An off-chain transaction is a cryptocurrency transaction that has its value moved externally to the blockchain itself. Put simply, it is the trading of a crypto assets value outside of the blockchain network. An easy way to understand Off-Chain transactions is by comparing them to their opposite, an ‘On-Chain’ transaction.
On-Chain transactions are the trading of coins, tokens, or other crypto assets that take place on the actual blockchain network itself. They are asset trades, internal to the network. And as such have their ledger, authentication, and costs that take place amongst the blockchain.
Off-Chain however takes place externally to the blockchain network and does not undergo the same processes. A simple example of an Off-Chain transaction would be the simple trading of private keys between two parties. By sending the private key to a private wallet, the parties effectively trade the value of the crypto stored within the wallet, but without involving the blockchain network in the trade. This form of Off-Chain inter-wallet transfer is becoming increasingly popular and has its own advantages.
Off-Chain Bitcoin Transactions
Off-Chain transactions are becoming increasingly popular for a variety of reasons. One simple reason is that these forms of transactions generally have little cost, as they require no ‘gas’ price for the trade in the conventional sense. Furthermore, the lack of gas price is another indicator of Off-Chain transactions speed, as Off-Chain does not require the validation and authentication that takes place in regular On-Chain trades.
Though it is worth noting that Off-Chain transactions are increasingly required to be recorded on-chain. Off-chain is also a largely safe way in which to conduct crypto-business. With services such as Guarantor, offering investors a form of co-signer to the trades, thus guaranteeing their value.
Due to these factors, Off-Chain is becoming increasingly popular for large-scale transactions, being a cheap, reliable, and speedy way in which to trade crypto assets.