The transaction speed of a cryptocurrency is an integral feature, often a leading determinant for a crypto investor, or even for a newcomer to the crypto sphere as they choose an altcoin to invest in. The faster a blockchain can process a crypto transaction, the more auspicious its cryptocurrency will appear. There are several concepts worth considering to comprehend the transactions speeds of cryptocurrencies.
All About Crypto Transaction Speed
In the cryptocurrency sphere, the transaction speed refers to the speed of a crypto sum from the outgoing party to the incoming, or how quickly it travels from the giver to the receiver. Moreover, it alludes to how quickly an individual transaction can be confirmed. Transaction speed is an important facet of the payment process, giving those who deal in crypto an impression of how long it will take for their money to reach its designated crypto wallet.
While many cryptocurrencies offer fast speeds, they all process transactions differently. It is important to understand crypto transaction speeds, the general criteria involved in ranking them and how they are determined.
How Transaction Speed Is Presented
Cryptocurrency users may come across a range of claims about an altcoin’s transaction speed. The speed is usually presented in four different terms. These terms are not synonymous, rather they are nuanced and should be carefully evaluated. Thus, users who seek crypto based on transaction speed should not treat the four following claims as equal. They each entail disparate aspects of transaction speed, conveying how wide-ranging this concept is.
- Average Transaction Speed: What Bitcoin/ an altcoin currently handles on average.
- Actual Transaction Speed: What an altcoin is able to handle per current mathematical computations.
- Theoretical Transaction Speed: What an altcoin will process as the stars align.
- Claimed Actual Transaction Speed: What an altcoin can manage based on a claim made by the development team, with no evidence or network volume.
Criteria For Measuring Transaction Speed
New altcoins that land in the market may promise to handle up to 50,000 theoretical transactions per second (TTPS). But these claims, as theoretical transaction speeds, are largely unproven and require trials and testing to solidify their high speeds. Nonetheless, it is almost outside the realm of possibility to test the limit for a network with traffic in real-time, since the network will crash if the limit is exceeded.
The average transaction speeds can be estimated by following two types of criteria. Users will find these estimates to be more accurate than what a company claims about its altcoin. The two types of criteria to measure transaction speed are: the confirmation time and the amount of transactions per second (TPS).
- Confirmation Time: How long it takes for the cryptocurrency to move from one wallet to another. This time is an average, so users shouldn’t gauge the overall speed of individual crypto transactions with this metric. For instance, an altcoin with a 60-minute confirmation time can take a few minutes to a few hours to confirm, depending on the altcoin’s variation.
- Transactions Per Second: (TPS) shows how many transactions can be carried out in a second. This is a key quantity to determine how scalable a specific cryptocurrency is.
What Determines Transaction Speed
There are several factors that account for the transaction speed of a particular blockchain or cryptocurrency. One of them follows the traditional rules of capitalism: the higher the profit, the better the service. Thus, transaction speeds are largely congruent with transaction fees. If a crypto holder pays a larger fee, miners will choose to process their payment over users who have paid smaller fees. Consequently, the fastest transactions are typically high-value ones.
Transaction speed is affected by an altcoin’s popularity. As the most popular and most valued cryptocurrency (as of the writing of this feature), Bitcoin has undergone pressure that has caused delays in its transaction speeds, drawing much criticism and the inception of its two forks: Bitcoin Cash (August 2017) and Bitcoin Gold in (October 2017.
In addition, the amount of network activity plays a role in determining the transaction speed of crypto. While a network may not necessarily slow down with larger volumes, the transaction fees will decidedly rise. This will likely lower the level of crypto processing demand in a network, keeping it at a manageable level. For example, normally the Bitcoin transaction fee is about $1, but during the bull run in December 2017, the average transaction fee was $28.
How To Improve Transaction Speed
A faster transaction speed is critical, not solely due to its convenience for crypto users, but because it can challenge a traditional payment method like a debit or credit card. In turn, cryptocurrency may obtain the prowess to replace traditional payment systems, giving way to more competition in the ecosystem and thereby, more innovation and improvements in the crypto space. But how can this be achieved?
One method is via SegWit, a soft fork change in a cryptocurrency’s transaction format. A shortened moniker for Segregated Witness, SegWit was originally created for Bitcoin to add improvements to its protocol, such as permitting data transmissions, eluding some restrictions and reducing block size limits. The latter largely improves transaction speed, in that adding more space to each block allows more transactions to be processed at faster speeds. SegWit has already been applied to several coins, such as Litecoin and Viacoin. Although it hasn’t been widely adopted, SegWit has led to other technological advancements that will help improve transaction speeds.
Another way to speed up the pace of transactions is via The Lightning Network, a second layer payment protocol functioning on top of a blockchain and often presented as Bitcoin’s scalability solution. It operates as a decentralized network with smart contract use in the blockchain that enacts instant payments across a system of participants. The Lightning Network had begun alpha testing in January 2018. It aims to make cryptocurrency faster and more convenient.
As opposed to mining rigs in which nodes solve difficult math problems before payments can be logged on the blockchain, The Lightning Network calls for participants to agree to carry out a transaction on a separate offline channel. Through the channel, the blockchain can update with the result of this external transaction. This renders a quicker strategy with the potential to make cryptocurrency compete with other instant payment platforms.
Cryptocurrency Vs. Traditional Payment Processors Transaction Speed
More traditional payment processing methods are giving cryptocurrency a run for its money (no pun intended). Visa is understandably in the lead, with a 60-year history that has allowed it to consolidate and refine its system. As blockchain systems are actively being developed and deployed, transaction speeds within the crypto realm will accelerate more quickly. The following lists popular traditional payments in a match-off between several cryptocurrencies in regard to their transaction speed. While there are usually only company claims about the transaction speed, these speeds can be sourced via a time-stamp in an exchange, by finding the confirmation times and the TPS.
- Visa: 24,000 TPS, based on 2010 IBM testing in 2010. Visa claims it can handle 56,000.
- PayPal: 193 TPS, can handle around 193 transactions per second. The company said it handled 450 TPS on cyber Monday 2015.
- Ripple: 1,500 TPS, 4 seconds to confirm. It said it can handle 50,000 TPS.
- Stellar: 1,000 TPS. (A fork of Ripple)
- Bitcoin Cash: 61 TPS, with 60 minutes to confirm.
- Litecoin: 56 TPS (with Segwit) and 30 minutes to confirm.
- Bitcoin: 7 TPS, 60 minutes to confirm. (Average of 3 TPS.)
Transaction speed can be tricky to test for accuracy, as some altcoins use test networks only and make lofty claims. Other altcoins have major difficulty with real traffic. With new users joining the crypto sphere and new features making their way to different networks, the crypto sphere is ceaselessly changing. As blockchains evolve and new cryptocurrencies enter the market, transaction speed will not be set in stone.
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