Applications: Gaming, gambling, and micropayments

The majority of payment channel networks will be used for, well, payments. P2P is the most prevalent use-case, but several projects, such as Althea Mesh and Machinomy, are tackling M2M payments as well. From a B2C perspective, virtual payment channel hubs are being used as a solution for content micropayments, such as PopChest for videos and SpankChain for adult entertainment.

Many state channel infrastructure projects, such as Connext, Kava, and Sprites, are primarily being used to improve the performance and UX of payment channel networks. That said, state channels have also emerged as a popular scalability solution for gaming and gambling use-cases, with projects like FunFair, Finality Labs, and Horizon Games implementing the technology.

As projects increase their focus on user adoption, I think we will continue to see the proliferation of two-party games built on state channels.

Firmly on the road to user adoption

Projects are continuing to #BUIDL. Many have launched on mainnet in 2018, and the others are expecting to do the same within the next year. Here is a more detailed summary of the projects building or incorporating state channel technology:

Direct Payment Channels

SpankChain

SpankChain is an adult entertainment ecosystem powered by blockchain technology. The project is one of the earliest adopters and developers of state channel technology. SpankChain raised $6.5 million in their ICO in November 2017 and was the first production implementation of Machinomy’s unidirectional payment channels on the Ethereum mainnet in April 2018. It also released, in partnership with Finality Labs, a generalized state channels proof-of-concept in March 2018. It also launched, in partnership with Connext and Kyokan, the first non-custodial payment hub on mainnet in September 2018.

Stack

Stack is a cryptocurrency that uses state channels for real-time point-of-sale transactions. To make a purchase, their ERC-20 token (STK), provides access to a payment channel between a crypto wallet (i.e. users) and third-party liquidity provider (i.e. Stack’s own wallet), which will then convert and pay the merchant in fiat via existing payment rails. It’s also working on “multi-token channels”, which allows an existing payment channel to create “sub-channels” that support additional ERC-20 tokens. The project raised $17mn in their ICO in December 2017 and is currently on the Ethereum testnet.

Commonwealth Crypto

Commonwealth Crypto is building a way of doing cross-chain atomic swaps at centralized cryptocurrency exchanges. They also allow traders to maintain custody of their coins while trading via “escrow-backed trading”, which is implemented through the use of unidirectional payment channels. The project started in early 2017 and closed a $1.5mn seed round later that year.

PopChest

Popchest is an Ethereum-based video distribution platform (think “YouTube on the blockchain”) using micropayments and token incentives instead of relying on advertising and paid subscriptions. Micropayments are currently implemented via Machinomy’s open sourced unidirectional payment channels.

Cent

Cent is an Ethereum-based social network where users could earn money by sharing content. The project implemented payment channels within their “Cent Wallet”, allowing users to deposit funds into an address and perform actions, such as seeding and tipping content, off-chain. The project launched in 2017 and implemented payment channels in October 2018.

Payment Channel Networks

Lightning Labs

Lightning Labs is the company behind Bitcoin’s Lightning Network, a bidirectional, HTLC-based payment channel network. The project was founded in 2016 has been on the Bitcoin mainnet since May 2018, when it raised a $2.5 million seed round. As of December 2018, the network has over 4,000 nodes and 12,000 payment channels. The protocol continues to explore innovative upgrades, such as multi-party payment channels based on the idea of “channel factories”.

Raiden Network

Raiden Network is Ethereum’s version of Bitcoin’s Lightning Network. It is a bidirectional, HTLC-based payment channel network. The main difference is that Raiden uses a token to pay for services, such as path finding or channel monitoring, within the network. The project raised $33 million in November 2017 and launched its mainnet in December 2018.

Trinity Network

Trinity Network is NEO’s version of Raiden, though the project has started developing on Ethereum and Zilliqa as well. It is a HTLC-based payment channel network with a native token that’s used to pay for fees and services. Trinity raised $20 million in its ICO in January 2018, and is currently in testnet.

Liquidity Network

Liquidity Network is a payment channel network that developed “NOCUST” hubs, which are non-custodial payment hubs built on a Plasma-like construction. NOCUST is similar to Plasma in that it regularly commits state on-chain, but different in that it uses an account model (whereas Plasma uses a UTXO model). Members of a payment hub could pay any other member with their allocated funds, which are also accessible to all members of the hub. This enhances liquidity because the funds are not locked between only those two users. The project raised $23 million in their ICO and has been active on the Ethereum mainnet since June 2018.

Althea Mesh

Althea Mesh is a project that aims to replace centralized ISPs with a competitive market of individuals and businesses participating in one decentralized network. Each node on the network establishes payment channels with each of its neighbors, allowing users to send and receive Ethereum micropayments for forwarding packets. The project started in mid-2017 and currently has two small live mesh networks in Colombia and Oregon.

Teechain

Teechain is a payment channel network that’s built using Trusted Execution Environments (TEEs), specifically Intel SGX hardware enclaves. At the cost of introducing an additional trust assumption (i.e. trusted hardware), this design allows for higher throughput, asynchronous blockchain access, faster channel creation, and lower collateral costs relative to non-hardware-based approaches. The project published their whitepaper in July 2017 and are currently live on the Bitcoin mainnet.

Kava

Kava is leveraging the work of Cosmos and Interledger to build a fast-finality blockchain for interoperable payment channel networks. Their initial implementation uses unidirectional payment channels, which can be opened by a sender and closed immediately by the receiver, or by the sender subject to a dispute period. The project started in mid-2017 and is currently in public testnet.

Sprites

Sprites is a research paper that proposes a payment network in which payment channels are derived from a more general state channel construction. The paper claims several improvements over Lightning Network and Raiden, specifically around reduced collateral costs, improved throughput, and guaranteed constant time resolution for multi-hop payments. Enuma Technologies received a $200K Ethereum Foundation grant to implement their state channel construction.

Direct State Channels

FunFair

FunFair, a casino on the blockchain, is one of the earliest projects implementing state channel technology. It uses “Fate Channels”, which are state channels with the added ability to verify a progressive reveal scheme by both parties, advancing a deterministic (“fated”) but unpredictable sequence of random numbers. The project raised $26 million in their ICO in June 2017 and has been on mainnet since May 2018.

Aeternity

Aeternity is a smart contract platform (i.e. a new blockchain) with native support for two-party generalized state channels. It also introduces the concept of a “snapshot”, which addresses the data unavailability problem by allowing a recent off-chain state to be recorded on-chain. After its inclusion, the channel cannot be closed using an older state than the one provided in the snapshot. The project raised $24 million in June 2017 and launched their mainnet in December 2018.

Magmo

Magmo is a team of researchers working on state channels for Ethereum. They have developed the “Force-Move Games” framework, which is a (not fully general) state channel framework designed to support turn-based games whose moves don’t depend on time or data that is external to the channel (e.g. chess, rock-paper-scissors). Magmo is supported by the Ethereum Foundation and L4, and collaborates closely with the Counterfactual team.

State Channel Networks

Connext

Connext is a layer two scaling platform that uses an implementation of Perun’s virtual channels to offer payment hub infrastructure for Ethereum projects. Within a Connext Hub, users can trustlessly pay any other user of the Hub without needing to pay gas or wait for block confirmation. The project’s first hub went live on mainnet in September 2018, and the team recently received, together with Kyokan and SpankChain, a $420K Ethereum Foundation grant to develop and release an open-source SDK for their non-custodial payment channel hub solution. ​​

Celer Network

Celer Network is a blockchain-agnostic off-chain scaling platform with incentive-aligned cryptoeconomics and a layered architecture. It’s stack consists of “cChannel”, a generalized state channel and sidechain suite that supports generic off-chain state transitions, “cRoute”, a high throughput routing algorithm, and “cOS”, a development framework and runtime for off-chain enabled applications, as well as “cEconomy”, their cryptoeconomic model that provides network effects, stable liquidity, and high availability for the off-chain ecosystem. Celer raised $30mn in their token pre-sale and has launched its testnet on October 2018.

Perun Network

Perun Network is a framework that supports off-chain protocols for simple payments and generic smart contract off-chain execution. The project has released whitepapers and Open Source implementations for their Virtual Payment Channel Hubs and Generic State Channel Networks. It is currently an academic project developed jointly by the TU Darmstadt (Germany) and the University of Warsaw (Poland). It is partly funded by the German Research Foundation and the Polish National Science Center.

Generalized State Channels

Counterfactual

Counterfactual is building a generalized framework for native state channels integration in Ethereum-based decentralized applications. The framework consists of a library for off-chain applications, a generalized state channels protocol, and a set of Ethereum smart contracts. It is an Open Source project with contributors from L4, a fund and “incubator” space in Toronto, Prototypal, an application development company, and individuals from academia and industry. Both L4 and Prototypal have received Ethereum Foundation grants ($1.5 million and $375K, respectively) for state channel research and development.

Finality Labs

Finality Labs is an organization focusing on the research and development of distributed gaming systems. The team released a framework called Set-Payment channels, which is a variant of Perun that’s optimized for human interactions (e.g. tipping) in a payment channel facilitated by a hub. They’re also working on a protocol which combines state channels, plasma, and TrueBit-like verification to handle virtual channels containing arbitrarily complex state and computations outside of the bounds of Ethereum’s gas limits. The team also recently received a $250K grant from the Ethereum Foundation to develop Forward-Time Locked Contracts (FTLC), an alteration of the Hashed-Timelocked-Contracts deployed to the Lightning and Raiden network, which could enhance the user experience of payment channels by allowing an online party to initiate and complete a payment to an offline party.

Machinomy

Machinomy is a project founded by Sergey Ukustov that has developed a micropayments SDK for Ethereum that’s based on unidirectional payment channels, as well as a generalized state channel framework in March 2018. The team is targeting use-cases around machine-to-machine micropayments, such as real-time microinsurance and autonomous vehicle & appliance payments. Their open source frameworks are used by various projects in the space.

Fuel Games

Fuel Games is the studio behind Gods Unchained, a blockchain-based collectible card game inspired by Hearthstone and Magic the Gathering. They’re developing a generalized state channels framework (not yet open soure), called “Ansible Channels”, which is designed for high-throughput games on Ethereum. The project raised $2.4 million in seed funding in mid-2018 and is planning a mainnet launch in early 2019.