Multisignature contracts between peers that enable instant, low-fee transactions off-chain. When the participants decide to close a channel, the final balance is then settled on the Bitcoin mainchain in a single transaction.

These peer-to-peer payment channels are the primary building block of the Lightning Network, with each channel representing a UTXO on the Bitcoin mainchain. These channels can remain open indefinitely as long as the two peers in the channel continue to cooperate, allowing unlimited transactions.