Bilateral netting is a process that streamlines transactions between two parties. Instead of settling all individual transactions separately, it combines multiple transactions into one net amount. This reduces the number of transfers required and can lower transaction costs.

In practice, if two parties have various transactions, they will calculate the total owed back and forth. After determining the net amount, only one payment is made from the party that owes the larger sum to the other. This simplifies the settlement and reduces the need for funds held at different times. In cryptocurrency, where transactions can be frequent and varied, bilateral netting can enhance efficiency.

It minimizes the number of transactions on the blockchain, potentially leading to lower fees and faster settlements. This method is especially beneficial in scenarios where participants regularly trade assets, helping to manage their financial exposure with minimal hassle. By focusing on net amounts rather than individual transactions, both parties can maintain liquidity and streamline their operations.