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What is On-Chain?



What is On-Chain?


On-chain is a transaction written on a blockchain network.


All on-chain transaction information is included in the block, and recorded transactions cannot be permanently deleted. Representative examples of on-chain are Bitcoin and Ethereum, which form their own networks, and all transactions in the blockchain are recorded and disclosed to all users. 


However, there is a possibility of various problems to rely solely on on-chain. There are speed problems that take a long time for transactions to be confirmed on the network after the transaction occurs, privacy issues that all transactions in the blockchain are disclosed to everyone, cost issues that incur payment costs to miners when verifying transactions, and scalability issues such as low TPS. In other words, the on-chain lost its speed instead of gaining high stability. A representative method for solving the scalability problem of the on-chain is the big block.


Centralized servers can easily upload large amounts of data, but blockchain has a limited amount of data that can be stored per block. Therefore, it is necessary to carefully decide what data and how much data to store according to the purpose of each blockchain network, mainly data such as timestamps, hash values of previous blocks, and transaction details are included in the block. At this time, the amount of data that can be stored is limited, while the amount of data to be stored continues to increase. Onchain solves this scalability problem through a method called Big Block.




* Big block


A big block literally means increasing the size of a block. This process is very simple; it can convert a block into a big block by modifying only some codes. Bigblocks will require fewer fees and will be able to store more transaction details. For example, Bitcoin in the past could store only 1MB of data per block. At that time, there were many voices calling for solving the scalability problem by switching to a big block, but Bitcoin developers increased the storage capacity per block to 2MB through another way to separate Bitcoin transaction information and electronic signature information through SegWit.



The reason is that in order to create a new big block, the node must have the highest-level RAM (32GB). If that happens, only professional mining companies that run mining machines, not individuals, will be able to continue mining. As a result, it is very likely that only a few nodes with top-level mining resources will survive and centralized mining will take place. In addition, modifying some codes is simple, but persuading blockchain network members is very difficult. In order to switch to a big block, a hard fork must be made, and if all network members do not update from the old version to the new version, the network will be separated.




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 made 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 concluded. 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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