# Payment channels

A Lightning payment channel is a 2-of-2 multisig output plus signed, unbroadcast transactions that record the latest balance. Learn how channels work.

Canonical page: https://mybitcoinexplorer.com/learn/payment-channels
Topic: Lightning Network
Published: 2026-10-29
Updated: 2026-10-30


## Open, update, close
> Diagram: The life of a channel — *Funding tx: on-chain, 2-of-2 → Update: sign new balances → Update: again and again → Close: on-chain, final balances

1. **Open:** one or both parties send bitcoin into a [2-of-2 multisig](https://mybitcoinexplorer.com/learn/multisig) output. That's the **funding transaction**.
1. **Update:** for each payment, both sign a new **commitment transaction** that would pay out the new balances. They keep it but don't broadcast it.
1. **Close:** eventually one commitment, or a cooperative closing transaction, goes on-chain and pays each side.

## Why you can't cheat with an old balance
Each new commitment comes with a way to punish the old one. If Bob broadcasts an outdated commitment where he had more money, Alice has a window (a [CSV timelock](https://mybitcoinexplorer.com/learn/timelocks-cltv-csv)) to claim **all** of the channel's funds using a revocation secret Bob gave her. See [Closing channels and watchtowers](https://mybitcoinexplorer.com/learn/closing-channels-and-watchtowers).

> Diagram: Each update moves the balance; only the final state goes on-chain — Alice:Bob

## Capacity
The channel's total capacity is fixed by the funding transaction. Payments only move the balance between sides, which is why [liquidity](https://mybitcoinexplorer.com/learn/channel-liquidity) matters.


## Find a channel on-chain
A cooperative channel close looks like an ordinary transaction spending a 2-of-2 output into two payouts. With Taproot channels, even the open can look like a normal single-key payment.

## Channel capacity in practice
| Capacity | Good for |
|---|---|
| 100,000 sats | Testing and tiny payments |
| 1,000,000 sats | Everyday personal use |
| 10,000,000+ sats | Merchants and routing nodes |


## Key takeaways

- A channel is funded by a 2-of-2 multisig output.
- Updates are signed commitment transactions kept off-chain.
- Publishing an old state lets the other side take all the funds.

## Common questions

### How many payments can a channel handle?

Unlimited, as long as the balance allows.

### Can I add funds to an open channel?

With 'splicing', supported by some implementations, yes. Otherwise you open another channel.

### How much does it cost to open a channel?

One on-chain transaction fee to open and another to close; everything in between is off-chain.

### Can a channel run out?

Your side can run low after many payments. You can receive to refill it, or open another channel.

## Related lessons

- [The Lightning Network](https://mybitcoinexplorer.com/learn/lightning-network)
- [Closing channels and watchtowers](https://mybitcoinexplorer.com/learn/closing-channels-and-watchtowers)
- [Channel liquidity](https://mybitcoinexplorer.com/learn/channel-liquidity)
- [Multisig](https://mybitcoinexplorer.com/learn/multisig)