Payment Channel - what is it?

Payment Channel is a special technology that speeds up and technically simplifies transactions in the cryptocurrency network.

The standard method of conducting cryptocurrency transactions involves a certain algorithm of actions for each user. He needs to generate a payment, confirm it with the keys and wait for confirmation from the miners. Only after this is the transaction considered valid and the recipient can use the money. But this usually takes some time, given the carrying capacity of a particular ecosystem. For example, no more than 7 transactions can be confirmed in the Bitcoin network in 1 second. In case of increased activity of system participants, overloads and serious delays in confirming payments may occur. The Payment Channel effectively solved this problem.

What is a Payment Channel, and what are its advantages?

This method of making payments involves the possibility of creating a unique communication channel between two or more users. Transactions on this channel are carried out directly between participants, and only the first and final transaction is confirmed when the channel is opened and closed. All other payments are not added to the block. No additional validation is required for intermediate transactions.

Considering the specifics of this method, the advantages of the Payment Channel can be outlined as follows:

instant transactions without delays;

reduction in commission costs (an increase in additional costs is often noted when the network is overloaded since transactions with higher payments to miners are given priority);

simplification of numerous micropayments.

If desired, the channel can operate on a private basis. That is, transaction data will not be available to other participants in the system, which reduces the risk of identifying and tracking the movement of cryptocurrency assets.

Regarding the shortcomings, they can subjectively indicate a limit on the amount per transaction. Restrictions on the number of payments may or may not be present, depending on the specifics of the channel.