Clear DefinitionsOff‑Chain Privacy Channels
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Pronunciation
[off-cheyn pry-vuh-see chan-nuhls]
Analogy
Like whispering in a secure room instead of talking in a public square, ensuring nobody outside the channel knows what you exchanged.
Definition
State channels or payment channels augmented with privacy techniques—such as onion routing, blinded balance proofs, or multi‑party computation—to conceal transaction details from intermediaries and observers.
Key Points Intro
Off‑chain privacy channels combine scalability with confidentiality for micropayments and state updates.
Key Points
Onion routing: Hides channel endpoints from intermediaries.
Blinded proofs: Conceal amounts in channel updates.
MPC settlement: Jointly generate channel close TX without revealing state.
Dispute safety: On‑chain fallback enforces correct state.
Example
A layer‑2 network implements channels where each hop uses Sphinx packets to route payments privately between sender and recipient.
Technical Deep Dive
Channel update messages encrypted in onion layers. Participants exchange blinded commitment transactions; on close, threshold-signed settlement TX reveals only net outcome. Watchtowers monitor for fraud.
Security Warning
Complex protocols can harbor subtle flaws; require formal verification of privacy properties.
Caveat
Privacy adds latency and computational cost; trade‑off with performance.
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