Payment Channels
Payment channels are the fundamental building block of the Lightning Network. Learn how they enable instant, low-fee Bitcoin transactions.
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What is a Payment Channel?
A payment channel is a two-party agreement to share a Bitcoin transaction that can be updated off-chain. Think of it like a shared bank account where only the final balance gets recorded on the blockchain.
How Channels Work
1. Opening a Channel
Two parties create a funding transaction that locks Bitcoin into a 2-of-2 multisignature address. This is the "opening balance."
2. Making Payments
Each payment updates the channel balance by creating a new commitment transaction. These happen instantly and privately off-chain.
3. Closing a Channel
Either party can close the channel by broadcasting the latest commitment transaction to the Bitcoin network.