diff --git a/contracts/solidity/payment-channel/PaymentChannel.sol b/contracts/solidity/payment-channel/PaymentChannel.sol
new file mode 100644
index 000000000..da5a661ee
--- /dev/null
+++ b/contracts/solidity/payment-channel/PaymentChannel.sol
@@ -0,0 +1,101 @@
+// SPDX-License-Identifier: GPL-3.0
+pragma solidity ^0.8.20;
+
+/// resource: https://docs.soliditylang.org/en/latest/solidity-by-example.html#the-full-contract 
+
+contract PaymentChannel {
+    address payable public sender;      // The account sending payments.
+    address payable public recipient;   // The account receiving the payments.
+    uint256 public expiration;  // Timeout in case the recipient never closes.
+
+    event AccountBalances( uint256 contractBalance, uint256 senderBalance, uint256 recipientBalance);
+
+    constructor (address payable recipientAddress, uint256 duration) payable {
+        sender = payable(msg.sender);
+        recipient = recipientAddress;
+        expiration = block.timestamp + duration;
+    }
+
+    /// the recipient can close the channel at any time by presenting a
+    /// signed amount from the sender. the recipient will be sent that amount,
+    /// and the remainder will go back to the sender
+    function close(uint256 amount, bytes memory signature) external {
+        require(msg.sender == recipient);
+        require(isValidSignature(amount, signature));
+
+        // emit an event containing balances before closing the channel => easier to keep track of balances and ignore transaction fees
+        emit AccountBalances(address(this).balance, sender.balance, recipient.balance);
+
+        // closing - distributing crypto logic
+        recipient.transfer(amount);
+        sender.transfer(address(this).balance);
+
+        // emit an event containing balances after closing the channel
+        emit AccountBalances( address(this).balance, sender.balance, recipient.balance);
+    }
+
+    /// the sender can extend the expiration at any time
+    function extend(uint256 newExpiration) external {
+        require(msg.sender == sender);
+        require(newExpiration > expiration);
+
+        expiration = newExpiration;
+    }
+
+    /// if the timeout is reached without the recipient closing the channel,
+    /// then the Ether is released back to the sender.
+    function claimTimeout() external {
+        require(block.timestamp >= expiration);
+        sender.transfer(address(this).balance);
+    }
+
+    /// must verify that the signature is a valid signature signed by the sender
+    function isValidSignature(uint256 amount, bytes memory signature)
+        internal
+        view
+        returns (bool)
+    {
+        // prefix used in Ethereum when signing a message.
+        bytes32 message = prefixed(keccak256(abi.encodePacked(this, amount)));
+
+        // check that the signature is from the payment sender
+        return recoverSigner(message, signature) == sender;
+    }
+
+    /// split bytes signature into r, s, v values
+    function splitSignature(bytes memory sig)
+        internal
+        pure
+        returns (uint8 v, bytes32 r, bytes32 s)
+    {
+        // a valid signature must have 65 bytes
+        require(sig.length == 65);
+
+        assembly {
+            // first 32 bytes, after the length prefix
+            r := mload(add(sig, 32))
+            // second 32 bytes
+            s := mload(add(sig, 64))
+            // final byte (first byte of the next 32 bytes)
+            v := byte(0, mload(add(sig, 96)))
+        }
+
+        return (v, r, s);
+    }
+
+    /// recover the sender's address based on message and signature
+    function recoverSigner(bytes32 message, bytes memory sig)
+        internal
+        pure
+        returns (address)
+    {
+        (uint8 v, bytes32 r, bytes32 s) = splitSignature(sig);
+
+        return ecrecover(message, v, r, s);
+    }
+
+    /// builds a prefixed hash to mimic the behavior of eth_sign.
+    function prefixed(bytes32 hash) internal pure returns (bytes32) {
+        return keccak256(abi.encodePacked("\x19Ethereum Signed Message:\n32", hash));
+    }
+}
\ No newline at end of file
diff --git a/test/solidity/payment-channel/PaymentChannel.js b/test/solidity/payment-channel/PaymentChannel.js
new file mode 100644
index 000000000..4d18743fa
--- /dev/null
+++ b/test/solidity/payment-channel/PaymentChannel.js
@@ -0,0 +1,137 @@
+/*-
+ *
+ * Hedera Smart Contracts
+ *
+ * Copyright (C) 2023 Hedera Hashgraph, LLC
+ *
+ * Licensed under the Apache License, Version 2.0 (the "License");
+ * you may not use this file except in compliance with the License.
+ * You may obtain a copy of the License at
+ *
+ *      http://www.apache.org/licenses/LICENSE-2.0
+ *
+ * Unless required by applicable law or agreed to in writing, software
+ * distributed under the License is distributed on an "AS IS" BASIS,
+ * WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+ * See the License for the specific language governing permissions and
+ * limitations under the License.
+ *
+ */
+
+const { expect } = require('chai')
+const { ethers } = require('hardhat')
+const PaymentChannelHelper = require('./helper')
+const { GAS_LIMIT_1_000_000 } = require('../../constants')
+
+describe.only('@solidityequiv3 PaymentChannel', () => {
+  const DECIMALS = 8
+  const GASLIMIT = 1000000
+  const DURATION = 3 // 3 seconds
+  const OWED_AMOUNT = 100000000
+  const INITIAL_FUND = ethers.utils.parseEther('3')
+  let signers,
+    senderAddress,
+    recipientAddress,
+    paymentSignature,
+    paymentChannelContract
+
+  before(async () => {
+    signers = await ethers.getSigners()
+    senderAddress = await signers[0].getAddress()
+    recipientAddress = await signers[1].getAddress()
+
+    const paymentChannelContractFactory = await ethers.getContractFactory(
+      'PaymentChannel'
+    )
+
+    paymentChannelContract = await paymentChannelContractFactory.deploy(
+      recipientAddress,
+      DURATION,
+      {
+        gasLimit: GASLIMIT,
+        value: INITIAL_FUND,
+      }
+    )
+
+    paymentSignature = await PaymentChannelHelper.signPayment(
+      signers[0],
+      paymentChannelContract.address,
+      OWED_AMOUNT
+    )
+  })
+
+  it('Should deployed with correct deployed arguments - open payment channel', async () => {
+    const contractBalance = await ethers.provider.getBalance(
+      paymentChannelContract.address
+    )
+
+    expect(contractBalance).to.eq(INITIAL_FUND)
+    expect(await paymentChannelContract.expiration()).to.not.eq(0)
+    expect(await paymentChannelContract.sender()).to.eq(senderAddress)
+    expect(await paymentChannelContract.recipient()).to.eq(recipientAddress)
+  })
+
+  it('Should close the payment channel when recipient execute close method', async () => {
+    const transaction = await paymentChannelContract
+      .connect(signers[1])
+      .close(OWED_AMOUNT, paymentSignature)
+
+    const receipt = await transaction.wait()
+
+    const [contractBaleBefore, senderBalBefore, recipientBalBefore] =
+      receipt.events[0].args
+
+    const [contractBaleAfter, senderBalAfter, recipientBalAfter] =
+      receipt.events[1].args
+
+    // @notice after closing the channel, all the contract balance will be faily distributed to the parties => contractBaleAfter should be 0
+    //
+    // @notice since the OWED_AMOUNT = 100000000, after closing the channel the recipient should receive 100000000 crypto units (i.e. OWED_AMOUNT)
+    //
+    // @notice since the OWED_AMOUNT = 100000000 and the INITIAL_FUND (i.e. contractBaleAfter) = 300000000 =>
+    //          the left over, 300000000 - 100000000 = 200000000, will be transfered back to the sender (the channel funder)
+    expect(contractBaleAfter).to.eq(0)
+    expect(recipientBalAfter - recipientBalBefore).to.eq(OWED_AMOUNT)
+    expect(senderBalAfter - senderBalBefore).to.eq(
+      contractBaleBefore - OWED_AMOUNT
+    )
+  })
+
+  it('Shoud extend the expiration of the payment channel when caller is the sender', async () => {
+    const currentExp = await paymentChannelContract.expiration()
+    const newExp = Number(currentExp) + DURATION
+
+    // call .extend() by signers[0] (i.e. the sender)
+    await paymentChannelContract.extend(newExp)
+
+    const updatedExp = await paymentChannelContract.expiration()
+
+    expect(updatedExp).to.eq(newExp)
+    expect(updatedExp).to.not.eq(currentExp)
+  })
+
+  it('Should not extend the expiration of the payment channel when caller is NOT the sender', async () => {
+    const currentExp = await paymentChannelContract.expiration()
+    const newExp = Number(currentExp) + DURATION
+
+    // call .extend() by signers[1] (i.e. the recipient)
+    await paymentChannelContract.connect(signers[1]).extend(newExp)
+    const updatedExp = await paymentChannelContract.expiration()
+
+    // @notice as the caller is signers[1] who is not the sender => the .extend function will revert
+    expect(updatedExp).to.eq(currentExp)
+    expect(updatedExp).to.not.eq(newExp)
+  })
+
+  it('Should release back the fund balance stored in the contract to sender when the timeout is reached', async () => {
+    const currentExp = await paymentChannelContract.expiration()
+    const sleepTime = Number(currentExp) * 1000 - Date.now()
+    await new Promise((r) => setTimeout(r, sleepTime))
+    await paymentChannelContract.claimTimeout()
+    const contractBalance = await ethers.provider.getBalance(
+      paymentChannelContract.address
+    )
+
+    expect(contractBalance).to.eq(0)
+  })
+})
diff --git a/test/solidity/payment-channel/helper.js b/test/solidity/payment-channel/helper.js
new file mode 100644
index 000000000..f471b96ec
--- /dev/null
+++ b/test/solidity/payment-channel/helper.js
@@ -0,0 +1,57 @@
+/*-
+ *
+ * Hedera Smart Contracts
+ *
+ * Copyright (C) 2023 Hedera Hashgraph, LLC
+ *
+ * Licensed under the Apache License, Version 2.0 (the "License");
+ * you may not use this file except in compliance with the License.
+ * You may obtain a copy of the License at
+ *
+ *      http://www.apache.org/licenses/LICENSE-2.0
+ *
+ * Unless required by applicable law or agreed to in writing, software
+ * distributed under the License is distributed on an "AS IS" BASIS,
+ * WITHOUT WARRANTIES OR CONDITIONS OF ANY KIND, either express or implied.
+ * See the License for the specific language governing permissions and
+ * limitations under the License.
+ *
+ */
+
+const { ethers } = require('hardhat')
+
+class PaymentChannelHelper {
+  /**
+   * @dev constructs a payment message
+   *
+   * @param contractAddress used to prevent cross-contract replay attacks
+   *
+   * @param amount specifies how much Hbar should be sent
+   *
+   * @return Keccak256 hash string
+   */
+  static constructPaymentMessage(contractAddress, amount) {
+    return ethers.utils.solidityKeccak256(
+      ['address', 'uint256'],
+      [contractAddress, amount]
+    )
+  }
+
+  /**
+   * @dev sign the payment message
+   *
+   * @param signer signing account
+   *
+   * @param contractAddress used to prevent cross-contract replay attacks
+   *
+   * @param amount specifies how much Hbar should be sent
+   *
+   * @return 65 bytes signature
+   */
+  static async signPayment(signer, contractAddress, amount) {
+    const message = this.constructPaymentMessage(contractAddress, amount)
+    return await signer.signMessage(ethers.utils.arrayify(message))
+  }
+}
+
+module.exports = PaymentChannelHelper