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What is Off-Chain?

What is Off-Chain?


  Off-chain is not the main blockchain system, but transactions occur outside. Through this, it is possible to solve the scalability problem that could not be solved on-chain. Offchain records only core data on the blockchain, and at this time, data that needs high speed is recorded on the central server of the DApp, not the blockchain. Offchain has advantages such as low fees, high speed, and high transaction throughput. However, there is also a disadvantage, which is that the transaction details recorded in the off-chain cannot be fully trusted. A representative method for solving the off-chain scalability problem is a lighting network.


The Bitcoin protocol takes an on-chain payment method that records all transactions generated in the network on the blockchain. This takes a very long time to verify because it stores all the transaction data in the block. Therefore, delays in confirmation occur, and fees paid to miners naturally become expensive. In the end, Bitcoin's market liquidity decreases and small payments are impossible, resulting in a decrease in its value as a payment method, that is, currency.


Conversely, the lighting network introduces an off-chain verification method, so that all transactions occurring in the network are not recorded in the blockchain. At this time, in order to create a transaction, you must first send enough bitcoin, a kind of deposit, to the multisig address you share with the counterparty, where only a small fee is charged after opening the channel.


Numerous transactions between people trading on this channel are off-chain transactions and are not traded on the blockchain. Afterwards, the parties who have completed the transaction liquidate the balance and send it to their respective personal addresses, resulting in an on-chain transaction, recorded on the blockchain, and the channel terminated. Off-chain transactions occurring in the channel do not require confirmation from the miner, so there is no fee and the transaction can be concluded immediately. As a result, small remittances that were not possible in the existing Bitcoin protocol can be made, which can have the liquidity of Bitcoin and value as a payment method.

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