CBP Lightning Network and Layer 2 Solutions Flashcards

What does 'inbound liquidity' mean in the Lightning Network?

Answer: The capacity available to receive payments through a channel

Inbound liquidity refers to the funds on the counterparty's side of a channel, allowing you to receive payments.

Which type of Lightning Network node gives users full control of their private keys?

Answer: Self-hosted non-custodial nodes

Non-custodial Lightning nodes are self-hosted where the user controls their own private keys and channel funds without relying on a third party.

What is a 'watchtower' in the context of the Lightning Network?

Answer: A third-party service monitoring channels for fraudulent closing attempts

A watchtower is a service that monitors the blockchain on behalf of offline Lightning nodes to detect and penalize fraudulent channel closure attempts.

What penalty mechanism deters cheating in Lightning Network channel closures?

Answer: The honest party can claim all channel funds if the other broadcasts an old state

If a party broadcasts an outdated channel state to cheat, the other party can use a 'justice transaction' to claim all the channel's funds as a penalty.

What use case does the Lightning Network enable that is impractical on-chain?

Answer: Micropayments of fractions of a cent

Lightning enables micropayments far too small to be practical on-chain due to Bitcoin transaction fees, enabling pay-per-second streaming and tipping.

What is a 'submarine swap' in the Lightning Network?

Answer: An atomic swap between on-chain Bitcoin and Lightning Network Bitcoin

A submarine swap is an atomic exchange that allows converting between on-chain Bitcoin and Lightning Network Bitcoin without trusting a third party.