State Channels
A scaling technique where participants transact off-chain through signed messages, posting only the opening and final balances on-chain.
Participants lock funds in a contract, then update their shared balance by passing signed messages back and forth. Each new message supersedes the last. Only two transactions touch the chain, one to open and one to settle. Everything between is free and instant.
The model fits ongoing relationships, like a payment channel or a game between fixed players. It struggles with one-off payments to strangers, since opening a channel for a single transfer wastes the on-chain cost. The Lightning Network is the best-known example.
Related terms
A Bitcoin payment layer that moves small transfers off-chain through bidirectional channels, settling on-chain only at close.
Off-ChainTransactions or data handled outside the blockchain, then sometimes settled on it later in batches.
Layer 2A separate network built on top of a base chain to process transactions faster and far more cheaply.
Smart ContractSelf-executing code on a blockchain that runs exactly as written when its conditions are met, with no party able to intervene.