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State Channels Meaning

May 12, 2024 | Updated May 12, 2024
A state channel is a two-way communication channel between a user and a service or between two nodes or users away from the main blockchain (off-chain).

What Are State Channels?

A channel is a peer-to-peer network that enables two parties to perform numerous transactions among themselves. The channels only submit the final results of the processing and computation to the main blockchain. A channel can either be a payment channel or a state channel. 

A state channel is a blockchain scaling solution that facilitates the processing of numerous transactions outside the main blockchain. Like any other layer-2 scaling solution, state channels are designed to reduce direct interactions with the main chain by processing and computing tasks off-chain. They also bear similarities with Lightning Network’s payment channels, except that they facilitate payments and public status updates.

Therefore, the concept of “state” signifies the state of the blockchain at a particular moment, while “channel” is where the communication takes place. Put simply, state channels are secure, cost-effective, and private rooms where unlimited interactions can occur before finalizing them on the blockchain network.

In short, these channels enable users to communicate directly with each other outside the main blockchain. They also eliminate the need to submit all transaction data to the mainnet, reducing the pressure on the blockchain network.

Components of a State Channel

State channels are composed of three major components. These include state updation, digital signature, and state submission.

  • State update – State channels require a network of participants to reach a consensus amongst themselves. Hence, the participants must construct and sign several transactions and then send them to each other for approval. Finally, they sign the state updates from each other and submit them to the blockchain, where the new state overwrites or invalidates the channel’s old state.
  • Digital signature – Parts of the blockchain state are locked using a digital signature, ensuring that the state can only be updated when a certain number of participants reach a consensus.
  • State submission – The participants close the state channel by broadcasting the updated data – or simply the channel’s final, agreed-upon state – to the smart contract on the main chain.

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