Off-chain transactions allow for the immediate transfer of cryptocurrency between two parties, without delays or unavoidable transaction fees. Such capabilities are critical for mainstream cryptocurrency adoption. They allow for the “Coffee-Coin Criteria”; under which a customer orders a coffee and pays for that coffee in bitcoins.

This is not possible with on-chain transactions today. No customer is willing to wait for 20 minutes for their coffee transaction to receive six public confirmations. Neither will the customer pay a 20 cent transaction fee when
the coffee costs approximately $2. Only a quick and free off-chain transaction will satisfy our coffee-guzzling consumer. Otherwise, the customer will stick to credit cards and cash, and Bitcoin will face a limited future with regards to everyday use.

Unfortunately, all existing off-chain transaction protocols are notoriously unreliable. The current generation of third-party facilitators are vulnerable to hacker-based attacks. In fact, centralised-transaction institutions are easy targets for cryptocurrency thieves.

Furthermore, the possible issue of fraud is constantly paramount; third-party facilitators offer little proof that they actually hold the bitcoins of their clients. Under such circumstances, it’s no wonder that the public treats most cryptocurrency services with a constant shadow of suspicion.

Download this paper to discover why off-chain transactions are so important.