diff --git a/nitro/channelupdate.nim b/nitro/channelupdate.nim
new file mode 100644
index 0000000..249f67c
--- /dev/null
+++ b/nitro/channelupdate.nim
@@ -0,0 +1,20 @@
+import ./basics
+import ./protocol
+
+include questionable/errorban
+
+type
+  ChannelUpdate* = object
+    state*: State
+    signatures*: seq[(EthAddress, Signature)]
+
+proc participants*(update: ChannelUpdate): seq[EthAddress] =
+  update.state.channel.participants
+
+proc verifySignatures*(update: ChannelUpdate): bool =
+  for (participant, signature) in update.signatures:
+    if not update.participants.contains(participant):
+      return false
+    if not signature.verify(update.state, participant):
+      return false
+  true
diff --git a/nitro/ledger.nim b/nitro/ledger.nim
new file mode 100644
index 0000000..7131442
--- /dev/null
+++ b/nitro/ledger.nim
@@ -0,0 +1,20 @@
+import ./basics
+import ./channelupdate
+import ./protocol
+
+proc startLedger*(me: EthAddress,
+                  hub: EthAddress,
+                  chainId: UInt256,
+                  nonce: UInt48,
+                  asset: EthAddress,
+                  amount: UInt256): ChannelUpdate =
+  ChannelUpdate(
+    state: State(
+      channel: ChannelDefinition(
+        chainId: chainId,
+        participants: @[me, hub],
+        nonce: nonce
+      ),
+      outcome: Outcome.init(asset, {me.toDestination: amount})
+    )
+  )
diff --git a/nitro/wallet.nim b/nitro/wallet.nim
index 763647d..dccb26f 100644
--- a/nitro/wallet.nim
+++ b/nitro/wallet.nim
@@ -1,21 +1,21 @@
 import ./basics
 import ./keys
 import ./protocol
+import ./channelupdate
+import ./ledger
 
 include questionable/errorban
 
 export basics
 export keys
+export channelupdate
 
 type
   Wallet* = object
     key: PrivateKey
     channels*: seq[Channel]
   Channel* = object
-    latest*, upcoming*: ?ChannelUpdate
-  ChannelUpdate* = object
-    state*: State
-    signatures*: seq[(EthAddress, Signature)]
+    latest*: ChannelUpdate
 
 proc init*(_: type Wallet, key: PrivateKey): Wallet =
   result.key = key
@@ -23,25 +23,31 @@ proc init*(_: type Wallet, key: PrivateKey): Wallet =
 proc address*(wallet: Wallet): EthAddress =
   wallet.key.toPublicKey.toAddress
 
+proc sign(wallet: Wallet, update: ChannelUpdate): ChannelUpdate =
+  var signed = update
+  signed.signatures &= @{wallet.address: wallet.key.sign(update.state)}
+  signed
+
+proc createChannel(wallet: var Wallet, update: ChannelUpdate): Channel =
+  let signed = wallet.sign(update)
+  let channel = Channel(latest: signed)
+  wallet.channels.add(channel)
+  channel
+
 proc openLedgerChannel*(wallet: var Wallet,
                         hub: EthAddress,
                         chainId: UInt256,
                         nonce: UInt48,
                         asset: EthAddress,
                         amount: UInt256): Channel =
-  let state = State(
-    channel: ChannelDefinition(
-      chainId: chainId,
-      participants: @[wallet.address, hub],
-      nonce: nonce
-    ),
-    outcome: Outcome.init(asset, {wallet.address.toDestination: amount})
-  )
-  let channel = Channel(
-    upcoming: ChannelUpdate(
-      state: state,
-      signatures: @{wallet.address: wallet.key.sign(state)}
-    ).some
-  )
-  wallet.channels.add(channel)
-  channel
+  let update = startLedger(wallet.address, hub, chainId, nonce, asset, amount)
+  wallet.createChannel(update)
+
+proc acceptChannel*(wallet: var Wallet, update: ChannelUpdate): ?!Channel =
+  if not update.participants.contains(wallet.address):
+    return Channel.failure "wallet owner is not a participant"
+
+  if not verifySignatures(update):
+    return Channel.failure "incorrect signatures"
+
+  wallet.createChannel(update).success
diff --git a/tests/nitro/testWallet.nim b/tests/nitro/testWallet.nim
index 6028a83..5753711 100644
--- a/tests/nitro/testWallet.nim
+++ b/tests/nitro/testWallet.nim
@@ -23,30 +23,62 @@ suite "wallet: opening ledger channel":
     wallet = Wallet.init(key)
     channel = wallet.openLedgerChannel(hub, chainId, nonce, asset, amount)
 
-  test "creates a new upcoming state":
-    check channel.latest.isNone
-    check channel.upcoming.isSome
-
   test "sets correct channel definition":
-    let definition = channel.upcoming?.state?.channel
-    check definition?.chainId == chainId.some
-    check definition?.nonce == nonce.some
-    check definition?.participants == @[wallet.address, hub].some
+    let definition = channel.latest.state.channel
+    check definition.chainId == chainId
+    check definition.nonce == nonce
+    check definition.participants == @[wallet.address, hub]
 
   test "provides correct outcome":
-    let outcome = channel.upcoming?.state?.outcome
+    let outcome = channel.latest.state.outcome
     let destination = wallet.address.toDestination
-    check outcome == Outcome.init(asset, {destination: amount}).some
+    check outcome == Outcome.init(asset, {destination: amount})
 
   test "signs the upcoming state":
-    let state = channel.upcoming?.state
-    let signatures = channel.upcoming?.signatures
-    check signatures == @{wallet.address: key.sign(state.get)}.some
+    let state = channel.latest.state
+    let signatures = channel.latest.signatures
+    check signatures == @{wallet.address: key.sign(state)}
 
   test "sets app definition and app data to zero":
-    check channel.upcoming?.state?.appDefinition == EthAddress.zero.some
-    check channel.upcoming?.state?.appData?.len == 0.some
+    check channel.latest.state.appDefinition == EthAddress.zero
+    check channel.latest.state.appData.len == 0
 
   test "updates the list of channels":
     check wallet.channels == @[channel]
 
+suite "wallet: accepting incoming channel":
+
+  let key = PrivateKey.random()
+  var wallet: Wallet
+  var update: ChannelUpdate
+
+  setup:
+    wallet = Wallet.init(key)
+    update = ChannelUpdate(state: State.example)
+    update.state.channel.participants &= @[wallet.address]
+
+  test "returns the new channel instance":
+    let channel = wallet.acceptChannel(update).get
+    check channel.latest.state == update.state
+
+  test "updates the list of channels":
+    let channel = wallet.acceptChannel(update).get
+    check wallet.channels == @[channel]
+
+  test "signs the channel state":
+    let channel = wallet.acceptChannel(update).get
+    let expectedSignatures = @{wallet.address: key.sign(update.state)}
+    check channel.latest.signatures == expectedSignatures
+
+  test "fails when wallet address is not a participant":
+    let wrongParticipants = seq[EthAddress].example
+    update.state.channel.participants = wrongParticipants
+    check wallet.acceptChannel(update).isErr
+
+  test "fails when signatures are incorrect":
+    let otherKey = PrivateKey.random()
+    let otherWallet = Wallet.init(otherKey)
+    let wrongAddress = EthAddress.example
+    update.state.channel.participants &= @[otherWallet.address]
+    update.signatures = @{wrongAddress: otherKey.sign(update.state)}
+    check wallet.acceptChannel(update).isErr