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I'm trying to get a grasp on off-chain transactions, as they seem more common than I initially realized but they are not the way that I originally perceived bitcoin being used as an outsider looking in. What technical advantages exist for off-chain transactions?
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Speed
An off-chain transaction can complete instantly, without waiting for confirmation.
Naming
With off-chain transactions, you can send Bitcoins to another user by referencing their username, rather than typing in an address.
Possibly lower transaction fees, possibly fewer on-chain transactions
Depending on how many transactions happen off-chain, it can save space on the blockchain. However, if there's only one off-chain transaction, it will end up consuming more space. (The coins will travel from User A -> Off-chain transaction provider -> User B instead of User A -> User B)
(Related to #3) It makes it feasible to have lots of very small transactions. For example, you might use off-chain transactions to pay someone a microfee for every minute that you use their wifi.
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Virtually nothing... once blockchain trimming and instant transactions built directly into the coin are implemented, which are much better ways to deal with the issue.
Bitcoin's block chain has always been able to be pruned, it's built into the design from day one. "Instant transactions" are possible with other systems around Bitcoin and are not ever going to be a feature of it. – Anonymous – 2015-04-06T04:38:56.820
Pruning does not magicially give infinite space on the blockchain. The size of the blocks doesn't change with it, nor do any of its limitations go away. All it does it make not every user store every block forever. – Pieter Wuille – 2015-04-06T04:43:00.147
Is there really a way around that? There's things like UTXO commitments but I wouldn't really call that "trimming" in any sense. – Anonymous – 2015-04-06T06:17:05.923
Actually yes.. you can remove all the information but the account info say a few hundred blocks back, as well as the newest blocks, and then just keep a long chain of only block headers. This would even satisfy miners. In my opinion it's enough.
We're working on something like this for Burst.. your average customer will only have to download something like 10kB of blockchain headers plus only the exact transactions he cares about to trustlessly be able to interact with Burst. – mczarnek – 2015-04-06T21:10:37.647
An whoever said we were solely talking about Bitcoin.. yeah the Bitcoin developers aren't developing a fancy coin that allows Instant Transactions. But Burst is!! – mczarnek – 2015-04-07T04:47:39.413
I think another big advantage is that off-chain payment-channel transactions enable micropayments. – morsecoder – 2015-04-03T20:00:53.853