State channels

Fabian Stiehle and Ingo Weber

Chapter 48 in Elgar Encyclopedia of Cryptocurrencies, Blockchain and DLT, 2026, pp 234-237 from Edward Elgar Publishing

Abstract: Layer-two channels are one of the proposed methods to scale blockchains by offloading transactions from the blockchain to off-the-chain channels backed by on-chain contracts and tokens. This approach improves scalability by involving the blockchain only if necessary, such as when a channel is opened or closed. Practical instantiations include the Lightning Network, which enables fast and low-cost transactions for Bitcoin. State channels generalize this concept and support arbitrary computations but are also more complex to realize in practice. Channels exhibit some challenges, such as requiring locked collateral and continuous monitoring of the blockchain.

Keywords: Payment channels; State channels; Layer two; Lightning; Scalability (search for similar items in EconPapers)
Date: 2026
ISBN: 9781035339952
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