What is an offchain transaction?

What is an offchain transaction?

What do people mean when they talk about offchain transactions? What does one look like, and where do they fit in the Bitcoin network? In this video, shot at a laundromat in West Pompano Beach, I discuss offchain transactions, Counterparty,and Bitcoin!


What's up party people? Chris DeRose here, Community Director of the Counterparty Foundation. In today's video I wanted to answer the question, what is an offchain transaction? Some of you been asking me about this notion of an offchain transaction and I think it deserves some mentions. Offchain transactions are, put simply, transactions that are in Bitcoin that don't happen or aren't publish on the main bought chain. There are a lot of different examples of offchain transactions. Certainly you see the sunny exchanges. There are many order executions for USD to Bitcoin or Bitcoin to USD and those executions happen in the centralized database that is that exchanged.

That would be an offchain transaction. Coinbase I think is pretty transparent about the ones that they're doing. I think Bitstamp also is relatively transparent about the number that they're doing. There's a lot of people who had various claims that they're making about the number of transactions per day. I don't know how many there are. We're getting about 100,000 plus per day now on the actual Bitcoin blockchain.

It may be that we have 50,000 or more offchain transactions at the moment. These things do happen. They're good to know because in a lot of ways they tell us where the network is growing, how the network is growing outside of the official channels, but they're also a little bit difficult, because we can't really verify the accuracy of these transactions without relying on a centralized source. The offchain transactions are important I think for a lot of reasons. They typically offer faster transaction times. Not only because they are on a centralized database, it's because confirmations aren't required.

You typically see that these transactions happen in a MySQL Database or something like that where the execution is immediate and at that time, it's in effect for the user of that system. And of course, people will take their money out and at that time, it will be published on to the actual Bitcoin blockchain, but it's good for exchanges and scenarios where you need a lot of high speed transactions to be occurring. I think that we'll see a lot more offchain transactions going forward. There's a lot of scenarios where we could have transactions that just stay with the Coinbase network. If you're buying from a Coinbase merchant and you are a Coinbase customer, there's no need for you to really publish that on the Bitcoin blockchain because the whole thing is inside the Coinbase system. I think even Jeff Garzik has commented on this, to some degree saying, "Yeah, that's probably the appropriate path for Bitcoin in many ways is to facilitate interbanks transfer or interagency transfers for whom the transactions inside that agency may never be published in the blockchain.

" We have this settlement layer that is Bitcoin, that rectifies this inner party transactions due to it's decentralized capacity, so that's most of the issue. I think it's important to Counterparty project as well. We're going to see probably a lot of asset exchanges and such whereby there's people who needs to perform various buys and sells and trades in near real time. And there are ways to do that with the Bitcoin blockchain, but if your actual clearing house is in one central location, then you don't even need to go to Bitcoin blockchain. We'll keep that information centralized to the point in which you want to escape that little silo. So that's what offchain transaction is.

If you have some other question about offchain transactions or just transactions in general, why don't you tweet me at DeRosetech or leave a comment on this channel. And if you like this question and you want to see some more questions answered, subscribe to the channel. I'd love to have you around. Later party people.