Clear DefinitionsState Channel
1 min read
Pronunciation
[steyt chan-l]
Analogy
Imagine opening a bar tab (the state channel) with a friend at a pub. You and your friend can buy each other rounds all night, just keeping a running tally on the tab without paying the bartender for each individual drink (off-chain transactions). At the end of the night, you settle the final tab amount with the bartender in one single payment (on-chain settlement).
Definition
A Layer 2 scaling solution that enables multiple transactions between a set of participants to occur off-chain, with only an initial setup and final settlement transaction recorded on the main Layer 1 blockchain. This allows for extremely fast and low-cost transactions within the channel.
Key Points Intro
Key Points
Participants lock some funds or state in a smart contract on Layer 1 to open a channel.
Numerous intermediate transactions can occur off-chain between participants, updating the channel state privately.
Any participant can close the channel at any time by submitting the latest mutually agreed-upon state to the Layer 1.
Dispute resolution mechanisms on Layer 1 ensure participants cannot cheat by submitting an old state.
Best suited for applications with many interactions between a known set of participants.
Example
Bitcoin's Lightning Network uses payment channels (a type of state channel) for micropayments. In gaming, state channels can be used for players to make many moves or small wagers off-chain, only settling the final game outcome on the main blockchain.
Technical Deep Dive
Opening a state channel involves participants depositing funds into a multi-signature smart contract on the L1. Off-chain transactions are simply signed messages exchanged between participants updating their respective balances or state within the channel. Each new transaction invalidates the previous one. To close the channel, the final state, signed by all parties, is submitted to the L1 contract, which then distributes the funds accordingly. If there's a dispute (e.g., one party tries to submit an outdated state), the other party can present a more recent, validly signed state during a challenge period to correct it. This reliance on L1 for dispute resolution underpins the security.
Security Warning
State channels require participants to be online to monitor the channel and respond to disputes, or delegate this responsibility to watchtowers. The security model relies on the participants' ability to interact with the Layer 1 blockchain if a dispute arises.
State Channel - Related Articles
No related articles for this term.