State Channel

A state channel lets parties update state off-chain with on-chain security, settling on-chain only when the channel closes or a dispute starts. Participants lock funds or state in a contract that defines valid transitions. They then exchange signed messages: game moves, balances, or any state the contract can check. Each message has a sequence number so recency is clear. Updates are instant.

There is no per-update gas.

If they disagree, either party posts the latest signed state. A challenge period lets the other side post a newer state. The contract enforces the most recent valid one. Throughput between open and close is effectively unlimited. Limits remain. Participants must stay online or use watchtowers to post on their behalf. The design fits repeated interaction between known parties.

A one-off payment may not justify setup cost. Disputes can freeze funds during the challenge window. Lightning on Bitcoin and Raiden on Ethereum are payment channel networks. Generalized state channels extend the same idea beyond payments to arbitrary state machines.

Participants then exchange cryptographically signed messages representing new states: game moves, balance changes, or any data the channel contract can validate. These exchanges happen instantly without blockchain latency or gas costs. State channels achieve extraordinary scalability, unlimited transactions between opening and closing, but have limitations.

Lightning is Bitcoin's main state-channel network: two parties update a balance off-chain and only settle on-chain when they close.