Define what is an off-chain transaction?

An off-chain transaction is a transaction that takes place outside of the blockchain. An on-chain transaction, often known as just “a transaction,” alters the blockchain and depends on it for validity, whereas an off-chain transaction records and validates the transaction using other means.

  • In blockchain-based cryptocurrencies, off-chain transactions refer to those which occur outside of the blockchain itself.

  • Off-chain transactions can work by swapping private keys to an existing wallet instead of transferring funds, or by using a third-party or coupon-based interlocutor.

  • Off-chain transactions can entail lower fees, immediate settlement, and greater anonymity than on-chain transactions.

  • Depending on the method used, off-chain transactions may eventually have to be recorded on-chain.