Off-Chain Settlement
Off-chain settlement is a blockchain scalability technique where transactions are processed outside the main blockchain (off-chain) to reduce congestion, lower fees, and increase speed, with final settlement recorded on-chain. It involves parties transacting through private channels or sidechains, aggregating multiple operations into a single on-chain transaction. This approach is commonly used in payment networks, decentralized exchanges, and layer-2 solutions to enhance throughput and privacy.
Developers should learn off-chain settlement when building high-frequency applications like micropayments, gaming, or trading platforms on blockchains, as it mitigates network congestion and high gas fees. It's essential for implementing layer-2 scaling solutions such as payment channels or rollups, enabling real-time interactions without sacrificing blockchain security. Use cases include Lightning Network for Bitcoin, state channels in Ethereum, and off-chain order books in decentralized finance (DeFi).