The Role Of On-Chain Transactions: Why Are They So Important In The Cryptocurrency World?

By Ubong Philip
12 Min Read

As the world of money advances rapidly, blockchain innovation has introduced extraordinary changes. One of the essential parts of this development is the idea of on-chain transactions (exchanges), and you will be wondering what’s so important about these transactions in the world of cryptocurrency .  Well, that is what we are going to discuss in this article: the importance and depths of on-chain transactions, giving out their role and significance in the ongoing money market.

In order to get an Explanation on what on-chain transactions are, take a look at this article: On-Chain Transactions Explained

On-chain transactions play a vital role in cryptocurrency . They are the key to security and exchange with transparency without the need for third parties . Meaning, the transaction carried out on a blockchain, offers greater security and transparency, due to being verified and recorded on a public ledger that cannot be altered . In comparison with other types of currency, cryptocurrency is distinguished by its transparency and immutability.

Moreover, blockchain transactions can be associated with high fees and a slower processing rate, depending on the network’s verification procedure .  Before we go further in this article, we need to know the definition of on-chain Transactions, and how they work:


This is simply a blockchain transaction that exists on the blockchain and has been verified by validators or miners .  It also means that the transaction has been recorded on the blockchain. Furthermore, Bitcoin transactions on the blockchain can also be considered as on-chain transactions.

And now the main reason why they are so important in the cryptocurrency world,is that they are indispensable, as they make sure that each transaction is recorded on the blockchain,making it impossible to alter or tamper with. The amount of transparency and immutability is what truly sets cryptocurrencies apart from other kinds of currency .

Furthermore, they are also important for the operation of smart contract based decentralize apps (dApp).  These contracts are automated and enforceable, which also means that they can only be activated by on-chain transactions


At the point when two people (P2P) need to exchange cryptocurrency, data about the transaction is bundled and time-stepped on a computerized assortment of information called a block. In order for the block to be added to the blockchain, it must be approved by computers in the organization called nodes


Blockchain technology provides a secure and open solution for transactions on-chain. For users seeking speed, anonymity and cost efficiency, conducting a transaction off-chain might make sense.–By Xenia Soares

On-chain transactions have altered the monetary scene by providing security, transparency, and decentralized ways of trading. As a result of the elimination of intermediaries,they are able to handle things more quickly and efficiently . This innovation has empowered monetary consideration for the unbanked, cultivating financial development in emerging nations.

You will have to claim Bitcoin on the blockchain after you have executed an on-chain transaction . Once this bitcoin is secured at an address, then you can sign a transaction sending it to another address, making use of the confidential key associated with that address. All on-chain transactions will pay an exchange charge to be involved in a block . The more you charge, the faster the transaction will be approved

Now, we will be looking at how on-chain transactions are growing, using the chart to explain how it has impacted the crypto world.

A few years ago, there were more industries around the globe taking part in the Bitcoin on-chain transaction,resulting in at least more than $10 million, as indicated above from the chart. But recently, in 2023, according to my findings and the data from the on-chain analytics firm, more investors participated massively in Bitcoin on-chain transactions, locking in $537 million in profit, making it the second largest profit-taking event of the year.

That’s amazing!Those transactions had a great impact from 2020 to this current year,2023, and people are even tweeting about them. An example of how on-chain transactions have grown can be seen in the chart below.

We have seen how significant this on-chain transaction is to the cryptocurrency world. 

For an in-depth guide to Bitcoin’s dominance in the crypto market, read this article: A Guide To Bitcoin Dominance

Now, let’s deal with the role and benefits of an On-Chain transaction:

The Benefits Of On-Chain Transactions:

  • Security and Transparency: 

As long as a transaction is verified and recorded on the blockchain network, it provides security and transparency since it cannot be altered once it has been verified and recorded . These transactions are updated to the overall blockchain network when they are validated or authenticated . As a result, accountability is promoted and corruption is reduced.


These transactions can be very fast depending on the verification method being used by the blockchain. Generally, bitcoin can also be referred to as an on-chain transaction, in this case,it requires the blockchain to have six confirmations from the miners to process and credit your account . This in turn takes 30 minutes or less to complete

Peer To Peer Transaction:

The on-chain transaction allows direct peer-to-peer (P2P) transactions, so there is no need for a third party in the transaction. With a peer-to-peer (P2P) network, more than two nodes can be connected and share resources without a centralized server


These transactions are recorded on the blockchain network, which are permanent and as such cannot be altered, creating an auditable history of all the activities. As on-chain transactions are immutable, they cannot be altered, thereby bolstering security by preventing a hack in which transaction details could be altered

Digital Assets:

This on-chain transaction allows users to own and make transfers to their digital assets in their blockchain wallet, such as NEO, NFT, Ethereum (ETH) etc. Transmitting a cryptocurrency transaction over a blockchain allows it to be processed, validated, memorialized, and stored. Most of these transactions are not directly associated with the wallet addresses of the sender or recipient.

Faster Settlement:

On these transactions, it is processed and settled faster, as they do not need to be confirmed by a third party. On the contrary, blockchain technology can facilitate cryptocurrency transactions without the use of a third party like making use of a bank.

Smart Contract:

In this case, it automates the action that should be completed by the parties in agreement, which also removes the need for both parties to trust each other. The smart contract involves the transfer of other assets such as Ethereum (ETH), BNB, etc.

However,despite all their benefits and their importance,they do suffer from several drawbacks, which include the following:

If You Want To Learn More About Bitcoin’s Value, Check Out This Article:  What Makes Bitcoin So Valuable


  • High Fees: 

On-chain transactions do come at a cost because they require a fee to be paid to the miners for their validation and authentication services for confirming a transaction on the blockchain. This can also be relatively high.  It can be so high, depending on the scalability potential of the network and the volume of transactions . As an example, high fees have caused bitcoin dust, where fractional amounts of bitcoin cannot be moved.

The fees of blockchain networks could be very small or very low in the early stages of growth, and a low volume of transactions

  • Scalability: The ability of the Bitcoin network to handle large volumes of transaction data in a short period of time . It’s the fact that records in the blockchain (also known as blocks) are limited in size and frequency .

This also means that the problem with Bitcoin’s scalability refers to how the network cannot support a large number of transactions at once,that is,it cannot serve a large number of users/clients.

For more information on how blockchain platforms solve scalability problems, check out this article: Scalability In Blockchains: Solution And Best Practices.

  • Privacy Scarcity: 

Since all the transactions are recorded on a public ledger, it can be possible to trace the movement of the money and identify the parties involved.

  • Consumption Of Energy and Timing: 

This can consume energy when mining and validating transactions on a blockchain network. Blockchain transactions must be validated by miners when using a system or computer to solve a complicated problem, each time the blockchain is updated


As you can see, indeed, an on-chain transaction is a blockchain transaction that exists on the blockchain and has been validated by miners .  And transactions are created when two people (P2P) are required to exchange bitcoin, which is then confirmed by miners and merged to produce a data block, and then added to the existing blockchain before the transaction can be completed. 

For years,increasing numbers of investors from over the world have engaged in enormous on-chain transactions,making it the year’s second-largest profit-taking event .  The on-chain transaction is here to stay and greatly impacts the cryptocurrency world.