Off-Chain, Oracle and Orphaned Block

Curious about the ins-and-outs of how a blockchain network operates? We explore three terms that start with the letter “O” on this week’s Crypto Terminology: A to Z series.

Transactions which happen on-chain on a blockchain network can be costly and time-consuming to process. In contrast, transactions that happen off the chain require no miner or consensus mechanism to verify them. This means lower fees, faster settlement and even more anonymity in comparison, which has made off-chain transactions increasingly popular in recent years. 

Aside from transactions, the governance of a blockchain network can similarly be classified into the same two categories: on-chain and off-chain. On-chain governance refers to the process of developers proposing changes and having each existing node on the network vote on the proposal before any adjustments are made, while governance taking place off the chain happens at the social level through Github, forums and even mailing lists. Developers gather feedback outside of the blockchain before applying changes to the network.

A vital information bridge between a particular network’s smart contract and data from the external world i.e. off-chain data, oracles ensure that smart contracts are able to utilize valid data to operate within the programmable scope. One example would be the use of price oracles by trading platforms, where reliable real-time asset price data from external sources are transmitted into the exchange for more dynamic trades.

Delayed response from nodes on a network in accepting blocks onto a chain can lead to two miners solving for a single block at the same time. When this happens, the block with a larger share of Proof of Work (POW) will be favored over the block with the smaller share, and the latter is thus discarded and isolated from the main blockchain.