CLTV vs nLockTime

Question

What is the difference between nLockTime and CLTV? Bitcoin Wiki says:

When the CLTV opcode is called, it will cause the script to fail unless the nLockTime on the transaction is equal to or greater than the time parameter provided to the CLTV opcode. Since a transaction may only be included in a valid block if its nLockTime is in the past, this ensures the CLTV-based timelock has expired before the transaction may be included in a valid block.

According to the above description, it's unclear to me how the parameter to CLTV is used. For example, for a transaction T with nLockTime=400, CLTV=300, the above description basically says since T remains invalid until 400 (due to nLockTime), CLTV=300 must have been satisfied by height 400. True but what's the point? What would be different if T has CTLV=200?

Answer 1

Setting the nLockTime field of a transaction restricts confirmation of the current transaction until a certain block height.
Using a CLTV op in the locking script of an output of the current transaction will restrict the confirmation of the next transaction (i.e. the one that spends this output), by forcing the next transaction's nLockTime to be equal to the value passed to the CLTV opcode.

Let's say you have two transactions in the two scenarii. The block height at the time of writing is 637028.

• A is a (one input, one output) transaction which nLockTime field is set to 637100. B is a (one input, one output) transaction which spends A.
• C is a (one input, one output) transaction which nLockTime field is set to 0, but which specifies 637100 CLTV DROP as part of the "locking" script of its single output. D is a (one input, one output) transaction which spends C.

           A                            B
 _____________________        ______________________
|   nLockTime=637100  |----->|     nLockTime=0      |
|_____________________|      |______________________|


           C                            D
 _____________________        ______________________
|   CLTV=637100       |----->|     nLockTime=637100 |
|____________\________|      |_________________/|\__|
              \                                 |
               \________this forces_____________|

Both packages cannot be mined as a whole before height 637028, however in the second scenario C can be mined : this indirection is the point of the CLTV opcode. More about the details and usecases in bip-0065.

Answer 2

The nLockTime field and the CLTV opcode both specify absolute time-locks. The difference is that nLockTime applies to an entire transaction whereas CLTV applies to the spending of a single transaction output. A transaction with an enabled nLockTime cannot be mined until the block height or time specified in the nLockTime has passed. A transaction output encumbered with a CLTV opcode cannot be spent unless the spending transaction has an nLockTime that is greater than or equal to the CLTV parameter.

In your example, you are correct that T cannot be mined until time 400. However, the CLTV value applies to a single transaction output that is being spent by T. The two values could be set by different people. If the CLTV value was 200, the transaction output could have been spent by a transaction with an nLockTime of 200. Similarly, if the CLTV value was 300, the transaction output could have been spent by a transaction with an nLockTime of 300, but not 200. Of course, a transaction with an nLockTime of 400 could spend the transaction output in either case.