Difference between on-chain and off-chain transactions

On-chain: When you make a transaction on the blockchain, it's called an on-chain transaction. This means that the transaction data is recorded directly onto the blockchain and is visible to everyone in the network. The data is also secured using cryptographic techniques, so it can't be tampered with. However, on-chain transactions are typically slow and can come with transaction fees, especially in networks like Bitcoin and Ethereum. This is because the consensus mechanisms and the need for miners to validate transactions can slow down the process. On-chain activities include sending cryptocurrencies from one wallet to another, executing smart contracts, and updating the blockchain's state.

Off-chain: Off-chain transactions are a great solution to the scalability
and speed issues faced by many blockchain networks. They happen outside the main blockchain and involve certain interactions or transfers on secondary layers or external networks. The Lightning Network for Bitcoin and the Raiden Network for Ethereum are examples of off-chain solutions that allow users to conduct a large number of rapid, low-fee transactions without burdening the main blockchain. Once the off-chain transactions are completed, the final outcome is settled on the main blockchain. Another way off-chain transactions can occur is through centralized exchanges, where you trade cryptocurrencies on an exchange and make off-chain transactions within the exchange's internal database. These transactions are only recorded on the blockchain when you withdraw your funds from the exchange to your personal wallet, making it an on-chain activity.

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