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If 2014 was the year of multisig in bitcoin, then 2015 should be the year of the payment channel. Multisig solved the most near term problem everyone was facing by helping them prevent coins from being stolen or services from taking control of users private keys. While it hasn’t been completely rolled out to every service, we have seen the leaders in space adopt the new technology, like Coinbase’s Multisig Vault. If we assume that this immediate challenge has been tackled, we should look forward to see what the next is, and I believe they can be solved with payment channels.

In case you are unaware of what payment channels are, I will do my best to describe them. In my mind, a payment channel is similar to a debit card. You can load a certain amount of money into an account and then authorize withdrawals from it. Instead of a bank account though, a multisig address is used to hold the money. As you authorize debits from the multisig address, the recipient is given the signature required to pull the money. However, instead of immediately broadcasting the withdrawal transaction, the channel is left open in case you want to authorize more withdrawals in the future. When the money is exhausted, or at any time, either participant can close the channel, broadcast the final transaction, and receive the amount either unspent or allocated to them. Since each withdrawal is simply providing a signature to allow the recipient to pull a larger amount of money from the multisig address, it allows three very special benefits that can help solve some of the current problem facing bitcoin.

First, a payment channel allows users to bypass dust transaction limits currently on the blockchain. Since only the final amount that has been allocated is actually spent in the final transaction, any intermediate withdrawals have no lower limit. In fact, you could withdraw single satoshis at a time until the total amount withdrawn is over the dust limit and then close the channel. This would allow users to spend thousandths of a penny to read an online article or pay per single API call on a web service.

Second, this allows off-chain transactions to take place in a trustless manner. No longer are off-chain transactions handled like the current banking system works, where some company’s internal ledger dictates who owns what coins. The payment channel protocol specifically ensures neither the sender nor the recipient can be ripped off and have unauthorized coins stolen. This has the benefit of avoiding blockchain bloat, which is a constant fear among the community that the bitcoin network will not scale. Also, it allows transaction fees to be lowered since the actual transaction fees on the network required to set up the channel can be spread among hundreds or thousands of off-chain transactions.

Third, and most important is that payment channels will allow instant and zero confirmations to take place. Once the amount of value has been sent to the channel multisig address and is sufficiently confirmed, there is no way for the sender to double spend the funds anywhere else without consent from both parties. This allows any spends from the channel to be instantly valid without waiting for confirmations. This unlocks the ability to perform instant in person transactions without sitting around waiting for a confirmation or accepting risk of double spends. More importantly it unlocks the ability to use services without having to actually sending funds to that service and wait for confirmations. Imagine being able to play games or even trade on an exchange without having to send funds and give up control of your bitcoins. You could hold the bitcoins in a payment channel and only when you want to roll the dice or execute a trade would you be required to give up control and send them your coins.

With these three benefits looming on the horizon, it is our job to make it happen. I’m personally going to redouble my effort to work on payment channels and promote their adoption. I hope the community sees this as an opportunity as well and we can make 2015 the year of the Payment Channel.