Payment Channels
Learn about Lightning payment channels
Lightning Payment Channels
Payment channels are the foundation of the Lightning Network. They allow two parties to conduct multiple Bitcoin transactions off-chain while maintaining the security of the Bitcoin blockchain.
What is a Payment Channel?
A payment channel is like a secure tab between two parties:
- Both parties deposit funds into a shared Bitcoin address
- They can then send payments back and forth instantly
- Only two on-chain transactions are needed:
- - Opening the channel (funding transaction)
- - Closing the channel (settlement transaction)
Channel Lifecycle
1. Opening a Channel
- Both parties agree to open a channel
- They create a 2-of-2 multisignature address
- One or both parties fund the channel
- The funding transaction is confirmed on-chain
2. Using the Channel
- Parties exchange signed commitment transactions
- Each new transaction updates the balance
- Old states are invalidated using penalty mechanisms
- No on-chain transactions are needed
3. Closing the Channel
- Either party can initiate closure
- The latest balance is settled on-chain
- Funds are returned based on final state
Security Mechanisms
Payment channels use several mechanisms to ensure security:
- Multisignature addresses require both parties to agree
- Timelocks prevent premature channel closure
- Revocation keys invalidate old channel states
- Breach remedy transactions punish cheating attempts
These mechanisms ensure that neither party can steal funds or broadcast old channel states.
Channel Management
Channel Capacity
The total amount of funds in the channel determines how much can be sent in either direction.
Channel Balance
The distribution of funds between parties determines how much each can send to the other.
Rebalancing
Channels may need rebalancing if too much value flows in one direction.
Channel Monitoring
Nodes must stay online or delegate watchtowers to protect against breach attempts.