Payment channel

Two or more users can deposit funds into the channel in advance, and then transfer tokens off-chain.

Alice and Bob respectively lock a sum of funds in the smart contract, create a payment channel, and agree on how much funds both parties can use through encrypted signature technology. For example, both parties lock in $50 each, so the total amount of funds in the payment channel is $100. Then they will probably agree that each party can use $50.

Once the payment channel is established, both Alice and Bob can transact off-chain through signed messages without submitting the transaction to the underlying blockchain. Alice can pay Bob, and Bob can pay Alice, with no cost or delay. In this two-way payment channel, transactions from Alice and Bob are not sent to the underlying blockchain. Only when both parties decide to close the channel, the final transaction result will be sent to the chain for settlement. So in the end Bob and Alice only need to pay two on-chain transaction fees when creating and closing the payment channel. When payment channels are open, transfers of millions of dollars can be completed in less than a second and at no cost. This is a classic case of solving the problem of blockchain expansion.

Payment channels can realize high-speed transactions at zero cost.