Merge pull request #508 from ebfull/htlc

BIP 199: Hashed Time-Locked Contract transactions

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 | Luke Dashjr
 | Standard
 | Draft
+|-
+| [[bip-0199.mediawiki|199]]
+| Applications
+| Hashed Time-Locked Contract transactions
+| Sean Bowe, Daira Hopwood
+| Standard
+| Draft
 |}
 
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+<pre>
+  BIP: 199
+  Layer: Applications
+  Title: Hashed Time-Locked Contract transactions
+  Author: Sean Bowe <sean@z.cash>
+          Daira Hopwood <daira@z.cash>
+  Comments-Summary: No comments yet.
+  Comments-URI: https://github.com/bitcoin/bips/wiki/Comments:BIP-0199
+  Status: Draft
+  Type: Standards Track
+  Created: 2017-03-27
+  License: BSD-3-Clause
+           CC0-1.0
+</pre>
+
+==Abstract==
+
+This BIP describes a script for generalized off-chain contract negotiation.
+
+==Summary==
+
+A Hashed Time-Locked Contract (HTLC) is a script that permits a designated party (the "seller") to spend funds by disclosing the preimage of a hash.  It also permits 
+a second party (the "buyer") to spend the funds after a timeout is reached, in a refund situation.
+
+The script takes the following form:
+
+    OP_IF
+        [HASHOP] <digest> OP_EQUALVERIFY OP_DUP OP_HASH160 <seller pubkey hash>            
+    OP_ELSE
+        <num> [TIMEOUTOP] OP_DROP OP_DUP OP_HASH160 <buyer pubkey hash>
+    OP_ENDIF
+    OP_EQUALVERIFY
+    OP_CHECKSIG
+
+[HASHOP] is either OP_SHA256 or OP_HASH160.
+
+[TIMEOUTOP] is either OP_CHECKSEQUENCEVERIFY or OP_CHECKLOCKTIMEVERIFY.
+
+===Interaction===
+
+* Victor (the "buyer") and Peggy (the "seller") exchange public keys and mutually agree upon a timeout threshold.  Peggy provides a hash digest.  Both parties can now 
+construct the script and P2SH address for the HTLC.
+* Victor sends funds to the P2SH address.
+* Either:
+** Peggy spends the funds, and in doing so, reveals the preimage to Victor in the transaction; OR
+** Victor recovers the funds after the timeout threshold.
+
+Victor is interested in a lower timeout to reduce the amount of time that his funds are encumbered in the event that Peggy does not reveal the preimage.  Peggy is 
+interested in a higher timeout to reduce the risk that she is unable to spend the funds before the threshold, or worse, that her transaction spending the funds does 
+not enter the blockchain before Victor's but does reveal the preimage to Victor anyway.
+
+==Motivation==
+
+In many off-chain protocols, secret disclosure is used as part of a settlement mechanism.  In some others, the secrets themselves are valuable.  HTLC transactions are 
+a safe and cheap method of exchanging secrets for money over the blockchain, due to the ability to recover funds from an uncooperative counterparty, and the 
+opportunity that the possessor of a secret has to receive the funds before such a refund can occur.
+
+===Lightning network===
+
+In the lightning network, HTLC scripts are used to perform atomic swaps between payment channels.
+
+Alice constructs K and hashes it to produce L.  She sends an HTLC payment to Bob for the preimage of L.  Bob sends an HTLC payment to Carol for the same preimage and 
+amount.  Only when Alice releases the preimage K does any exchange of value occur, and because the secret is divulged for each hop, all parties are compensated.  If 
+at any point some parties become uncooperative, the process can be aborted via the refund conditions.
+
+===Zero-knowledge contingent payments===
+
+Various practical zero-knowledge proving systems exist which can be used to guarantee that a hash preimage derives valuable information.  As an example, a 
+zero-knowledge proof can be used to prove that a hash preimage acts as a decryption key for an encrypted sudoku puzzle solution.  (See 
+[https://github.com/zcash/pay-to-sudoku pay-to-sudoku] for a concrete example of such a protocol.)
+
+HTLC transactions can be used to exchange such decryption keys for money without risk, and they do not require large or expensive-to-validate transactions.
+
+==Implementation==
+
+https://github.com/bitcoin/bitcoin/pull/7601
+
+==Copyright==
+
+This document is dual licensed as BSD 3-clause, and Creative Commons CC0 1.0 Universal.
+