What Is Off Chain?

Off-chain transactions are activities that happen outside the main blockchain. Instead of being directly added to the blockchain, they are settled privately, which helps make them faster, cheaper, and more private.

How It Works

Outside the Blockchain: Off-chain transactions happen without recording every action on the blockchain. Instead, special agreements or systems handle these transactions.
Methods:

• Private Agreements: Two people decide to trade with each other, but they don’t add each trade to the blockchain. They simply agree on the terms and go ahead.
• Payment Channels: Tools like the Lightning Network allow people to trade back and forth many times without every transaction being recorded on the blockchain. Only the final result (like the total balance) is added to the blockchain at the end.
• Settlement: Once all the trades are done off-chain, the final result or summary of those trades is recorded on the blockchain to close everything out.

Example Scenario

Imagine two friends who often trade cryptocurrency. Instead of paying fees and waiting for each trade to be confirmed, they set up an off-chain payment channel. They can trade back and forth as many times as they want, and only the final amount is recorded on the blockchain once they’re done.

Key Takeaways

• Faster: Off-chain transactions are quicker because they don’t have to go through the usual blockchain processing.
• Cheaper: No fees are needed for each individual transaction.
• More Private: The details of the transactions stay between the two parties, not on the public blockchain.

In simple terms, off-chain is like keeping a running total of your purchases with a friend, then telling the store only the final total when you’re done.