Quote from: Mashuri on April 24, 2015, 05:49:17 PM

I noticed in all your examples that the emulated HTLC is solely between Alice and Bob (with an escrow to help facilitate.). Can this system work with passing the emulated HTLC multiple hops, settling between people not in a direct channel with each other? To me, that is a very distinguishing feature of HTLC's.

You are right that it is a very distinguishing feature of the Lightning Network to allow payments between people who do not share a direct link. The Lightning Network uses HTLCs as building blocks in a larger system that accomplishes this.

The answer to your question is: yes!

These emulated HTLCs can be used as building blocks in exactly the same way as Lightning's HTLCs. In fact, they can be mixed: in one and the same network, some links might use emulated HTLCs and others might use true Lightning HTLCs, and payments can be freely routed between them. In a way, this is similar to how some links in the Internet use Ethernet, some use PPP or something else, and Internet Protocol traffic can be freely routed between them.

In essence, all a HTLC has to accomplish is that, if a payment token is given before a time-out passes, funds go to one side, and if the time-out passes before the token is given, funds go to the other side. Then, HTLCs on different links can be chained together, by requiring the same payment token on each link, and using an increasing time-out when going from payee-side to payer-side. This is described in the Lightning paper.

Requirements for inter-operability between links seem to be very low. The same hashing algorithm has to be used on all links. The same address space has to be used for routing, but even cross-address-space routing might be enabled by gateway services(*). In fact, now that I think of it, you don't even need to be on the same block chain: this might enable trust-free, de-centralized exchange between different crypto-currencies. Trust-free exchange with fiat currencies is more difficult (read: impossible), since fiat currency is not bound to cryptographic rules. However, "colored coins" which represent fiat currency can be moved in this way, and even exchanged against non-colored coins. I already described that in a different thread.

(*) This is similar to how you can use IPv6 even when your ISP doesn't provide it, by tunneling your IPv6 traffic over IPv4 to a gateway service that connects you to the IPv6 Internet. Analogies with the Internet seem to be everywhere.