No, you stay at your "bank" or lightening network until you want to exit.  At that point, you pay the fees to re-enter Bitcoin.  All the rest won't be on any block chain but your "bank" will probably trade off chain, just like they do with fiat, amongst themselves.  Maybe they will do so through the bitcoin blockchain in batches.  But since that is expensive, I would wager they'll just trade like they do today, with escrow, etc... just like today, for the majority of transactions and only use the Bitcoin blockchain when time is of the essence.

I'm not sure what happened to your instant send transaction, but it should arrive instantly confirmed in the receiving address and spendable in 1 confirmation, unless I remember wrongly and it's instantly spendable?  It should have nothing to do with the rest of your unspent balance.

But instant send does nothing like LN.  The network selects a quorum of MNs (currently 10 MNs are randomly chosen) who review and lock the transaction.  The transaction then can not be double spent, it is locked, there is no way to reverse it.  It can take however long to get this transaction actually on the blockchain (assuming one day we have full blocks, currently it is rarely confirmed later than the next block) but it still can not be reversed or double-spent.

This is how instant send works, basically.  it gives you the equivalent of 5 confirmations instantly, with the 6th an actual confirmation/entry.  This is only done due to extreme caution.  There has been no known issue with IS and the one block confirmation will likely be removed in the future.

Off chain scaling is where the transactions are handled by a proxy network and then aggregated into a single 'dump' into the blockchain. If you've ever used an exchange like Poloniex or Coinbase - that's an example of the approach that off-chain scaling would take.

When you're on the exchange you can trade away all day without making any blockchain transactions. Thousands of trades can occur until you end up with a final aggregate balance. Then at some point you notionally withdraw that balance into the blockchain. So the exchange has helped the bitcoin economy scale because it kept all that traffic off the blockchain and only aggregated it into one withdrawal.

Another example is the Lightning network in bitcoin. This plans to work like the exchange - where 'accounts' are kept of aggregate transaction balances between transacting parties and dumped into the blockchain at discrete intervals like the exchange deposit/withdrawal system. The only difference between the Lightning Network and the exchange is that Lightning will be decentralised and notionally trustless.

On-chain scaling on the other hand is about increasing the capacity of the core blockchain protocol and infrastructure so that the traffic doesn't have to be buffered by a secondary network. All interactions are made directly with the blockchain and cleared in realtime.


2 reasons:

1. It's what users want and expect. Cryptocurrency is based on a cash monetary archetype. Cash is a realtime settlement medium
2. Whatever approach you take, you need on-chain scaling anyway because the more off-chain networks you have generating economic activity, the more demand there will be at the clearing layer

Consider the lightning network for example. It doesn't actually scale the bitcoin at all. It just generates even more traffic for it to process by capturing new markets such as movie watching charged by the second and so on. So you still need to somehow scale the core capacity of the blockchain to process throughput.