Channel

A Lightning channel starts life as a 2-of-2 multisig output on the base chain: Alice and Bob each deposit some BTC into an address that requires both their signatures to spend. That's the funding transaction — the only on-chain footprint for a healthy channel.

After that, every payment between Alice and Bob is just an updated commitment transaction they both sign privately. Each new state invalidates the previous one via a clever revocation scheme: if either party tries to cheat by broadcasting an old state, the other can sweep the entire channel balance as a penalty. (This is why watchtowers exist — they watch for cheating while you're offline.)

Channels can close two ways:
- Cooperative close: both parties sign a clean final transaction that pays each side their current balance. Cheap, fast, normal-looking on-chain.
- Force close: one party broadcasts their latest commitment unilaterally. Works without the other's cooperation, but pays more fees and locks funds in a time-delayed output.

The channel capacity (sum of both balances) is fixed at the funding transaction. You can move sats between sides freely; you can't add more on-chain without reopening.