There are four approches for layer 2 scaling solutions. This chapter, we will talk about the first solution: State channels (The earliest solution)
Payment channel is a specific instantiation of a more generic concept called State Channels. State channel is a protocol between a fixed set of participants (often two) that want to transact securely between themselves off-chain, in case of payment channel specifically exchange money. Since transactions occur inside the channel, it provides good privacy. In addition, there is no network burden of the main chain, so the channel processing speed is faster, and only two transactions are provided to the main network when the channel is opened and closed. It is suitable for transactions with a certain number of participants since the contract of the state channel needs to be modified every time the trading members change.
1. TPS Improving
2. Good privacy
3. Suitable for transactions with a certain number of participants and the status is updated multiple times within a period of time.
1. Low capital utilization
2. Low security
3. Not applicable to a large number of one-time transactions or high-frequency transactions
Representative projects: Lightning Network, Celer, Raiden Network, etc.