Hashed Timelock Contracts Will Be Able To Reshape Crypto Transactions and Transform Industries
Since the invention of the smart contracts, the cryptocurrency market has become considerably more secure than it was before them. They are excellent because they let two parties make transactions without having to be worried about getting scammed or issues like double spending, as they are made impossible because of how the contracts work.
It is because of this that next generation smart contracts are starting to be developed for Bitcoin (BTC) and Stellar Lumens (XLM). This new feature will be called Hashed TimeLock Contracts.
What Are Hashed TimeLock Contracts?
On first look, a Hashed TimeLock Contract might look a lot like any other crypto transaction in which two parties agree to the rules of a transaction, but there are several unique elements that make them more different than normal transactions.
One of the most important aspects is that these transactions are time-locked and, if the party that will receive the token does not generate a proof of payment after a certain time, the transaction will become invalid and the token will be refunded back to the sender.
Another important characteristic is the hashlock. A hashlock can be understood as a scrambled version of a cryptographic key that is generated by a sender in a transaction and that will be used to unlock the original hash and is only revealed at the end of the transaction, so the money cannot be used before the end of the transaction.
How Do Hashed TimeLock Contracts Work?
These transactions can be made by two entities. These entities can be people, but they can also be internet of things devices and similar objects. First, the sender will set up a specific hash from its private key and this will represent an amount of money. This will generate a pre-image to help in the validation of the transaction.
Then, the other entity will receive the payment and will also generate a pre-image, as well as a hash and send it back. Once both sides receive it, the hash is used to decrypt the payment and make it available. This will require a proof of payment that should be produced and sent back to show acceptance of the payment or it is refunded.
This can also trigger other functions that are triggered on the smart contract. This type of technology can be very beneficial in cases of lawsuits and real estate scenarios.
The Uses and Benefits Of Hashed TimeLock Contracts
These new contracts will be time sensitive, so they will prevent the sender from having to wait forever to know if the payment went through and, if it has not, the sender will be refunded, so it will not need to worry.
There are many cases in which a time sensitive transaction can be useful for firms that work in fields like real estate. They may need to hire contractor for a job with a time limit, for instance. In this case, they can create the payment quickly.
Other advantages of using this technology can be seen in the validation of the blockchain for every transaction and the fact that trust will not be a requirement for the transactions as they will be automatic. It can be used even as a way to send money abroad.
Hashed TimeLock Contracts can also be used in atomic swaps. This means that you will be able to trade a currency for other.
Another very useful use for this type of contract can be the Lightning Network. As you might have heard, the LN uses a protocol to route the payments over the Bitcoin network and use other channels, which makes the transactions faster and cheaper. However, the LN is facing major bugs and many people have lost their money by using it.
Having cashbacks can be a good way to use the LN because if some payment bugs and it does not go to the receiver, it will go back to the sender instead of being lost forever. This way, you can make off-chain transactions on the Bitcoin network without having to be afraid if you might lose your tokens or not.
The LN is a trustless network with super fast payments and a less bloated blockchain than the original Bitcoin, which can be used for atomic swaps and other features but it is very buggy right now and the most pessimistic people believe that it will always remain buggy. This could provide a fine solution for this type of issue and keep the LN working even if the issues are never 100% sold.
The Main Challenge For Hashed TimeLock Contracts
Unfortunately, the Hashed TimeLock Contracts are far from being in a perfect state right now and it will take some time for users to mass adopt this technology. The major point that can harm these technologies, according to the creators is that it is hard to convince people to start using them.
As soon as the Hashed TimeLock Contracts remain popular, they can be as fully embraced as PayPal payments, but that might take at least a decade to become a reality, as even Bitcoin took almost 10 years to become mainstream.
The Hashed TimeLock Contracts Conclusion
This is a highly useful technology that can be used to develop many industries and to allow the users to have more sophisticated ways of payment. They are a natural evolution of the old smart contracts and will be specially useful for time sensitive issues and for when people use technologies like the Bitcoin Lightning Network.