📜PrTLC (proof-time locked contract)

Describes a PrTLC construction, which is the basis of the Bitcoin on-chain swaps.

Contract construction is similar to hash-time locked contract (HTLC), where claimer needs to provide a proof instead of a secret for a hash. In this case the proof is transaction verification through bitcoin light client by providing a valid merkle proof for a transaction inclusion inside a bitcoin blockheader.

PrTLC is an agreement (smart contract) between 2 parties (A & B) consisting of proof-lock & timelock. It is created with 2 parameters: bitcoin transaction TX (as identified by the tx id, or a specific transaction input/output) & timelock T

Proof-lock

Enables A to claim the funds from the smart contract if he is able to prove that a bitcoin transaction TX was confirmed in a bitcoin block (using bitcoin light client & merkle proof of transaction inclusion). This is used for happy path (the bitcoin payment was successful).

Timelock

Allows B to claim the funds from the smart contract once the timelock T expires. This is used for sad path (e.g. when the counterparty doesn't cooperate) and makes sure the funds are returned to the original sender.

Cooperative close

It is also possible to cooperatively close the contract together (but both A & B must agree on the closing terms of the contract).