2. A Network of Micropayment Channels CanSolve Scalability

“If a tree falls in the forest and no one is around to hear it, does it make a sound?”The above quote questions the relevance of unobserved events —if nobody hears the tree fall, whether it made a sound or not is of no consequence. Similarly, in the blockchain, if only two participants care about an everyday recurring transaction, it’s not necessary for all other nodes in the bitcoin network to know about that transaction. It is instead preferable to only have the bare minimum of information on the blockchain. By deferring telling the entire world about every transaction, doing net settlement of their relationship at a later date enables Bitcoin users to conduct many transactions without bloating up the blockchain or creating trust in a centralized counterparty. An effectively trustless structure can be achieved by using time locks as a component to global consensus.

Currently the solution to micropayments and scalability is to off load the transactions to a custodian, whereby one is trusting third party custodians to hold one’s coins and to update balances with other parties. Trusting third parties to hold all of one’s funds creates counterparty risk and transaction costs. Instead, using a network of these micropayment channels, Bitcoin can scale to billions of transactions per