Bitcoin

Payment channel

By Paul Brock·Updated on 22-04-2026
TL;DR

A payment channel is a 2-party Bitcoin construct via multisig enabling direct, off-chain transactions without involving the blockchain.

A payment channel works like this: Alice and Bob open a 2-of-2 multisig with e.g. 1 BTC. On-chain it's recorded. From then on they update balances between themselves (Alice 0.6/Bob 0.4, then 0.5/0.5) without broadcasting txs. Closing? The latest balance settles on-chain. Cryptographic mechanisms (HTLC, Revoke keys) prevent cheating.

Example

A coffee shop opens a Lightning channel with a payment processor. 200 customers/day at €3 each. Zero on-chain txs; monthly settlement reconciles. Saves 200×30 = 6,000 on-chain tx costs per month.

Frequently asked questions

Can a channel stay open indefinitely?

Yes. Some channels are years old and contain millions of transactions. No expiry.

Related terms

Lightning NetworkMultisig

Further reading

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