The topic of payment channel networks is arcane but also required to speed up blockchain transactions. Bitcoin uses Lightning and Ethereum uses Raiden as payment channel networks. This article (the research paper is much clearer) describes a new solution from MIT and others that utilizes the concept of packet-switching networks, such as X.25, to speed up payment transactions:
“Payment Channel Network permits users to charge accounts with a selected amount of virtual currency and is used on layer two scaling solutions. Remittances are carried out on such accounts, and only the opening and closing of the account is listed on the blockchain.
This results in a mode of payment that is allegedly much faster and scalable as compared to that made on the blockchain.
The MIT Spider is attributed as an efficient one because members can invest as little as a section of funds in their account. MIT spider can also process four times more transactions as compared to other payment checking networks.
The report also mentioned that the scheme functions by dividing transactions in small packets that spread across different channels, dividing helps to route big payments through accounts with low funding levels. Due to this method, congestion is avoided according to its developing team. Vibhaalakshmi mentioned that the MIT Spider was inspired by packet switching, which is an effective way of carrying data over the web.”
Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group
