Alice wants to send 1 bitcoin to Bob using the Lightning Network. She has two options - create a direct channel with Bob, or use an existing channel with intermediary Zoe, who also has a channel with Bob. Alice chooses the second option. Zoe creates hash-time locked contracts (HTLCs) to securely transfer the bitcoin from Alice to Bob through their channels. Once Bob reveals the secret, the HTLCs are redeemed and the channels are updated, completing the transaction from Alice to Bob through Zoe.

1. HOW TRANSACTIONS WORK ON
LIGHTNING NETWORK.
Alice, Bob, Zoe and Bitcoin’s transaction.

2. There are two Lightning nodes, Alice and Bob
and they want to carry out a transaction,
using Lightning Network. This network steers
transactions through channels created by
nodes.
BOBALICE

3. ALICE HAS TWO WAYS TO SEND 1 BITCOIN TO BOB
She ca use Zoe, another Lightning node, to which
they are both connected. They already have 5
bitcoins in their channels.
The channel between Alice and Zoe will then
have 10 bitcoins (5 from Alice and 5 from Zoe)
and the same amount of money will be between
Zoe and Bob (5 from Zoe and 5 from Bob).
She can create a
direct channel
with Bob
1 2
ZOE

4. THEY DECIDE TO TRY THE SECOND OPTION, USING ZOE
Lightning Node
Alice and Zoe 10 bitcoin
5 from Alice and 5 from Zoe
Lightning Node
Bob and Zoe 10 bitcoin
5 from Bobe 5 from Zoe

5. S
S H HTLC -1.001
Bob, the recipient, creates a secret S and a hash H. He sends H to Alice.
Alice creates an HTCL. “Alice is taking 1.001 bitcoins from her channel with Zoe to give them to Zoe if she
knows the secret. If she doesn’t, the payment goes back to Alice if 10 blocks get mined”.
ZOEALICE

6. ZOE ALICE
The channel will now have 5 bitcoins owned by Zoe, 3.999 bitcoins owned by Alice
and 1.001 bitcoin on the HTCL.
5 3.999

7. Zoe decides to build an HTCL for Bob “Zoe is taking 1 bitcoin from her channel to give it to Bob if he knows
the secret. If he doesn’t, the payment goes back to Zoe if 9 blocks get mined”.
HTLC
-1 S
ZOEBOB

8. ZOE ALICE
The channel will now have 5 Bitcoins owned by Bob, 4 Bitcoins owned by Zoe and 1
Bitcoin on the HTCL.
5 4

9. As Bob knows the secret he can receive the payment from the HTCL set up by Zoe and he shares the secret
S with her. At the same time, Zoe redeems the payment programmed in Alice’s HTLC.
S
HTLC
S
1
HTLC
1.001
ZOE ALICE

10. The payment was successful.

11. The channels are up to date so the one between Alice and Zoe has 3.999 Bitcoins. The
channel between Zoe and Alice has 6.001 Bitcoins, Zoe and Bob’s has 4 and Bob and
Zoe’s has 6.
3.999
ZOEALICE
6.001
ALICEZOE
4
BOBZOE
6
ZOEBOB

12. Bob received his 1 Bitcoin payment from Zoe and the intermediary gained 0.001 for
facilitating the payment.
1
RECEIVED
0.001
GAINED AS
REWARD
BOB ZOE

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