What’s a Multisig Address?

A multisig wallet is short for a “multiple signature wallet.” This means that multiple people control this wallet. It is similar to your regular wallet in that it can receive and spend Litecoin (LTC). However, it is unique in that you can only spend LTC if certain conditions are met.

For example, let’s say 3 people decide to create a multisig address together. They can arrange it so that all 3 people have to sign the transaction in order to send the LTC. They can also arrange it so that only 2 out of the 3 people need to sign. They can even do 1 out of 3. This is all made possible through “smart contracts.”

Now let’s pretend we created a multisig wallet where 3 people own it and 3 people must sign the transaction. First, one person initiates a payment of 1 LTC from the address. Because the other two owners have not signed the transaction, it remains “pending.” This is a crucial concept in understanding what an open payment channel is on the Lightning Network.

An Open Payment Channel means that a transaction has started but not completed. This will be a key concept in our second article, “The Lightning Network Between Two People.” In the example above, an open payment channel is created when one person initiates a payment by signing a transaction but the other two owners do not. In this way, the transaction isn’t recorded on the blockchain because it hasn’t been broadcast yet.

A Closed Payment Channel is when a initiated transaction has been successfully broadcast to the network. In the example above, this is achieved when all parties in the multisig sign the transaction. Three things happen when a channel is closed:

A payment of 1 LTC is sent. The transaction is recorded on the LTC blockchain. The transaction fee is offocially sent to the miners who then process the transaction.

Summary

The Lightning Network(LN) is comprised of many multisig address. These are the backbone of the LN. It leverages the unique properties of Open and Closed Payment Channels to prevent transactions from being immediately recorded on the blockchain saving users from paying a transaction fee for each transaction. Payment channels close when the transaction has been broadcast to the Litecoin network. One way this occurs is when everyone in multisig signs for the transaction. Another way this happens is through something called “Hash Time Locked Contracts.” These contracts delay the spending of a payment until “X” amount of time has passed. This technology is what the Lightning Network uses.

Okay that’s it for now and thanks for reading! You are now ready for Part 2: The Lightning Network Between Two People.

Sources:

https://lightning.network/

https://www.youtube.com/watch?v=8zVzw912wPo

https://streams.lykke.com/Project/ProjectDetails/b134b15b54e745559f26c217bef5a2f8

Donation Addresses:

LTC: LgGHRsbYHs93gKttBMehLzth3xDAU3tCSZ

BTC: 36Nc4cJxcwp5Xn6wfo1W9UuC5SRQKXHmYy (Segwit address. Legacy and Segwit chains accepted)