An off-chain transaction takes place exterior of the blockchain, and is sometimes outlined as a second-layer protocol. Second layer protocols are constructed on excessive of a base blockchain to boost on among the many points that occur with on-chain transactions.
To increased understand this, let’s use Bitcoin as an occasion.
Bitcoin faces a scalability draw back as an growing variety of of us start making use of its group. This may trigger group congestion along with elevated transaction costs.
Yet, there are protocols that occur exterior its blockchain to make transactions quicker, easier, and cheaper, identical to the Lightning Network. This second-layer protocol is a decentralised, peer-to-peer group that allows prospects to modify Bitcoin off-chain in an immediate, with nearly no transaction costs.
It is essential to don’t forget that transactions that occur off-chain are nonetheless protected. Trusted second-layer protocols identical to the Lightning Network actually improve group effectivity and security, and make transactions significantly cheaper.
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