Hierarchical Channel

Hierarchical channels are a structural innovation in Bitcoin, primarily used within the Lightning Network to enhance transaction efficiency and scalability. These channels facilitate the flexible resizing of payment capacities off-chain, which allows for adjustments without the delays and costs associated with on-chain transactions.

The structure of hierarchical channels is layered, where each layer can consist of multiple interconnected channels. This arrangement enables streamlined routing of transactions through the most efficient paths, improving speed and reducing fees.

While these channels offer numerous benefits, they also present challenges such as the complexity of setup and maintenance, and the need for effective liquidity management across layers to ensure seamless transactions.