Glossary
State Channel
A Layer-2 scaling technique where parties transact off-chain by exchanging signed state updates, settling on-chain only to open and close the channel.
A state channel lets two or more parties lock funds in an on-chain contract, then exchange signed messages off-chain to update who owns what. Each new message supersedes the last, so the parties can transact thousands of times with zero on-chain fees and instant finality between themselves.
Only two on-chain transactions are needed: one to open the channel and one to close it with the final agreed state. If a party tries to settle with an outdated state, the counterparty can submit a newer signed update during a dispute window to override it. Payment channels like those in the Lightning Network are the most common form, but state channels can encode arbitrary application logic such as games or micropayments.