Channels, funding channels, funding channels
Hello, and welcome back to our state channel series!
The aim of this week’s post is to go beyond the explanation of typical state channel interactions that we re-introduced last week, and begin to build an intuition for more advanced concepts, such as how state channels can be opened and closed entirely off-chain, and how one state channel can fund another. These concepts will be key in understanding how state channels can be routed through state channel hubs, which is where a lot of the power of state channels comes from.
In state channels, as in life, it’s necessary to have an understanding for what might happen in the worst case scenario, in order to understand how things behave in normal circumstances. We’re going to spend a lot of today’s post looking at how a state channel will play out on-chain, should it come to that.
The Fundamental Guarantee of State Channels
What makes it safe to pay into a state channel? When you deposit your funds into the state channel contract, you’re allowing them to be governed not just by your signature, but also by that of your counterparty (or counterparties). Roughly speaking, it’s safe to deposit into a state channel, only because state channels provide the following guarantee:
You can withdraw your funds within a finite amount of time, no matter what actions any other party takes
Obviously, when we say “no matter what actions”, we’re assuming a certain ground-level of sportsmanship here; the other parties have to play within a reasonable set of rules. If people are allowed to permanently restrict our abilities to interact with the blockchain, whether through censorship, intimidation, imprisonment, or incapacitation, then all bets are off. We basically need the liveliness property of the blockchain — or at least to be able to get a transaction into the chain within a reasonable time frame.
The concept of “my funds” is also somewhat ill-defined — after all, you did deposit your funds into a state channel contract, so who knows what that did to your notion of ownership? What we really mean here is that you can reclaim a portion of the funds in the contract that is reasonably fair to you, given the actions that have occurred in the channel.
In practice, reclaiming your funds is a multi-stage affair:
We’re going to look at the two steps separately, and we’re going to tackle those parts back-to-front: this week we’ll be looking at what effects a finalized outcome can cause, and we’ll leave it to next week to explain how the states you’ve exchanged enable each party to obtain a finalized outcome. That means for the rest of this post, I’m just going to assume that somehow we were able to finalize a given outcome on-chain, and not worry at all about how that happened.
