Off-Chain
Transactions processed outside the main blockchain, settled periodically on-chain for efficiency.
What is Off-Chain?
Off-chain transactions occur via secondary protocols, reducing L1 load—e.g., Lightning Network channels handle 5,000 TPS at 1 sat/vB, settling nets on Bitcoin every 1,000 txns. CEXs like Binance record internal trades off-chain, netting 99% of $2 trillion daily volume before on-chain withdrawals.
Benefits include speed (sub-second vs. 10-min blocks) and low fees (<$0.01 vs. $5), with privacy via batched data—e.g., Plasma sidechains aggregate 1,000 txns into Merkle proofs. Liquid Network processes 1-minute blocks for $500 million assets.
Drawbacks: reduced transparency and trust reliance (e.g., FTX 2022 collapse), yet off-chain scales to 1 million TPS, comprising 95% of crypto activity in 2025.
Related Terms
Liquidity (DEX)
Liquidity on a decentralized exchange (DEX) refers to the pool of digital assets locked in smart contracts, enabling seamless token trading by ensuring sufficient supply and demand for transactions.
ECDSA
A cryptographic algorithm used to create digital signatures for securing and verifying transactions in blockchain networks like Ethereum.
Coin
A digital asset that operates on its own independent blockchain, distinct from tokens that rely on another blockchain’s infrastructure.
DYOR
Do Your Own Research (DYOR) is a widely used acronym in the digital asset space, urging investors to independently verify information before committing funds to any project or token.
Base Chain
Coinbase's Ethereum Layer 2 network built on the OP Stack, optimized for on-chain applications and developer accessibility.
Information Aggregation
The process of collecting and combining dispersed information from multiple sources to produce a more accurate collective prediction.