A “channel” is just a 2:2 multisig bitcoin address, right? And you buy liquidity for the channel?
Discussion
Nope. Phoenix is unique in that they have splicing, and they care about users' UX. So, when they open a channel for you using your funds, they add some of their own at the same time, so you will still be able to receive.
Your channel is still a 2:2 multisig between you and ACINQ, which is the company behind Phoenix.
Cool 😎
So a channel is a 2:2 multisig bitcoin address shared by me and ACINQ
And liquidity is basically how many transactions can be recorded in the channel
Not how many transactions. There can be infinite number of transactions between the opening transaction and the closing transaction.
A channel is a UTXO that is held in 2:2 multisig. This turns the UTXO into something that can be thought of like a string with beads on it. You hold one end of the string and ACINQ (in the case of Phoenix wallet) holds the other end of the string. The number of beads on the string is the total number of sats in the UTXO.
When you open the channel in Phoenix wallet, the amount of sats you put into the channel is the number of beads that are on your side of the string. The amount of sats that ACINQ ads to that channel at the time of opening is the number of beads on their side of the string.
For the sake of the illustration, let's say you opened a channel with 500k sats, and ACINQ added 200k. Your starting channel state would look like this, with each "bead" representing 100k sats:
maven -ooooo---oo- ACINQ
Now, let's say you bought something on Shopstr for 300k sats. Here's what your channel would look like after that transaction:
maven -oo---ooooo- ACINQ
Let's say you stack some sats directly to your Phoenix wallet, receiving 400k sats. Now your channel will look like this:
maven -oooooo---o- ACINQ
At this point, the maximum you can receive would now be 100k sats. If you try to receive more than that, you will end up needing additional liquidity added to ACINQ's side of the channel, and you will pay a higher fee for the on-chain transaction required to splice in the new liquidity.
However, you can go on with just the liquidity you have for years and years, making thousands and thousands of transactions, so long as the transaction amounts fit within the liquidity constraints of your channel.