"Off-chain" refers to transactions and other activities that take place outside of the blockchain's main network. These activities are not recorded on the blockchain's distributed ledger, which can provide increased privacy and speed compared to on-chain activities.
In the context of cryptocurrencies, an off-chain transaction involves the transfer of value outside of the blockchain. For example, two parties could agree to a trade, and instead of making the transaction on the blockchain, they could simply change the ownership records of their respective wallets.
Off-chain solutions are often used to address the scalability issues of blockchain technology. Layer 2 solutions, like Bitcoin's Lightning Network or Ethereum's Plasma, create a secondary network with its own mini-blockchains to process transactions more quickly and cheaply.
Off-chain can also refer to the governance and decision-making processes that occur outside of the blockchain. This can include discussions in online forums, developer meetings, and other social consensus mechanisms.
While off-chain activities can provide benefits in terms of speed, cost, and privacy, they may also carry additional risks as they often rely on trust between parties or third-party intermediaries.