BTC Off Chain Transactions

Blockchain aims to enable ‘off chain’ transactions with special network. Blockchain, the Bitcoin wallet provider, recently announced that it is developing a special Thunder network to avoid delays in the course of Bitcoin transactions. The idea of the special network is not new and existed before the blocksize debate was sparked. We explain how the system works.

Transaction times: A problem of Bitcoin growth

Due to the size of 1MB per block in the system, the Bitcoin network has to deal with time difficulties when it comes to larger growth. If Bitcoin is able to spread widely and gain acceptance in some areas, it can no longer be guaranteed that Bitcoin transactions will be completed in the relatively short time previously known.

The Thunder network: FAST independent of the blockchain

With the Thunder network, Blockchain wants to provide an independent network that processes so-called off chain transactions, i.e. transactions that take place outside the actual Bitcoin system.

Although the Thunder network uses its own protocol, which is “switched in front of the blockchain”, the transactions are also to be processed via the blockchain. Since only little concrete information has been announced on the part of the official sites so far, a merger with two different time levels can be assumed here. This means that users will be able to execute transactions via the Thunder network without the need for miner verification, and dispose of them immediately. At the same time, transactions are combined into larger transactions and executed via the blockchain. This way, a large part of the computational effort can be saved.

Bitcoin Thunder network: more than 100,000 transactions per second. The network promises to be able to process more than 100,000 transactions per second. Because the transactions are also carried out off chain, the network charges significantly lower transaction fees than if all transactions were carried out on chain (i.e. directly via the blockchain).

How do off-chain transactions work?

There must be a public record of a transfer to address B before transfers from address B can occur. Internally, the provider can move the money from one address to another “off chain” for display purposes, but until some BTC moves occur in address B publicly it cannot be spent from B.

If you try to send BTC externally from address B, this amount is most likely:

  1. transferred publicly from A to B and then from B (2 transactions and the double confirmation delay).
  2. transferred from address A to a provider address and deducted internally from address B within the provider system and actually transferred from another provider address
  3. Paid publicly directly from address A, but shown in the provider system as deducted from B.

Off-chain transfers are a way to add anonymity to Bitcoin transactions. At some point, however, the source address must be publicly credited to BTC for the exchange to be valid on the blockchain.