State Channel
Also known as: Off-Chain Channel, Payment Channel, Interactive Scaling Channel
A Layer 2 scaling solution that allows parties to transact off-chain and settle the final state on-chain.
A state channel is a Layer 2 scaling technique that enables two or more parties to conduct multiple off-chain transactions while only submitting the initial and final state to the blockchain. This reduces on-chain congestion, improves speed, and lowers fees. Commonly used in micropayments and gaming, state channels require participants to lock funds in a smart contract and sign updates as they interact. Disputes or final settlements are resolved on-chain. Examples include Lightning Network (for Bitcoin) and Raiden Network (for Ethereum).