I'm checking https://lightning.network/ and first paragraph of explanation says:

Bidirectional Payment Channels. Two participants create a ledger entry on the blockchain which requires both participants to sign off on any spending of funds.

What does this step mean. Is this ledger entry a transaction? Is this ledger entry actually one broadcasted multisig transaction signed by both parties that ends on the blockchain? Or two parties broadcast two multisig transactions, or two regular transactions? Can you give a numerical example?

Both parties create transactions which refund the ledger entry to their individual allocation, but do not broadcast them to the blockchain.

After the first step above then each party crate a regular transaction to refund what? (Can you continue on numerical example above)

They can update their individual allocations for the ledger entry by creating many transactions spending from the current ledger entry output. Only the most recent version is valid, which is enforced by blockchain-parsable smart-contract scripting. This entry can be closed out at any time by either party without any trust or custodianship by broadcasting the most recent version to the blockchain.


1 Answer 1


The ledger entry is indeed a single multisig 2-of-2 transaction that is included in a block.

Then, both parties create a 1-of-2 multisig transaction that is not yet published to the network, but kept in reserve. This transaction is updated every time you make a transaction between both parties. Once either of the parties decides to close the channel, he or she publishes their second transaction and it is included in the blockchain.

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