Off Chain Data Anchoring

Off Chain Data Anchoring is a technique where large volumes of data are stored outside the primary blockchain, while a small cryptographic fingerprint is stored on-chain. This allows protocols to maintain high performance and low costs while still benefiting from the security of the underlying ledger.

For instance, an exchange might process thousands of trades off-chain and only anchor the final settlement state to the blockchain. This approach solves the scalability trilemma by reducing the load on the main network without sacrificing the ability to verify the truth of the off-chain data.

It is a common architecture for high frequency trading platforms that require the speed of centralized systems with the trustlessness of decentralized ones. The on-chain anchor serves as a permanent proof that the off-chain data is correct and authorized.