[EDIT 2018-12-10] Since publishing this post, We’ve added a related video explanation of payment channels.

In this post, I’ll build a simple, but complete, implementation of a payment channel. Payment channels use cryptographic signatures to make repeated transfers of ether securely, instantaneously, and without transaction fees. This post will rely heavily on the concepts and code from our post “Signing and Verifying Messages in Ethereum”.

What is a Payment Channel?

Ethereum transactions provide a secure way to transfer funds, but each transaction needs to be included in a block and mined. This means transactions take some time and require payment to compensate the miners for their work. In particular, transaction fees make micropayments a difficult use case for Ethereum and other blockchains like it.

Payment channels allow participants to make repeated transfers of ether without using transactions. This means that the delays and fees associated with transactions can be avoided. In this post, we’re going to explore a simple unidirectional payment channel between two parties. Using it involves three steps:

The sender funds a smart contract with ether. This “opens” the payment channel. The sender signs messages that specify how much of that ether is owed to the recipient. This step is repeated for each payment. The recipient “closes” the payment channel, withdrawing their portion of the ether and sending the remainder back to the sender.

Importantly, only steps 1 and 3 require Ethereum transactions. Step 2 is accomplished off-chain through cryptographic signatures and some sort of communication between the two parties, such as email. This means only two transactions are required to support any number of transfers.

The recipient is guaranteed to receive their funds because the smart contract escrows the ether and honors a valid signed message. The smart contract also enforces a timeout, so the sender is guaranteed to eventually recover their funds even if the recipient refuses to close the channel.

It’s up to the participants in a payment channel to decide how long to keep it open. For a short-lived interaction, such as paying an internet cafe for each minute of network access, it makes sense to use a payment channel that lasts only an hour or so. For a longer relationship, such as paying an employee an hourly wage, a payment channel could last for months or years.

Opening the Payment Channel

To open the payment channel, the sender deploys the smart contract, attaching the ether to be escrowed and specifying the intended recipient and a maximum duration for the channel to exist.

contract SimplePaymentChannel { address public sender ; // The account sending payments. address public recipient ; // The account receiving the payments. uint256 public expiration ; // Timeout in case the recipient never closes. function SimplePaymentChannel ( address _recipient , uint256 duration ) public payable { sender = msg . sender ; recipient = _recipient ; expiration = now + duration ; }

Making Payments

The sender makes payments by sending messages to the recipient. This step is performed entirely outside of the Ethereum network. Messages are cryptographically signed by the sender and then transmitted directly to the recipient.

Each message includes the following information:

The smart contract’s address, used to prevent cross-contract replay attacks.

The total amount of ether that is owed the recipient so far.

A payment channel is closed just once, at the end of a series of transfers. Because of this, only one of the messages sent will be redeemed. This is why each message specifies a cumulative total amount of ether owed, rather than the amount of the individual micropayment. The recipient will naturally choose to redeem the most recent message because that’s the one with the highest total.

Note that because the smart contract will only honor a single message, no per-message nonce is required. The address of the smart contract is still used to prevent a message intended for one payment channel from being used for a different channel.

Payment messages can be constructed and signed in any language that supports cryptographic hashing and signing operations. The following code is written in JavaScript and uses ethereumjs-abi :

function constructPaymentMessage(contractAddress, amount) { return ethereumjs.ABI.soliditySHA3( [ "address" , "uint256" ], [contractAddress, amount], ); } function signMessage(message, callback) { web3.personal.sign( "0x" + message.toString( "hex" ), web3.eth.defaultAccount, callback); } // contractAddress is used to prevent cross-contract replay attacks. // amount, in wei, specifies how much ether should be sent. function signPayment(contractAddress, amount, callback) { var message = constructPaymentMessage(contractAddress, amount); signMessage(message, callback); }

Verifying Payments

Unlike in my last signature example, messages in a payment channel aren’t redeemed right away. The recipient keeps track of the latest message and redeems it when it’s time to close the payment channel. This means it’s critical that the recipient perform their own verification of each message. Otherwise there is no guarantee that the recipient will be able to get paid in the end.

The recipient should verify each message using the following process:

Verify that the contract address in the message matches the payment channel. Verify that the new total is the expected amount. Verify that the new total does not exceed the amount of ether escrowed. Verify that the signature is valid and comes from the payment channel sender.

The first three steps are straightforward. The final step can be performed a number of ways, but if it’s being done in JavaScript, I recommend the ethereumjs-util library. The following code borrows the constructMessage function from the signing code above:

// This mimics the prefixing behavior of the eth_sign JSON-RPC method. function prefixed(hash) { return ethereumjs.ABI.soliditySHA3( [ "string" , "bytes32" ], [ "\x19Ethereum Signed Message:

32" , hash] ); } function recoverSigner(message, signature) { var split = ethereumjs.Util.fromRpcSig(signature); var publicKey = ethereumjs.Util.ecrecover(message, split.v, split.r, split.s); var signer = ethereumjs.Util.pubToAddress(publicKey).toString( "hex" ); return signer; } function isValidSignature(contractAddress, amount, signature, expectedSigner) { var message = prefixed(constructPaymentMessage(contractAddress, amount)); var signer = recoverSigner(message, signature); return signer.toLowerCase() == ethereumjs.Util.stripHexPrefix(expectedSigner).toLowerCase(); }

Closing the Payment Channel

When the recipient is ready to receive their funds, it’s time to close the payment channel by calling a close function on the smart contract. Closing the channel pays the recipient the ether they’re owed and destroys the contract, sending any remaining ether back to the sender. To close the channel, the recipient needs to share a message signed by the sender.

The smart contract must verify that the message contains a valid signature from the sender. The process for doing this verification is the same as the process the recipient uses. The Solidity functions isValidSignature and recoverSigner work just like their JavaScript counterparts in the previous section. The latter is borrowed from the ReceiverPays contract in “Signing and Verifying Messages in Ethereum”.

function isValidSignature ( uint256 amount , bytes signature ) internal view returns ( bool ) { bytes32 message = prefixed ( keccak256 ( this , amount )); // Check that the signature is from the payment sender. return recoverSigner ( message , signature ) == sender ; } // The recipient can close the channel at any time by presenting a signed // amount from the sender. The recipient will be sent that amount, and the // remainder will go back to the sender. function close ( uint256 amount , bytes signature ) public { require ( msg . sender == recipient ); require ( isValidSignature ( amount , signature )); recipient . transfer ( amount ); selfdestruct ( sender ); }

The close function can only be called by the payment channel recipient, who will naturally pass the most recent payment message because that message carries the highest total owed. If the sender were allowed to call this function, they could provide a message with a lower amount and cheat the recipient out of what they’re owed.

The function verifies the signed message matches the given parameters. If everything checks out, the recipient is sent their portion of the ether, and the sender is sent the rest via a selfdestruct .

Channel Expiration

The recipient can close the payment channel at any time, but if they fail to do so, the sender needs a way to recover their escrowed funds. An expiration time was set at the time of contract deployment. Once that time is reached, the sender can call claimTimeout to recover their funds.

// If the timeout is reached without the recipient closing the channel, then // the ether is released back to the sender. function claimTimeout () public { require ( now >= expiration ); selfdestruct ( sender ); }

After this function is called, the recipient can no longer receive any ether, so it’s important that the recipient close the channel before the expiration is reached.

Summary

Payment channels support safe, off-chain fund transfers while avoiding per-transfer Ethereum transaction fees.

Payments are cumulative, and only one is redeemed when closing the channel.

Transfers are guaranteed via escrowed funds and cryptographic signatures.

A timeout protects the sender’s funds from an uncooperative recipient.

Full Source Code