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A: So I guess the transactions that are done by these I Swear They’re Not Banks, Really companies are all “off-chain” transactions?
B: That’s right! These Companies That Are Totally Not Banks do the bulk of their bitcoin transactions outside of the blockchain.
A: If blockchain is the final source of authority for what is a legitimate transaction, then how are off-chain transactions even a thing?
B: Because you can write all kinds of information to a blockchain, not just transactions. You can add metadata.
B: The Companies That Are 100% Not Banks add metadata to the blockchain that essentially says “a cryptocurrency thing happened, see us for more information” and then everyone can contact that company to verify what happened.
A: So instead of blockchain showing the entire transaction process, it instead shows a marker saying “ask this Company That Is Not A Bank, I Promise It’s Not, to describe the entire transaction process.”
B: Correct! And then the Company That Is The Furthest Thing Possible From A Bank looks up its own records and says “according to our own records, this transaction happened.”
A: And how does the cryptocurrency community know that everything the Company That Is Completely Unlike A Bank says happened actually happened?
B: Beg pardon?
A: I thought the point of blockchain was to make sure that bad actors couldn’t game cryptocurrency transactions by making everything a matter of public record. So how are the off-chain transactions these companies are doing verified?
B: It’s a complicated process called “everybody agrees to check later.”