State Channels
Channels are elementary and straightforward peer-to-peer protocols in which users can interact off the blockchain. They allow two parties to exchange transactions with each other before ultimately posting to the blockchain.
When state channels are employed, channel peers conduct several off-chain transactions, but only two on-chain transactions are submitted: open and close. This allows for an extremely high transaction throughput while giving the user a lower transaction cost.
For example, all of the on-chain transactions on the Ethereum network are handled by nodes, which impose limits on transaction throughput to ensure the network stays decentralised. State channels solve the problem by allowing transactions off-chain.
Key Takeaway
State channels are peer-to-peer protocols in which users can interact off the blockchain, where two parties exchange transactions with each other before ultimately posting to the blockchain.