Cryptocurrency transaction speeds
Understanding cryptocurrency transaction speeds
When it comes to processing transactions, intermediaries such as banks have been traditionally seen as a necessary nuisance: in reviewing and authorising payments, they have provided a vital service. But depending on where payments are made, where they’re being sent, and the amount being sent, this can take some time: international transactions in particular can take up to three to five days.
It’s a real pain point for consumers, and one that – you guessed it – blockchain technology can help alleviate. This decentralised, digital distributed ledger technology can log any payments made without the need for an intermediary. This means faster transaction processing and lower transaction fees.
Accordingly, blockchain isn’t just interesting to crypto-enthusiasts. Traditional financial institutions, within sectors such as banking and insurance, are actively experimenting with it too. Additionally, there has been a number of financial institutions developing proof of concepts to facilitate more transparent and secure transactions.
Comparing transaction speeds
That said, we’re not yet at the point where blockchain renders banks completely redundant – as How much.net’s analysis of transaction speeds reveals:
|Transaction type||Transactions per second|
We can see here that Visa is clearly in the lead. It’s not altogether surprising that a 60-year old company that’s had decades to improve its transaction infrastructure would have an advantage when it comes to payment processing.
Where blockchain-based cryptocurrency networks are concerned, Ripple registers the best performance: with 1,500 transactions processed per second, it’s almost eight times faster than PayPal. Bitcoin Cash has the third-fastest speed (and the second-fastest among cryptos), but as it’s only able to process 60 transactions per second, there’s a considerable gulf between it and Ripple. Litecoin (56) and Dash (48) are somewhat comparable, while Ethereum (20) and Bitcoin (7) bring up the rear – their escalating popularity seems to be outpacing network processing capabilities and causing delays. (Comment (Jacob) - Ripple doesn’t use an adversarial method (proof of work) for deciding which transactions get processed but rather uses a cooperative one (distributed agreement).
The network will not slow down due to transaction volume. Instead, the transaction fees will increase to keep the transaction demand at a level that the system can handle. So right now, you can get a transaction fully-confirmed in about 10 seconds for a hundredth of a penny. In the future, that cost might go up).
What determines transaction speed?
As detailed in the previous lesson, transaction fees and transaction speeds are closely intertwined. If the user has paid a larger fee, crypto miners will prioritise their payment over others. Accordingly, high-value transactions are typically the quickest.
Speed is also impacted by the popularity of a particular coin. Bitcoin, for example, has placed considerable pressure on the network – which has in turn caused considerable delays and considerable criticism. As a result, two hard forks have emerged: Bitcoin Cash in August 2017, and Bitcoin Gold in October 2017.
Improving transaction speeds
Speeding up the payment process will be essential to the future of blockchain and cryptocurrency alike. But how can it be done?
SegWit, as we’ve discussed previously, may provide one method. As a soft fork change in cryptocurrency’s transaction format, it’s already been implemented by some coins – including Litecoin. It frees up more space in each block, making room for more transactions to be processed at a faster rate. Popular adoption remains elusive, but it has paved the way for other technologies that might improve the pace of payments.
The Lightning network theoretically allows Bitcoin transactions and micro transactions to occur instantaneously: no delay necessary. Where the current process relies on mining rigs, in which computers solve complex math problems before payments can be recorded on the ledger, the Lightning Network instead requires participants to agree to conduct a transaction via a separate offline channel. The blockchain would then update to reflect this external transaction. This is much quicker and may even help cryptocurrency compete with other instant payment platforms.
The Lightning Network entered alpha testing in January 2018. They are aiming to make cryptocurrency faster and more convenient. As of early 2018, blockchain’s future of high-speed payment processing has begun to be taken into consideration.