State Channels

A critical design pattern that allows state channels to be used without initial on-chain deployment.

• Core Concept: A channel's governing smart contract is referenced but only deployed on-chain in a dispute. All interactions are off-chain until a party needs to exit or challenge.
• Benefit: Drastically reduces upfront gas costs and complexity for users.
• Implementation: Used by frameworks like Connext and Perun to enable generalized state channels for complex applications beyond simple payments.

Scalability techniques that allow many channels to be created from a single on-chain transaction.

• Channel Factory: A single smart contract that creates and manages a hub for many child channels (e.g., Lightning's eltoo proposal).
• Virtual Channels: Allow two parties to transact through an intermediary without that intermediary needing to be online, by creating a temporary channel over an existing one.
• Benefit: Enables massive network scalability and reduces on-chain footprint for channel management.

Participants must remain online (have liveness) to monitor the blockchain and challenge invalid state transitions during a dispute period. If a user goes offline, a malicious counterparty can submit an old, favorable state, and the offline user cannot submit the fraud proof.

• Core Assumption: Requires at least one honest participant to be online to enforce rules.
• Consequence: Prolonged downtime can result in irreversible fund loss.

Security relies on the ability to submit a fraud proof—cryptographic evidence of a breach—within a predefined dispute period (or challenge window). This period is a fixed number of blocks where the channel's final state can be contested.

• Mechanism: A newer, signed state invalidates an older one.
• Critical Parameter: The dispute period length is a security vs. capital efficiency trade-off.

The security of all off-chain states depends entirely on the security of the participants' private keys. A compromised key allows an attacker to sign any state, potentially draining the channel. Unlike some smart contracts, there is no multi-sig timelock recovery mechanism for a signed state.

• Absolute Control: A signed state is a valid commitment.
• Mitigation: Use hardware security modules (HSMs) or secure multi-party computation (sMPC) for key management.

The initial funding transaction and final settlement transaction are the only ones broadcast on-chain, making them critical attack vectors.

• Funding Risk: Requires a secure, confirmed on-chain transaction to lock funds.
• Settlement Risk: Both parties must cooperate to close, or a unilateral close triggers the dispute period. Transaction Malleability was a historical concern addressed by SegWit.

Adversaries can attempt to censor or delay transactions to undermine the protocol.

• Griefing Attacks: Broadcasting an old state to force an honest party into an on-chain dispute, incurring fees.
• Transaction Censorship: Attempting to block an honest party's fraud proof from being included in a block during the dispute period.
• Mitigation: Using fee bumping (RBF) and having well-connected watchtowers.

A specific type of state channel optimized for simple, high-volume payments between two parties. They are the foundational building block for more complex state channel networks.

• Core Mechanism: A multi-signature wallet is locked on-chain, allowing participants to exchange signed, off-chain transactions that update the balance. Only the final settlement is broadcast to the main chain.
• Example: The Lightning Network for Bitcoin is a network of interconnected bidirectional payment channels.

A Layer 2 scaling solution that executes transactions off-chain and posts compressed transaction data (or proofs) in batches to the main chain.

• Key Difference from Channels: Rollups do not require participants to be online or pre-deposit funds into a shared channel. They provide general computation and are secured by the underlying chain.
• Two Primary Types: Optimistic Rollups (assume validity, have a fraud-proof challenge period) and ZK-Rollups (use zero-knowledge proofs for immediate validity verification).

Independent blockchains that run in parallel to a main chain (like Ethereum), with their own consensus mechanisms and block parameters, connected via a two-way peg.

• Key Difference from Channels: Sidechains are fully independent chains with their own security model, whereas state channels are a collateralized contract on the main chain. This trade-off offers flexibility but introduces different trust assumptions.
• Example: Polygon PoS is a sidechain secured by its own set of validators, compatible with Ethereum.

A framework for creating hierarchical trees of child chains anchored to a root blockchain (e.g., Ethereum). It uses fraud proofs to ensure the security of funds held off-chain.

• Core Concept: Operators commit periodic block hashes to the root chain. Users can exit their funds back to the main chain if they detect malicious activity by submitting a fraud proof.
• Relationship to Channels: Plasma is a more generalized off-chain framework, while state channels are typically for specific, predefined interactions between known participants.

A scaling solution similar to a ZK-Rollup, but where transaction data is stored off-chain by a committee or using other means, rather than on the main chain.

• Trade-off: This provides higher throughput and lower fees than ZK-Rollups but introduces a data availability risk. Users must trust that the data committee will not withhold data, preventing proof generation.
• Contrast with Channels: Like rollups, Validium is for general computation and does not require pre-established channels or participant availability.

A design pattern crucial for the user experience of state channels. It allows a contract to be referred to and used at a specific address before it is deployed on-chain.

• How it Works: Participants agree on the terms and compute the future contract address. They can sign transactions referencing this address, knowing it can be enforced on-chain only if a dispute arises. This eliminates upfront gas costs for channel setup.
• Significance: This concept enables gasless interactions within a channel and is foundational for generalized state channel frameworks.