What is Off-Chain Storage in Blockchain

What is Off-Chain Storage in Blockchain


Decentralized applications, or DApps, have significantly expanded the blockchain ecosystem. 90% of smart contract use cases, including various DeFi projects, parametric insurance, and dynamic NFTs, require off-chain data access for better scalability and faster computation. The existing blockchain system has a scalability issue, and storage and processing demand heavily burden the blockchain network. There is always a demand for maintaining the transaction history of each node in the blockchain network creating storage pressure on the blockchain. These data structures are constantly increasing and peak the capacity of the blockchain network. For instance, in 2012, the size of the bitcoin blockchain was 614 MB. However, the capacity of the bitcoin blockchain has now increased to 250K MB, which amounts to roughly 250 GB of data each peer or node carries. This issue also affects other blockchain networks, Ethereum's blockchain has already surpassed 1 TB in size.

Off-chain storage can aid the blockchain in addressing the considerable waste of storage and computation resources required by every blockchain node. In this blog post, let's understand what is off-chain data storage and the advantages of off-chain data storage.

What is Off-chain storage?

Unstructured data in the form of files, contracts, papers, and photos, among other things, make up a sizable portion of information in blockchain implementation. Extensive unstructured data does not necessarily need to be stored in main blockchain nodes. Here off-chain storage can come in handy as a different type of storage solution. The off-chain storage database offloads the hard lifting of massive datasets from the blockchain nodes. Many implementations support off-chain storage Eg: IPFS, StorJ, BigChainDB, Fauna, and File.io.


Source: https://livebook.manning.com/book/blockchain-in-action/chapter-6/v-8/17

Why Off-chain storage?

A variety of data stores should be made available to apps using blockchain protocols that also require traditional storage for their use cases to offer a complete infrastructure for blockchain-based use case applications. Off-chain data storage reduces the amount of storage needed by each blockchain node on the network and by blockchain traffic, making it possible to store the system's many types and levels more effectively. Additionally, certain legislative constraints, including privacy regulations like GDPR, may result in the need for off-chain storage.

On Chain Vs. Off-chain storage

On-chain data is stored on the blockchain network. Along with the smart contract state, this includes account addresses and the amounts connected with them. On-chain data consists of;

Accounts: Individual addresses that may send and receive transactions make up a blockchain account.

Balances: The total amount of native currency a user's account has.

Smart contracts: Smart contracts are Predefined executable programs stored on a blockchain.

Information outside of blockchains is referred to as off-chain data. Multiple use cases for smart contracts are made possible across many businesses when blockchains interact with the outside world.

Financial information: The DeFi economy uses highly reliable and accurate price data worldwide for decentralized stablecoins, lending and borrowing protocols, and other applications.

Weather data: Information for weather prediction markets, hedging markets, and dynamic NFTs such as rainfall, temperature, and other weather data.

Other Data: Economic data, supply chain data, election results, and more are all included in the data feeds.

API: APIs for interacting with outside data sources.

Advantages of off-chain data storage

Blockchains can only perform basic tasks like token creation and transfer without off-chain resources. Developers can create more complex applications, including prediction markets, stablecoins, and parametric insurance, by integrating off-chain data into a blockchain network. Providing blockchains with real-world data enables several advanced use cases,

  • Financial market information enables traders to hedge their financial holdings using prediction market data.

  • The financial impact of risks in the actual world is lessened with parametric insurance. For instance, farmers can buy blockchain-based parametric crop insurance using weather data to protect themselves from financial losses brought on by drought.

  • Supply chain tracking to confirm the location of items within a supply chain is made possible by RFID tracking, IoT sensors, and data from customs clearance.

  • Applications can confirm user identities by comparing e-signature or biometric data with a secure database.

  • By measuring greenhouse gas emissions and reforestation initiatives using IoT sensors and satellite photos, it is possible to offer a variety of smart contract use cases, including the verification of carbon credits.

  • Users can thoroughly verify the stablecoin reserves and cross-chain assets to support the tokens.

Integrating off-chain data with on-chain data will be a key factor for blockchain-based solutions. DApps need off-chain storage that can interact with on-chain data because they cannot keep sensitive data on the blockchain. By combining these services, developers may create feature-rich, affordable, and scalable apps that satisfy blockchains' security promises.