Off-Chain Transactions are defined as off-chain transactions that take place on the blockchain.
What are Off-Chain Transactions?
Off-Chain Transactions is used to express transactions that take place outside of the blockchain network. All transactions and data are recorded on the blockchain. All transactions take place under the approval and supervision of the community. However, in some cases, parties may prefer to make off-chain transactions, and this may even be more advantageous for them. Off-Chain Transactions are defined as transactions that occur from a particular blockchain network and can be reported or grouped before being sent to the main chain.
Unlike the complexity of on-chain transactions, Off-Chain Transactions take place off-chain. There may be more than one method of the desired transactions. It can be carried out by making a transfer agreement between the two parties making the transaction or it can be done under the supervision of a third party in the guarantor position. A credit-based payment mechanism can also be used. In summary, these transactions can be made by participants who have a third-party guarantee or an agreement confirming that the transaction is valid and complete. Two participants can also exchange their private keys directly to exchange them without withdrawing any money from their digital wallets.
In a transfer agreement method between two parties, only the trust of the parties is based on each other. In the method of trading with a third guarantor, it is recorded because it is carried out through the transfer tool, and when a problem occurs, the records can help to solve the problem. In the credit-based payment mechanism method, the parties trust each other. In the verbal transfer transaction, there is no record and there is no information that there is a provision for debt.
Off-Chain transactions are fast transactions. This is the biggest factor in its preference, as it does not have a situation such as uploading to the network or waiting in the queue. Also, in the Off-Chain transactions method, there are mostly no transaction fees as no change takes place in the blockchain.
What is On-chain Transactions?
On-Chain Transactions, unlike Off-Chain Transactions (off-chain transactions), are transactions that occur on the blockchain and are visible to all Nodes in the network.
Once transactions are verified and recorded on the blockchain network, they cannot be changed. For this reason, they are defined as transactions that offer high security and transparency. Transactions that occur on a blockchain are verified by a series of network participants called Miners. A transaction is valid only after it has been verified by the participants and agreed on its validity.
Transaction details are then recorded in a block and distributed to the participants of the network. Transactions cannot be reversed once they receive sufficient confirmations from network participants based on the Consensus algorithm of the blockchain network. The majority of the available Hash power must be captured before the transaction can be reversed. Miners provide a verification service to confirm a transaction on the blockchain as soon as possible and charge a fee for this.
For this reason, On-Chain Transactions are more costly than Off-Chain Transactions. Sometimes, this fee may increase depending on the scalability potential and transaction volume of the network. The biggest reason why users generally prefer Off-Chain Transactions is that they do not charge fees.
