On-chain transactions

Transactions broadcast and processed by the Bitcoin blockchain.

They are (much) slower than Lightning transactions, since you have to wait for block confirmation.

Funding Transaction

The Funding Transaction creates the channel. During this stage, funds are sent into a multisig address controlled by both Alice and Bob, the counterparties to the channel. This address can be funded as a single-payer channel or by both Alice and Bob.

Closing Transaction

The Closing Transaction closes the channel. When broadcast, the multisig address spends the funds back to Alice and Bob according to their agreed-upon channel amount.

A "Closing Transaction" is always the result of a Mutual close.

"Punishing" transaction

In the case where either party attempts to defraud the other, a third transaction, which punishes the attacker, will end up being broadcasted on-chain. Let’s investigate how this is possible by the way Lightning does channel updates.