On-chain vs off-chain

On-chain means an action is recorded directly on a blockchain's public ledger, while off-chain means it happens elsewhere, like a private server or a second layer, without being written to that ledger immediately or at all. This distinction matters because on-chain data is verifiable by anyone but costs more and moves slower, while off-chain data is cheaper and faster but requires trusting whoever runs it. For example, swapping tokens on Uniswap settles on-chain with a public transaction hash, but a Coinbase trade between two users often just updates the exchange's internal database, going on-chain only when funds are withdrawn. Layer-2 networks like Arbitrum process transactions off-chain in batches, then post summaries back to Ethereum for security.