Since the widespread adoption of smart contracts, the norm has been for contracts to run on and be executed by the blockchain itself. However, the Peercoin Foundation recently revealed in a blog post that it's been exploring a decentralized method to shift the execution of smart contracts off the blockchain. This approach promises significant advantages such as enhanced privacy, reduced fees, and improved scalability.
Through this off-chain technology, the Peercoin Flutter app will be equipped to handle various decentralized applications, including prediction markets, financial contracts like binary options and futures, as well as other contract types relying on data provided by an oracle, such as sports betting and election results.
Peercoin envisions its second layer as a collection of independent dApps with off-chain execution of app logic. Final balances are settled on the Peercoin mainnet. In essence, by moving smart contract execution off-chain, several favorable outcomes are achieved:
- **Increased Privacy**: Contracts appear as regular transactions externally, devoid of identifying information.
- **Lower Fees**: This results from reduced size and inexpensive signature validation.
- **Improved Scalability**: With most computational work done off-chain, scalability is enhanced, settling only on the main chain.
Operating financial contracts with minimal on-chain activity while ensuring integrity and confidentiality marks a significant step towards a more accessible and efficient blockchain ecosystem.
According to the blog post, this project has been underway for over a year, with the recent successful test of threshold signature support on Peercoin’s testnet being a notable milestone.
**How Does it Work?**
The plan integrates several technologies:
- **Threshold Signatures**: Economically viable consensus method within groups, off-chain, private, and scalable.
- **Discreet Log Contracts (DLCs)**: Contract execution without scripting or virtual machines, keeping details secret except for involved parties.