Skip to content

DLC, Smarts contracts on Bitcoin

November 8, 2020

The operation of a DLC begins when two people interested in setting up the DLC contract set their terms and agreements, which will be carried out by the contract. From there, the contract waits to be activated according to the scheduled events. These events and their monitoring are controlled by a number of oracles. Nbsp;

Once the contract details have been agreed, those involved in that contract will send the funds to an address with multiple signatures. With the down payment made, the oracle signs the contract with the hash that refers to the person (s) who will benefit from the contract. This hash will allow the beneficiary or beneficiaries to withdraw funds from the contract.

Now all the details of the contract are recorded in an address on the Bitcoin blockchain. At this point, it does just like it does in Ethereum, which gives us peace of mind that the contract is immutable. These contracts are issued as a standard multi-signature transaction that gives this type of smart contract some discretion. This is possible because DLC obscures the smart contract in such a way that it cannot be determined whether it is a normal transaction or a smart contract. Nbsp;

DLC versus HTLC

DLC, Smarts contracts on Bitcoin
DLC, Smarts contracts on Bitcoin

A Hashed TimeLock contract, or HTLC (for its acronym in English) is a smart contract that allows you to send transactions between parties. Thanks to this, HTLCs are particularly useful in building systems like the Lightning Network, which operate on them. HTLCs are based on the fact that one person can structure a payment so that another party can only accept it if that party knows the secret whose hash was shared with them.

In addition, HTLCs use time and hash locks to ensure payment security. On the other hand, HTLCs require the recipient of a payment to confirm receipt before a deadline, provide cryptographic evidence of the payment or, on the contrary, lose the ability to claim the payment, and return that payment to the payer. Since every receipt of money triggers the creation of a new hash, this idea can be expanded to enable a sequence of payments. With the right conditionality, payments can be securely routed through a number of users. The cryptographic proof of payment generated by the recipient can then be used to trigger further actions for other payments.

That said, recently some labs and personalities from the cryptographic universe have reported bugs in HTLCs as they are used by hackers to create bottlenecks and eventually break down the networks by making micropayments and pending them on the network to slow down or slow down these networks stop completely.

In this sense, DLCs ​​are the laurels for versatility and innovation in the Bitcoin network.