offchain

Off-chain describes activities that occur outside the main blockchain, with results settled later or not recorded directly on the primary ledger. By moving work off the on-chain, networks can increase throughput, reduce fees, and preserve privacy while maintaining the ability to settle to the canonical blockchain when required.

Common off-chain techniques include payment channels and state channels, which let participants conduct many interactions off-chain and commit only the final state to the chain. Sidechains are separate blockchains connected to the main chain through two-way pegs, enabling asset transfers and independent consensus. Layer 2 solutions, such as rollups, aggregate data and proofs off-chain and post succinct proofs on-chain to ensure security.

Advantages: improved scalability, faster settlement, lower costs, and potentially enhanced privacy, since not all intermediate data is published to the main chain. Off-chain can also reduce congestion and gas pressure on the base layer.

Risks: users must trust counterparty or the channel/bridge mechanism; disputes can require on-chain enforcement; liquid funds may be locked until closures; bridges introduce bridge-specific vulnerabilities; if the off-chain system fails, funds could be unavailable or lost. Security models often rely on cryptographic proofs or economic incentives to deter cheating, but design trade-offs exist.

Relation to Layer 2: off-chain is a broad term that encompasses several Layer 2 approaches and cross-chain interactions. While off-chain techniques can improve performance, they introduce additional complexity and risk and are typically complemented by robust on-chain settlement and dispute resolution.