Academy
June 7

Differences between on-chain and off-chain transactions

Ledger blockchains introduced a way to distribute and decentralize finances, creating an ecosystem without central authorities. Payments sent between wallets in the blockchain stay recorded forever in the public transactions book. And, what can you do if you'd like to transfer funds to a friend without having your transaction public forever?

That's the endless debate. On-chain transactions vs. off-chain transactions.

Let's get deeper about that.

On-chain

This term refers to transactions and operations processed and recorded in the blockchain.

Advantages:

  • Decentralized, no one can take your funds or alter the state of your wallet.
  • There's a public record of each transaction, so you can't lose them.
  • Your balance is distributed in the blockchain.

Disadvantages:

  • It's normally slower, depending on the blockchain specifications.
  • Transactions costs gas to pay miners or validators, you have to pay a fee.

Examples:

  • Sending money from a TON wallet to another TON wallet.
  • TelePay merchants receiving a payment for an invoice.
  • Withdrawal from TelePay, back to a blockchain wallet.

Off-chain

This term refers to transctions an operations occurring on a cryptocurrency network, not directly on the blockchain, but ouside of it. Specific examples are platforms like TelePay or custodial wallets.

Advantages:

  • Performed instantly. Faster transactions.
  • No fee required, not paying a gas to any miners or validators.
  • Sending any amount of cryptocurrencies is possible, and the cost is the same: zero.
  • Protects your privacy by allowing anonimity of transactions.

Disadvantage:

  • There's a central authority performing the transactions, it's not decentralized. Therefore, you have to trust in that authority.

Examples:

  • Sending money inside TelePay between off-chain wallets.
  • Paying an invoice with your TelePay internal (off-chain) balance.

Which shoud I use?

Both methods are great and presents important advantages. Using a combination of both on-chain and off-chains transactions, depending of the situation, is the best strategy to send funds and store your money. None of them is better, both are equally important.

Need to transfer money often? Store it on TelePay and send it off-chain.

Need to transfer large amounts? Possibly on-chain is better, even though paying a fee is required.

Now you know the differences. Chose by yourself.

This article is brought to you by TelePay, a crypto-payments gateway build to help you receive payments in your business, in an easy, fast, and secure way. Sign up, add your merchants and get your personal wallet with us.

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