If you are interested in crypto and blockchain technology, on-chain and off-chain transactions are two fundamental concepts that you can’t ignore because they may help you a lot in your investment path.
Before we dive into on-chain transactions, we must understand off-chain. As the name suggests, an off-chain transaction is a transaction that occurs outside of the blockchain. More understandably, off-chain transactions are usually handled by centralized data systems such as the transactions of banks or other forms of finance such as insurance or investment funds. The advantage of off-chain transactions is that there are usually no transaction fees. Moreover, typically, off-chain systems will use multiple servers to help reduce the load for transactions, so they can process many transactions at a higher speed than on-chain. For example, the Visa network is an off-chain transaction representative that can process tens of thousands of transactions per second, while a typical representative of an on-chain transaction is bitcoin, which can only process 7 transactions per second. However, technology is increasingly developing, it is expected that the speed of on-chain will also catch up with the speed of the off-chain in the next few years. Moreover, on-chain also has many advantages compared to off-chain.
As its name says it all, on-chain transactions are simply transactions that occur on blockchains. As you know, one of the fundamental properties of blockchain is public, which means all transactions on the blockchain are publicly recorded. On-chain transactions are more and more popular because they are highly secure, transparent, and irreplaceable. Transactions, once confirmed, are forever immutable and shared with all the authenticators in that network. Fraud and malicious attacks are almost impossible to happen in on-chain transactions. On the other hand, when participating in on-chain transactions, we have access to on-chain data sources. These data provide the most accurate and objective information going on in the market. From there, it helps investors to predict and make appropriate investment decisions. Updating on-chain data regularly also helps investors to predict situations in advance, thereby being one step ahead of the community.
With the above advantages, however, on-chain transactions still have some limitations such as fee loss and slow processing speed. In case of network congestion, it can take many hours for the users to confirm the transaction.
On-chain or off-chain transactions, which is better? It depends on the goals of users. If the purpose is security and the transaction is validated, on-chain transactions will probably be best, but if speed and low transaction fees are what you considered, off-chain transactions will be a good choice.