Payment Channel Networks

Payment channel networks allow participants to conduct multiple off-chain transactions while only settling the final state on the main blockchain. By opening a channel, users lock funds into a smart contract, enabling instantaneous transfers between them without incurring network fees for every transaction.

The network tracks the balance updates off-chain, and only the final net balance is recorded on the ledger upon closing the channel. This design significantly increases scalability and throughput for decentralized financial systems.

It reduces congestion on the base layer, making frequent, small-value transactions economically viable.