NLocktime and nSequence
nLocktime and nSequence are interlocks that can be applied to Bitcoin Transactions.
nSequence is a parameter applied to each input of a transaction. If a transaction's nLocktime interlock is active (i.e. nLocktime is set to a point in the future), a transaction which has one or more inputs where nSequence is less than UINT_MAX (0xFFFFFFFF), then the transaction cannot be accepted into a block.
nLockTime is a parameter applied to each transaction specified in either unix time or block height, before which, the transaction cannot be accepted into a block. If all inputs in a transaction have nSequence equal to UINT_MAX, then nLockTime is ignored.
If nLockTime < 500,000,000, the integer is interpreted as the block height after which this transaction can be accepted. Otherwise the integer is interpreted as the UNIX timestamp after which this transaction can be included in a block.
The Unix Timestamp is the number of seconds that have elapsed since the Unix epoch, which began at 00:00:00 UTC on 1 January 1970, minus leap seconds. Leap seconds are ignored, with a leap second having the same Unix time as the second before it. Every day is treated as if it contains exactly 86400 seconds. Due to this treatment, Unix time is not a true representation of UTC.
Use in Payment Channels
In transactions where nLockTime is set in the future, and one or more inputs have nSequence number fields less than 0xFFFFFFFF they are considered non-final and may be held in a transaction pool until either nLockTime expires or all inputs have their nSequence finalised.
Non-final transactions are replaceable with transactions that include the same inputs with a higher nSequence number. This function can be used to build payment channels allowing dynamic exchange of data between parties in a peer to peer manner.