Hashed Timelock Contract

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Definition of 'Hashed Timelock Contract'

A hashed timelock contract (HTLC) is a smart contract that allows two parties to exchange assets without trusting each other. The contract is time-locked, meaning that the assets cannot be transferred until a certain amount of time has passed. This prevents either party from being able to cheat the other.

HTLCs are often used in cryptocurrency transactions. For example, Alice might want to send Bob 1 Bitcoin, but she doesn't trust Bob to send her the money back. She can create an HTLC that will release the Bitcoin to Bob after 24 hours if he sends her 1 Bitcoin back. If Bob doesn't send the money back, the Bitcoin will be returned to Alice.

HTLCs are also used in other applications, such as decentralized finance (DeFi). For example, a DeFi platform might use HTLCs to allow users to borrow money without having to provide collateral.

Here are some of the benefits of using HTLCs:

* They are secure. HTLCs are based on cryptography, which makes them very secure.
* They are trustless. HTLCs do not require any trust between the parties involved.
* They are flexible. HTLCs can be used for a variety of applications.

Here are some of the challenges of using HTLCs:

* They can be complex. HTLCs can be complex to understand and implement.
* They can be expensive. HTLCs can be expensive to use, especially if they are used for small transactions.
* They can be slow. HTLCs can be slow, especially if they are used for cross-border transactions.

Overall, HTLCs are a powerful tool that can be used for a variety of applications. However, it is important to be aware of the benefits and challenges of using HTLCs before using them.

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