close their channel
• Now they broadcast the last spending transaction they've stored on their machine
• In this case, Alice receives 0.6 BTC and Bob 0.4

Overview

Benefits

• Only the settlement transaction is broadcasted to the world
• Gain in efficiency and privacy
• Channels can stay open forever!