What are these "off-chain" transactions I am hearing more and more of ?

[Redrose]

As the time pass I am seeing more and more people talking about the "off-chain" transactions, but what is it exactly ? Is it doing transactions outside of the Bitcoin network, but still using Bitcoin as the currency, making it not an altcoin ? If it is the case, how is it even possible ? And what advantages does that bring ? If not what it is ?

[1715236412]

1715236412

[franky1]

offchain means its not handled and passed directly onchain (on bitcoins blockchain) its handled privately.
it can be in many forms but the main one in discussion right now is a future service that may have a niche for certain users. but not all users

the main group hoping to offer this commercial service is blockstream. the code is being headed up by 'rusty russel'
their project is called "lightning network" - emphasis on network because its a different network although the funds are linked to bitcoin funds

this is as laymans/basic as i can word it.. without getting too technical
how it works is that instead of standard independent tx's that get broadcasted to spend.. people fund a special address known as a multisig.
this is a transaction that needs 2 signatures to spend/move the balance inside.

now because it will only be accepted on the network if both signatures exist. these 2 people can write a transaction and secretly (away from bitcoins network (aka offchain)) both sign it. to know its a valid transaction. they both agreed and nothing else can change without both consent.

emphasis: because no other single signature can be accepted by the network, only the both signed transaction is acceptable..

so now they can privately trade and make make new transactions where both sign. which invalidate the previous both signed private transaction. and know the latest one is the most valid transaction.. thus not needing to confirm it because they both know its good

think of it like having a bank chequebook.. but requires 2 signatures.

if both signatures exist. you know one person can cash it by depositing it. so that person just by holding it, knows its as good as paid. just holding it. they can then agree to make a new cheque and both sign the new cheque and rip up the old cheque. without needing to 'deposit' the cheque each time.
they simply sit in a private room writing new cheques and ripping up old cheques each hour/day. and only need to deposit the latest cheque at the end of the week when they finally want to settle the balance and end the private trades

for instance bob and joe both deposit $10 into a dual signed account (both pay 0.01btc into a multisig) and initially say they want their $10(0.01) back
tx1
in
  bob: 0.01
  joe: 0.01
out
  bob: 0.01
  joe: 0.01
signed
  Robert
  Johnny

next time bob wants to pay joe 50c (0.005)
tx2
in
  bob: 0.01
  joe: 0.01
out
  bob: 0.005
  joe: 0.015
void tx1
signed
  Robert
  Johnny

next time joe wants to pay bob 75c (0.0075)
tx3
in
  bob: 0.01
  joe: 0.01
out
  bob: 0.0125
  joe: 0.0075
void tx2
signed
  Robert
  Johnny

if anyone tried to transmit tx 1 or 2.. the other person can transmit tx 3 and void off the other ones. thus making tx 3 the latest and most valid and trusted tx.. so they dont have to rush to transmit it. they just keep writing new transactions in private and only transmit it when they want to settle up

[Senor.Bla]

I will give you a very easy to understand explanation, but leaving out many details. You will get the idea though. We both want to make some transactions. Over the time period of one week we buy lunch together and pay together (we pay in fiat). I pay 3 times and you 4 times. We keep a note what everybody had and what we paid. At the end of the week we settle the bill and check how much i ow you. I then pay this via Bitcoin and we only made one transaction and the rest off chain.

[BillyBobZorton]

Transactions that happen outside of the blockchain. All the transactions that happen inside an exchange are off-chain (as in putting orders, making gains, lossing some, making more gains...) this is all not recorded in the blockchain, it's only when you withdraw when it gets recorded in the blockchain. This is to not bloat the blockchain, since it's impossible to have massive amounts of fast on-chain transactions (unless you want datacenters per nodes which would kill the point of bitcoin)

[odolvlobo]

As the time pass I am seeing more and more people talking about the "off-chain" transactions, but what is it exactly ? Is it doing transactions outside of the Bitcoin network, but still using Bitcoin as the currency, making it not an altcoin ? If it is the case, how is it even possible ? And what advantages does that bring ? If not what it is ?

Typically, in an off-chain transaction, a promise or an un-broadcasted transaction is transferred rather than the actual bitcoins. Also, bitcoins can be sent by transferring the private key holding them.

For example, when you buy bitcoins from Coinbase or an exchange, no bitcoins are actually transferred. Coinbase or the exchange simply promises to send you the bitcoins if you ask for them. If you send bitcoins from your Coinbase account to another address at Coinbase, then the transaction is done simply by updating account balances at Coinbase. In these transactions, nothing appears on the block chain (until bitcoinsare sent to an address that is not controlled by Coinbase or the exchange).

A Lightning Network works (in simple terms) by trading un-broadcasted transactions. When you send btc through a LN, you give the receiver a transaction that will send your btc to them. They typically don't broadcast the transaction immediately because they expect to you to give them an updated transaction when you send more btc, or when they send btc back to you. Eventually a transaction will be broadcast and appear on the block chain, and that on-chain transaction will represent the result of many of these off-chain transactions.

Giving someone a physical bitcoin is an example of an off-chain transaction involving transferring a private key.

[RawDog]

As the time pass I am seeing more and more people talking about the "off-chain" transactions, but what is it exactly ?

Exactly?  It is a altcoin.  It is another system where they shift the bulk of transactions away from the blockchain so they can charge fees that won't go to miners that validate blocks but rather to shareholders of private companies, especially Blockstream.  

It is really just a scam but has become very serious because Blockstream has been successful in crippling the blockchain with the burden of low capacity which increases demand for this stupid and expensive 'off chain' solution.  

[Kakmakr]

Take a service like Xapo for instance :

You have two people registered to the Xapo service. Xapo runs their own private ledger keeping track of all transactions made between the accounts registered on their platform. These transactions are fast and almost free, but when you want to send that money to someone that are not a registered Xapo member, then that transaction will have to exit the Xapo database/ledger and move over to the Blockchain. < on-chain >

So all transactions not done on the Blockchain are called offchain transactions. ^smile^

[Catmony]

Take a service like Xapo for instance :

You have two people registered to the Xapo service. Xapo runs their own private ledger keeping track of all transactions made between the accounts registered on their platform. These transactions are fast and almost free, but when you want to send that money to someone that are not a registered Xapo member, then that transaction will have to exit the Xapo database/ledger and move over to the Blockchain. < on-chain >

So all transactions not done on the Blockchain are called offchain transactions. ^smile^

Also coinbase can be taken as example, they offer free bitcoin transfer between two coinbase users but actually they never moves those coin in blockchain. They just edit their internal ledger and updates balance for both users.

Offchain transactions are just like how centralized payment processors like paypal, skrill works.