What is a Lightning payment channel?
A shared pot of bitcoin between two parties on the blockchain, which they can pay each other from, off-chain, as often as they like.
Two people lock bitcoin in a 2-of-2 multisigMultisig (multi-signature)A wallet whose coins need signatures from several keys, such as 2 of 3, so no single key can spend alone. output on the blockchainBlockchainBitcoin's shared record of every payment since 2009, stored in blocks that each link to the one before — which is what makes it a chain.: that's the channel. They then update the balance between themselves with signed transactions they don't broadcast — each update is a payment, instant and nearly free.
The channel closes when one side broadcasts the latest state, and routing payments across many channels is what makes the Lightning NetworkLightning NetworkA network built on Bitcoin for payments through channels, without recording every payment as its own blockchain transaction.. Because only the open and close touch the chain, the payments in between don't appear on a Bitcoin explorer.
References
- Lightning Labs, “Payment Channels”.