Tl;dr flash channels are what will allow IOTA to do instant transfers for no fee at all!

IOTA blog: https://blog.iota.org/instant-feeless-flash-channels-88572d9a4385

Blog FAQ:

I thought The Tangle could scale, why do we need Flash Channels?

The Tangle is scalable thanks to its novel approach to distributed ledgers. Because of its approach to consensus, each transacting user has to complete to a nominal amount of Proof of Work. This work is minimal but requires time to complete. Flash removes this by moving the transactions off-network until they are attached, potentially reducing thousands of transactions to two transaction.Overall, IOTA is for general purpose transacting; whereas Flash is for use-case specific applications where token streaming between two parties is required.

If my transactions usually confirms in 2 minutes, why would I need transaction speeds faster than that?

Flash Channels are the current answer to a small subset of transactions situations. It is useful for situations where you might want to stream content: pay per second of video or car charging. Alternatively, settlement between financial institutions and a consumer could be dropped to sub-second speeds: point of sale or online purchases.

Do I need special tokens to use Flash Channels?

To use Flash you use plain old IOTA tokens within the channels. No extra tokens required to pay for fees since the network is free.

How much does opening a channel cost?

Since IOTA is feeless, opening and closing channels are free. This means that you can create Flash Channels for short periods of time or with small balances since there are no fees when opening/closing channels.

How does routing work?

Flash is not concerned with routing. IOTA is feeless, therefore you are free to open as many Flash channels as you want with partners. This removes a complex routing requirement that would eventually lead to centralisation.In the demo, we use WebRTC to connect you directly to your channel partner. The server only acts to serve the web page and connect the peers initially. No intermediaries are required for the channel to work.

Do you require special nodes or network updates for this to work?

No. Flash defines a specific way that two or more users should interact around a multisig wallet.This contrasts with other attempts at instant payment networks. For example, Bitcoin’s Lighting Network requires a parallel routing network using custom software to operate alongside the Bitcoin blockchain.

How fast are Flash Channels?

Flash Channels are limited by the time it takes for all parties in a channel to sign the proposed bundle and return signatures to all parties. This only takes milliseconds to complete when you aren’t waiting for users to manually confirm transactions.

How long does it take to Open/Close a channel?

Since Flash uses standard transactions for opening and closing, you could expect the average confirmation of the network. At the time of writing it is about 3 minutes on average. As the network grows this time will drop.

Wait, I thought that IOTA didn’t have timelocks or smart contract?

We don’t (at the moment 😉), instead Flash relies on an simple use of economic incentives. Once timestamps are enforced, we will introduce timelocks to Flash.

How do economic incentives stop scammers and thieves?

When you enter into a Flash channel you define the amount of collateral you will add to the channel. If you are starting a channel with an unknown partner you may open a low value channel or require the unknown partner to deposit a larger collateral into the channel.If there is a dispute part way through a channel, a user can release the funds that have been approved during transactions by attaching the most recent channel state. The remaining funds will be deposited into the remainder address (generated at channel opening). These funds will remain here until both users agree to a division of funds and then sign a transaction releasing them.

What are some of the use cases of Flash Channels?

Any application that requires instant, bi-directional transactions between two parties. Some of these use cases include EV Charging, Bandwidth on Demand, Other Resources On-Demand (such as Computation, Storage etc.), Pay per Article, and many others. One example that was recently presented by Carsten Stöcker at our Berlin Meetup can be seen below:

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