Payment channels allow blockchain users to combine many transactions off-chain into a single on-chain settlement to reduce transaction fees. They’re often used with large volumes of micro-payments worth less than a penny.
Payment channels are off-chain solutions that enable fast and cost-effective transactions by establishing a direct payment channel between two parties. They are typically used in blockchain networks to alleviate scalability limitations and reduce transaction fees for high volumes of low-value transactions (ex. Micropayments). Payment channels function by creating a temporary, private, and secure channel between participants, allowing them to conduct multiple transactions without the need for each transaction to be recorded on the underlying blockchain. Once the payment channel is closed, the final transaction details are then recorded on the blockchain.