Crypto Terms: Letter H

What is Hashed TimeLock Contract (HTLC)?

Hashed TimeLock Contract (HTLC) MEANING:
Hashed TimeLock Contract (HTLC) - a feature used to develop smart contracts with the possibility to alter payment channels.
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Let's find out Hashed TimeLock Contract (HTLC) meaning, definition in crypto, what is Hashed TimeLock Contract (HTLC), and all other detailed facts.

Theoretically, the HTLC allows two users to execute time-bound transactions. Practically, the receiver of an HTLC transaction must authorize the payment within a certain time period. This has to be done by providing cryptographic proof. The funds are returned to the sender when the recipient fails to collect the payment. The HTLC is used in bidirectional and routed payment channels. It enables safe fund transfers over many channels without relying on middlemen.

HTLC differs from standard crypto transactions because of two aspects – hashlock and timelock.

  • Hashlock is a function that prevents funds from being spent until a certain piece of information is made public as cryptographic proof.
  • Timelock is a function that prevents funds from being spent until a certain time in the future.

One of the most prominent examples of HTLC applications is the Lightning Network of Bitcoin. The incorporation of HTLC into payment methods allows users to transfer funds between one another via interconnected payment channels. Besides, there's no need for trust when using this network. Network routing is a term used to describe this process.

To illustrate, imagine that Anna and Emma want to trade funds but they are not connected to the same payment channel. HTLCs would allow Anna to send her funds to Emma through, for example, John. Meanwhile, hashlock and timelock features would make it impossible for John to hijack the funds.

However, HTLCs can also be used in a variety of other contexts aside from the Lightning Network, including financial smart contracts, cross-chain atomic swapsescrow, and so on.