[[payment_channels]]
== Payment Channels

In this chapter we will dive into payment channels and see how they are constructed. We will start with Alice's node opening a channel to Bob's node, building on the examples presented in the beginning of this book.

The messages exchanged by Alice and Bob's nodes are defined in https://github.com/lightningnetwork/lightning-rfc/blob/master/02-peer-protocol.md["BOLT2 - Peer Protocol"]. The transactions created by Alice and Bob's nodes are defined in https://github.com/lightningnetwork/lightning-rfc/blob/master/03-transactions.md["BOLT3 - Transactions"]. In this chapter we are focusing on the "Channel Open & Close" and "Channel State Machine" parts of the Lightning protocol architecture, highlighted by a double outline in the center (Peer 2 Peer Layer) of <<LN_protocol_channel_highlight>>:

[[LN_protocol_channel_highlight]]
.The Lightning Network Protocol Suite
image::images/LN-protocol-channel-highlight.png["The Lightning Network Protocol Suite"]

=== Bitcoin ownership and control

Before we understand payment channels, we have to take a small step back and understand how ownership and control work in Bitcoin.

==== Holding signed transactions without broadcasting

==== Chaining transactions without broadcasting

==== Solving malleability (SegWit)

==== A different way of using the Bitcoin system

==== Cryptographic protocol vs. message protocol

=== Constructing a payment channel

==== Node public keys

==== Generating a multisignature address

=== Funding the channel

==== The funding transaction

==== The refund transaction

=== Funding message flow

[[funding_message_flow]]
.The funding message flow
image::images/funding_message_flow.png["The funding message flow"]

==== The open_channel message

==== The accept_channel message

==== The funding_created message

==== The funding_signed message

==== The funding_locked message

=== Closing the channel

==== The cooperative close transaction

=== Closing message flow

==== The shutdown message

==== The closing_signed message

=== Updating the channel state

==== The commitment transaction

==== The commitment_signed message

==== Asymmetric commitments

==== Cheating with a prior state

=== Revoking prior state

==== Commitment revocation

==== The revoke_and_ack message

=== Penalty mechanism

==== The penalty transaction

=== Conclusion