What is Hash Timelock Contracts (HTLC)

Hash Time-Locked Contracts are smart contracts that are used to strengthen the security of trustless over-the-counter transactions across blockchains. HTLCs, which are used on atomic swaps and the Bitcoin lightning network, decrease risk by assuring that transactions are time-bound. These contracts indicate that in order for the transaction to be legal, both parties must acknowledge the stated payment within a certain deadline. If either side does not validate the payment within the specified time frame, the transaction is terminated. Hashlocks and timelocks are essential components of HTLCs. The transaction initiator generates a key and passes it through a hash function to create the hash lock. To unlock the hash and validate the transaction, the linked private key is utilized. After completion, the preimage saved hash is made public. If the transaction is not completed the payment is invalid if it is not received within the time limit specified, and the timelock returns the bitcoin to its original owner.

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