Channels are blockchain additions allowing trustless token transfers outside of blockchains. Channel payments are faster, cheaper and have more privacy protections than blockchain transactions. Channels even provide the throughput for blockchain systems to compete with credit cards! Examples include Lightning Network and Raiden.

Usage

Channels are associated with pairs of accounts and require them to escrow some tokens for the lifetime of the channel. Channel accounts can then send unlimited numbers of instant free payments between them. Accounts can close their channels at any time by creating blockchain transactions that update account balances as necessary. Note that channels do not eliminate blockchains, but rather, just defer their usage.

Routing

To avoid the need for everyone to set up countless channels, payments may occur along “routes” possibly involving several channels and intermediate transfers. Users would likely collect minuscule fees for allowing their accounts to participate in intermediate transfers connecting other accounts.

Privacy

Channel payments remain private because they are not written to blockchains. Final balances are made public when channels are closed. However, their significance is unclear since channels may participate in intermediate transfers for other accounts!

Analogy

Channel payments are analogous to using gold notes. Gold notes defer the use of gold bars thereby making commerce faster and cheaper. Note the use of gold notes requires escrowing some gold with the issuer. Note also that payments between different countries may require intermediate transfers and exchanges.

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Acknowledgements

I would like to thank IOHK (Input Output Hong Kong) for funding this effort.

License

This work is licensed under the Creative Commons Attribution ShareAlike 4.0 International License.