Not every transaction should be recorded on the blockchain. To be more precise, almost no transaction is significant enough in and of itself to be stored on the blockchain. Why? Every transaction incurs a transaction fee to pay for the miner. And it makes no sense to pay, for example, $0.20 for a transaction worth $1 in bitcoin, including fees. This makes blockchain transactions unsuitable for micro-payments.

To avoid these types of transactions and the fees that come with them, the Layer 2 Off-Chain is an ideal solution introduced in CoinBox Wallet.

It's extremely easy and efficient to utilize the private ledger to send instant transactions between ledger accounts. However, as a prerequisite, you must have at least two ledger accounts with assets on at least one of them.

Satoshi Nakamoto created the first blockchain Bitcoin were more than 10 years ago. Unfortunately, due to their age, they are not performant enough to handle the needs of modern applications. For example, Bitcoin can handle only 7 transactions per second, which is not nearly enough to meet current demand. As a result, transaction times have slowed to a crawl. Furthermore, as the number of pending transactions has increased, so has the cost of transaction fees, and paying for individual transactions has become completely impractical. It's ridiculous to pay, for example, $1 fees for a cent transaction.

This is where so-called "2nd layer solutions" come in. A 2nd layer solution dramatically increases the speed and reduces the cost of transactions. This is because transactions are not performed in the blockchain network itself but instead are executed on the second layer of the blockchain and synchronized to the blockchain periodically or upon request. Thus, it is possible for an application to live in the off-chain layer for 99% of its lifetime and only synchronize to the blockchain when required.

Tatum creates an off-chain layer on top of its blockchain and ledger capabilities, combining the best features of both techniques. With off-chain methods, it is possible to connect specific blockchain addresses with ledger accounts, enabling the automatic synchronization of incoming blockchain transactions. It is also possible to group multiple blockchain addresses into a single ledger account, allowing the balance of all addresses to be viewed as one, which is very convenient for Bitcoin or other blockchains that require a new blockchain address for each incoming transaction. There are many more built-in off-chain features that we will talk about later.

Performing a ledger transaction

Coinbox's layer 2 Ledger is a transaction that is settled immediately with no blockchain fee incurred. It is a transaction between two ledger accounts with the same account currency, i.e., Bitcoin accounts, Ethereum accounts, or any Altcoin enabled for Layer 2 Off-Chain.

In this section, you will understand the concept of the CoinBox Layer 2 Off-chain technology. We developed a solution using the power of our providers Tatum Ledger and the custom-built CoinBox Off-Chain solution to offer reduced fees and instant transactions for CoinBox users that powered our Merchant, P2P Marketplace, and assets transfer transactions.