On Chain

From CryptoWiki

Referring to data, transactions, etc. being stored or done on the blockchain itself of the project. Instead of putting this data on a 'sidechain' or elsewhere outside of the main blockchain.

Opposite would be Off Chain

From a blog by Poloniex (21-10-2022):

"On-chain transaction refers to a transaction that is validated by all the nodes to ensure the transparency, security, and validity of the network’s public ledger. The nodes are formed by many devices, which are usually computers that collectively participate and safeguard the blockchain network. Once the transaction is verified, the record will be stored in different blocks with a timestamp and a unique hash to chain them together in a fixed order within the same network.

The benefits:

  1. Security: The blockchain network encrypts a digital collection of data that can’t be altered once it’s verified and added to the network, which is collectively safeguarded by the nodes. In other words, on-chain transactions are designed to be irreversible to make sure that the data stored is immutable and tamper-proof.
  2. Transparency: thanks to the distributed ledger, all transactions on the blockchain are simultaneously recorded and validated by different nodes, and each node has the same set of data. Put simply, everyone can trace back the transaction and can be notified if there are unusual activities in the network.
  3. Decentralization: For conventional chains such as Bitcoin, there is no single party or authority to run the network other than a collective effort of the nodes, so the risk of an intermediary breaching trust or manipulating data is relatively little.

The drawbacks:

  1. Inefficiency: Transaction speed is slow on blockchain. As the blockchain ecosystem grows, so does its transaction volume. It’s highly likely the processing time is slowed down since all nodes need to validate and replicate the transaction records, which also leads to network congestion.
  2. High cost: With the increasing demand for blockchain transactions, the transaction fees are expected to climb as well. For example, Ethereum has limited storage in each block that requires a higher gas fee to prioritize transactions to be included in the next block due to fierce competition.
  3. Eco-unfriendliness: As for the environmental aspect, blockchain requires a significant amount of energy, especially for PoW since miners need a lot of computational power and energy to compete with each other to solve a mathematical challenge before getting a reward. According to Joule journal, the average carbon intensity of electricity on the Bitcoin network increased by 17% in one year between 2020 and 2021."