On-chain vs Off-chain

In one minute

On-chain: Data and actions recorded directly on a blockchain. Transparent, permanent, and secured by the network — but limited and costly.
Off-chain: Data or computation handled elsewhere (servers, content-addressed storage, L2 sequencers before settlement). Cheaper and flexible — but adds trust or availability assumptions.
Rule of thumb: Put the minimum necessary on-chain (balances, critical state, proofs). Keep big files and heavy compute off-chain, referenced by hashes/links.

Educational only: Not financial advice. Always verify contract addresses and official links.

What usually goes on-chain

Balances & transfers

Native coin transfers and token balances (fungible and NFTs) so anyone can verify ownership.

Critical app state

Escrow amounts, governance votes, loan positions, AMM pool reserves — things contracts must enforce.

Proofs & references

Hashes (fingerprints) of larger off-chain data, or validity/fraud proofs from L2s.

What usually stays off-chain

Big files

Images, videos, large metadata. Often stored on decentralized storage (content-addressed) or traditional servers, then referenced on-chain.

Heavy computation

Analytics, order matching, simulations. Results can be committed on-chain via signatures or proofs.

User interfaces & indexing

Websites, APIs, and search/index services that make on-chain data easier to use.

Tip: Off-chain ≠ “centralized only.” Some storage networks distribute data widely and use content hashes to prevent silent edits.

Trade-offs at a glance

On-chain pros

Strong integrity & auditability.
Composability — other contracts can trust the state.
Censorship resistance (within the chain’s guarantees).

On-chain cons

Fees & limited capacity.
Public by default (privacy needs special techniques).
Hard to change once deployed.

Off-chain pros

Low cost, high throughput.
Flexible formats; easy updates.
Can preserve privacy more easily.

Off-chain cons

Availability & trust assumptions (who hosts it?).
Less composable with smart contracts unless anchored by hashes/proofs.
Link rot risk (URLs change, hosts go down).

Common patterns (plain English)

Anchoring with hashes: Store a hash of a file on-chain. If the file changes, the hash won’t match, revealing tampering.
Order books off-chain, settlement on-chain: Some exchanges collect signed orders off-chain, then settle trades on-chain to save gas.
NFT metadata: Token exists on-chain; the image/metadata is a link (e.g., content-addressed). The contract points to that link.
Layer 2 rollups: Many transactions are processed “off-chain” by an L2, then posted/verified on L1 with proofs or data batches.
Oracles: External data (prices, weather) delivered to contracts; consumers should understand the oracle’s trust model.
Signed attestations: A party signs a message off-chain to attest to something (e.g., KYC check). Contracts can verify signatures later.

NFT storage: centralized URL vs content-addressed

Centralized URL: Points to https://example.com/image.png. Easy but if the server changes the file, your NFT image can change.
Content-addressed: The link is the file’s hash (a “CID”). If the content changes, the link changes — prevents silent swaps.
Permanence: Some networks aim for durable storage; others require “pinning” (keeping copies online). Verify how long data stays available.

As a buyer, check the token’s metadata link type in a block explorer before purchasing.

Privacy & compliance notes

On-chain is public: Great for audits, not for sensitive data. Use privacy tech or keep sensitive pieces off-chain.
Right to be forgotten: Public chains are append-only; deletions aren’t practical. Keep personal data off-chain.
Access control: Off-chain stores can enforce permissions; on-chain data is readable by anyone unless encrypted.

Checklists

For users

For NFTs, check if the metadata/image link is content-addressed (less risk of silent changes).
Verify token addresses from official docs; be wary of look-alikes.
If a dApp stores funds off-chain, understand the custodian and withdrawal path.

For builders

Put only critical state on-chain; anchor everything else with hashes or proofs.
Choose storage with a plan for availability (pinning/backups) and link stability.
Document your oracle, L2, and storage trust assumptions clearly.
Design for upgrades: versioned metadata, migration paths, and user notices.

Educational content only. Do your own research.

Quick glossary

Content-addressed storage: Files are retrieved by their hash (CID). Change the file → new CID.
Hash (fingerprint): Short code uniquely representing data; used to detect changes.
Merkle root: A single hash summarizing many pieces of data.
Data availability: Whether the raw data needed to verify state is publicly accessible.
Attestation: A signed statement someone can verify later.

More crypto topics

Types of crypto Coins vs tokens, utility, governance, and stablecoins. Layer 1 blockchains Base networks that handle transactions and security (e.g., Bitcoin, Ethereum, Solana). Layer 2s Scaling networks that batch/compress transactions and settle to an L1. Smart contracts Programs on a blockchain that run exactly as coded once triggered. dApps Apps that use smart contracts instead of centralized servers. DeFi Lending, DEXs, and yield in smart-contract form. Decentralization Spreading power so no single party controls the system. Wallets & keys Public addresses, private keys, and seed phrases explained. Gas & fees Why transactions cost money and why fees change. Consensus basics How nodes agree on the ledger without a central authority. Mining vs staking How PoW and PoS secure networks and issue new coins. On-chain vs off-chain What goes on-chain, what doesn’t. Privacy coins Coins that hide sender, receiver, and/or amounts (e.g., Monero, Zcash). Oracles Services that bring real-world data on-chain for smart contracts. Exchange tokens Tokens issued by trading platforms for fees, rewards, or governance. Stablecoins Tokens designed to track a stable value like the US dollar. NFTs Unique digital items with provable ownership on a blockchain. Ordinals Bitcoin inscriptions that attach data (like images) to individual satoshis. Tokenization of assets Turning real-world assets (like art or Treasuries) into on-chain tokens. Bitcoin: store of value? Why some view BTC like “digital gold.”