What do off-chain transactions mean in cryptocurrency?

Off-chain transactions are transactions running on a crypto network that transfers the value externally. Because of their cost-effectiveness, instant settlement, and high anonymity, these transactions are gaining traction, particularly among institutional investors and crypto whales. Off-chain transaction function by exchanging private keys with existing wallets, using third parties and coupon-like interlocutors.

Most transactions you do in your cryptocurrency wallet that involves the sending of tokens or coins from one address to another are completed on-chain. Completing transactions on-chain means that the transaction data must be added to the block of the main chain for validation before the funds get to the receiver. You must also pay the gas fees for the said transaction which can get pretty high, especially on Ethereum.

With the help of oracles and other third-party solutions and oracles like chainlink, it is possible to process transactions quickly without confirmation on the mainchain such as Ethereum main net. Doing this reduces fees and increases the scalability or ability of the network to handle increasing transactions compared to the available time. They are off-chain transactions because they are not processed on the main blockchain and lots of blockchains have resorted to this to increase scalability.