A New Second Layer: Channel Factories

Lately, there’s been a lot of discussion about a new concept called ‘Channel Factories.’ The technology ultimately makes the Lightning Network (LN) a ‘third layer’ and a ‘new layer’ rests in between the bitcoin blockchain and LN payment channels.

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Channel Factories: Adding Another Layer to the Lightning Network

Channel Factories: Adding Another Layer to the Lightning NetworkLast November three developers Conrad Burchert, Christian Decker, and Roger Wattenhofer published a paper called “Scalable Funding of Bitcoin Micropayment Channel Networks” which introduced the idea called ‘channel factories.’ In essence, the concept proposes to create a ‘Masterchannel’ which in turn allows LN users to open sub-channels in between. Users sub-channels can be opened and closed while the ‘masterchannel or factory’ remains open.

“In short, channel factories are payment channels that can be used to create more payment channels — That sounds weird, but it’s really pretty simple,” explains the software developer David Harding.

Since the initial payment channel (channel factory) already has sufficient confirmations, opening the secondary payment channels is instant. The second payment channels can then be used like normal payment channels (e.g. for routable payments Lightning Network) except that when it comes time to close them.

Channels Factories Could Theoretically Save Blockchain Space

Ordinary payment channels are useful for individuals and entities with a lot of cryptocurrency liquidity or two parties who often transact together. Channel factories will make regular channels more efficient, and theoretically, the concept may save blockchain space and even more space if developers Read More Here