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Trying to understand the lightning network some more. When using this new 2nd layer on top of bitcoin.

  • Do you lock your bitcoins on the lightning network so you can get "pegged" equivalent bitcoin tokens in the lightning network?
  • If these coins are locked and you sent half your coins to another user, now that person has a claim of 50% of your coins from your "locked" coins. So doesn't this mean its the same as depositing your coins into a 3rd party (lightning network) and letting that party deal with the transactions?
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The Lightning Network does not have its own token or currency; Lightning is not pegged to Bitcoin. All payments on the Lightning Network are actual bitcoin transactions.

When funds are put into a Lightning Network payment channel, the two channel owners create a shared 2-of-2 address, set up unilateral recovery transactions for each of them, and then deposit funds into the address to start the channel. Whenever a payment is made on the channel, the two owners update the recovery transactions with new ones for the updated balances. These "commitment transactions" are bonafide on-chain bitcoin transactions, but do not need to be broadcast to the network as long as the channel owners continue to collaborate.

When one of the channel owners wants to close the channel, the two owners can collaborate to create a 2-of-2 transaction paying out the final balances to each of them. This way, all payments compress into a single settlement transaction on the network. In the case of a dispute or one channel owner becoming inactive, either channel owner can broadcast their latest commitment transaction to the Bitcoin network to settle the channel. At no point are funds put into custody of a third party. Funds are locked only in so far as sending an on-chain transaction from the channel's funds would require collaboration of the other channel owner, or waiting for the unilateral closure to settle.

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Do you lock your bitcoins on the lightning network so you can get "pegged" equivalent bitcoin tokens in the lightning network?

Yes your Bitcoin is locked into a payment channel, but you do not get "pegged" equivalent Bitcoin tokens. You are still using Bitcoin and making Bitcoin transactions, not something else.

If these coins are locked and you sent half your coins to another user, now that person has a claim of 50% of your coins from your "locked" coins. So doesn't this mean its the same as depositing your coins into a 3rd party (lightning network) and letting that party deal with the transactions?

No. That other person cannot take your coins without you agreeing to it or doing something stupid (like broadcasting an old commitment transaction). If that person refuses to sign transactions to allow you to close the channel, you can close it yourself without risking any of your coins. You will just need to wait for the timeout to expire before you are allowed to move your coins.

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  • If 10 BTC is locked into a payment channel and I want to send 2 bitcoins here and there... Isn't that technically "pegged" bitcoins as I'm not actually moving the real thing, but "fake" bitcoins that are backed by "real" bitcoins.
    – Patoshi パトシ
    Oct 25, 2017 at 15:31
  • No, you are moving real Bitcoin in real Bitcoin transactions. These transactions are simply not broadcast to the Bitcoin network until later.
    – Andrew Chow ♦
    Oct 25, 2017 at 15:33
  • Don't you have to first broadcast a Bitcoin lock first before doing any of that? From my understanding, once its locked and the other user/service sees that you locked your BTC for X amount of time. You can now transact off chain temporarily until it gets broadcasted?
    – Patoshi パトシ
    Oct 25, 2017 at 15:45
  • It isn't really a lock for X amount of time. It is a transaction which sends coins to a special 2-of-2 multisig. You and the other person are then creating transactions that spend from that 2-of-2 multisig and create outputs to belong to each of you. What you do is essentially just update that transaction changing the values of the outputs to each other. So you are using Bitcoin transactions. There are no other tokens and no set amount of time that your coins are locked.
    – Andrew Chow ♦
    Oct 25, 2017 at 15:51
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the lightning neywork is based on the concept of payment channels. in bitcoin, a payment channel is a transaction where your funds have been sent back to yourself with a timelock on them and until the timelock expires the transaction can be updated by spending the same coins again, with a shorter timelock.

by repeatadly updating the transaction without sending it to the miners, you and the party you opened a payment channel with can re-negotiate how much of the timelocked funds to give to the other party.

when you are both satisfied you can broadcast the end result to be settled/stored on the blockchain.

if the other party no longer wants to negotiate they can take the last accepted result and broadcast that to the network.

if you no longer want to negotiate you can do the same, or wait for thr initial timelock to expire to get your funds back.

the lightning network uses chains of payment channels to enable transactions between distant parties, and is still in development.

as such details on how it operates may still change.

my explanation above is a simplification to get you started. for a more visual explanation I suggest you use youtube to find a more detailed or up-to-date explanation.

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  • Lightning channels are not limited in their duration. What you are describing is more akin to the Duplex Micropayment Channels proposed by Christian Decker.
    – Murch ♦
    Sep 1, 2020 at 22:37

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