Offline cryptocurrency transactions: how to transfer funds without an internet connection

Most users, especially beginners, are accustomed to broadcasting a transaction to the network immediately after signing it. However, not everyone knows that transactions can be created offline — that is, signed in advance and sent when convenient. This makes it possible to pre-sign transactions, for example, when there is no internet connection, or to create ready-made templates for subsequent broadcasting to a blockchain network.

What is an offline cryptocurrency transaction?

An offline transaction is a cryptocurrency transfer or another operation created and signed on an isolated device without internet access. Such a device may be a computer, smartphone, or hardware wallet designed for cold storage*.

* Cold storage is a method of storing cryptocurrency in which private keys are kept on a device or medium that is not connected to the internet. This reduces the risk of them being stolen through hacking, malware infection, or a remote attack. Hardware wallets, "cold" wallets, isolated computers, and other offline storage media can be used for cold storage.

The format for offline cryptocurrency transactions was first introduced in the Bitcoin blockchain protocol. Bitcoin's protocol includes the PSBT (Partially Signed Bitcoin Transaction) format.

The PSBT format made it possible to export unsigned transactions and sign them using different wallets and devices.

Note: Offline transactions should not be confused with off-chain transactions. Off-chain transactions are those executed outside the parent blockchain, for example, through Layer 2 solutions or sidechains. Examples of off-chain transactions include operations on the Lightning Network within the Bitcoin ecosystem and operations on Arbitrum or Polygon within the Ethereum ecosystem.

How does an offline cryptocurrency transaction work?

Some of the most popular use cases for offline cryptocurrency transactions involve offline signing with hardware wallets or software clients that support an "air-gapped" mode*.

* Air-gapped — literally "separated by an air gap" — is an operating mode in which a device is physically isolated from the internet and other network connections. Unsigned and signed transactions are transferred via QR codes, memory cards, or another offline channel, ensuring that private keys remain inside the isolated device.

The most common practice is to create an offline cryptocurrency transaction on an isolated "cold" device that is not connected to the internet. Such devices usually include purpose-built hardware wallets, with popular models produced by Ledger, Trezor, Tangem, and other manufacturers.

However, almost any computer or mobile device can be turned into a hardware wallet: users need to install a suitable client and establish an internet connection only immediately before making a transaction.

The process of creating and sending an offline cryptocurrency transaction is as follows:

1. First, an unsigned transaction is created. The simplest scenario for an offline cryptocurrency transaction is an ordinary cryptocurrency transfer between two wallets;
2. The unsigned transaction data is then exported to another device for signing. This can be done using a QR code or a special file;
3. At the third stage, the transaction is signed with a private key on the isolated device;
4. The signed transaction is then transferred back to an online device and broadcast to the network, after which miner or validator nodes verify its validity and add it to the next block.

Offline cryptocurrency transactions also make it possible to perform operations that require multiple signatures (multisignature)* securely.

* Multisignature (multisig) is a mechanism for protecting cryptocurrency funds in which several signatures created with different private keys are required to execute a transaction. For example, a "2-of-3" scheme means that any two of the three possible signatures are sufficient to approve the transaction. This makes it possible to distribute control over funds among several people or devices and reduces the risk of loss or theft if one key is compromised.

Using formats such as PSBT, each signatory receives the transaction's public data and then adds their signature using a wallet or device.

What problems do offline cryptocurrency transactions solve?

One of the main problems solved by offline cryptocurrency transactions is the secure storage of private keys. When online devices are used to sign transactions, there is a risk of private keys being exposed, for example, through malware or phishing*.

* Phishing is a type of online fraud in which criminals impersonate a trusted service or well-known individual to obtain a user's confidential information. They may use fake websites, applications, emails, and messages for this purpose. In the cryptocurrency sector, phishing typically targets passwords, seed phrases, private keys, or signatures for malicious transactions that allow funds to be stolen from a wallet.

Hardware wallets capable of creating offline cryptocurrency transactions were developed specifically to ensure the secure storage of private keys. Hardware wallets store private keys in an isolated environment, ensuring that the keys never leave the device.

The device itself signs the transaction in isolation, while the wallet application broadcasts the transaction to the network by transferring the completed data. This allows users to sign transactions without exposing their private keys.

Another major problem addressed by offline cryptocurrency transactions is the inability to send a transfer without an internet connection.

Offline cryptocurrency transactions make it possible to conduct payments using the most common methods:

• Via NFC or Bluetooth;
• Using memory cards and USB drives;
• Via QR codes.

In addition, offline cryptocurrency transactions make it possible to implement more complex payment scenarios using mesh networks*, as well as satellite and radio channels.

* A mesh network is a distributed network in which devices connect directly and can simultaneously act as recipients, senders, and intermediary nodes for data transmission. If there is no direct connection between the sender and recipient, the information is automatically transmitted through other devices along an available route. In the context of cryptocurrency, a mesh network can deliver a signed offline transaction to a device with internet access, which then broadcasts it to the blockchain. The mesh network itself does not confirm the transaction; it merely serves as an alternative transmission channel.

For example, as early as 2024, the developers of the well-known Sui blockchain project tested offline transactions using mobile networks and radio communications to reach users without internet access.

Offline payments have also been tested at individual retail locations. For example, the well-known Berlin café Room77 accepted Bitcoin payments via QR codes and NFC.

Thus, offline transactions can improve the accessibility of cryptocurrency payments, especially in regions where access to online services is limited. This approach makes it possible to introduce offline payments in Bitcoin, stablecoins, and other cryptocurrencies in areas with underdeveloped banking and internet infrastructure, where they can serve as an alternative to both cash and traditional financial services.

However, offline cryptocurrency transactions create several technical and regulatory challenges. Without access to the blockchain, the recipient cannot check the sender's balance in real time or verify that the same funds have not already been used in another transaction. This creates the risk of double-spending — an attempt by the sender to spend the same cryptocurrency twice. The validity of the payment can only be definitively confirmed after the transaction has been broadcast to the network and included in the blockchain.

Moreover, it is more difficult to perform AML* checks on addresses and sources of funds in offline mode, increasing the risk of accepting assets associated with illegal activity.

* AML (Anti-Money Laundering) is a set of rules and procedures intended to identify and prevent transactions involving funds linked to criminal activity. In the cryptocurrency sector, an AML check helps determine the origin of assets and assess the risk level of an address or transaction. For example, it may identify links between funds and fraud, theft, hacking, darknet markets, ransomware, mixers, illegal gambling platforms, or sanctioned individuals and organizations.