Penalty Transaction

The penalty transaction (or "justice" transaction) is what makes off-chain transactions secure in the LN-Penalty protocol.

How Penalties Work

If a participant tries to broadcast an old, revoked state, the other participant can use a revocation key to spend all the funds in the channel. This "penalty" discourages cheating.

Technical Mechanism

Revocation is achieved by including a secret in each state. Once a new state is agreed upon, the secret for the old state is shared, allowing the other party to claim the funds if the old state is ever broadcast.