Payment Channel

A payment channel is an off-chain network running parallel to a blockchain that allows two parties to send off-chain transactions between one another and settle on the base blockchain when necessary. Payment channels are established and funded through an on-chain transaction, after which the two channel parties may send portions of the locked tokens between themselves without having to wait for external consensus. Payment channels afford users a degree of privacy in their transactions: the individual payments within the channel are only visible to the two parties participating in the channel, although the transactions opening and closing the channel are visible on-chain. Thus, pinpointing the exact value or timing of economic activity is difficult, particularly if that channel is open for an extended period of time.