Blockchain and Transaction Speed: Why Does it Matter?

Each blockchain is unique, yet each blockchain is plagued with similar problems. The issue related to blockchain scalability is the prime reason why blockchain hasn’t become mainstream yet. Whenever debate about blockchain scalability heats up, technical specifications like transaction speed always surface. But what is the relevance of transaction speed in a blockchain ecosystem? How can we compare legacy systems with state-of-the-art blockchain systems? And why is it tough to scale present-day blockchain?

Transaction speed is the rate at which data is transferred from one account to another. The faster a transaction is confirmed, the better the transaction speed is said to be. Transaction speed of a blockchain is one of the prime parameters through which viability of a blockchain is gauged.

Transaction speed in turn hinges upon numerous other factors like block size, block time, traffic on the network, transaction fees, etc.

Let’s define these terms for the sake of understanding the article further:

1) Block size
Every blockchain consensus rule permits each block to be of a specific size. For example, on the Bitcoin network each block can be a maximum of 1 MB. This parameter remains fixed.

2) Block time
The time interval taken by the network to append a new block to the blockchain. For example, on the Ethereum network a new block is appended every 15 seconds, whilst on the Bitcoin network it is every 10 minutes.

3) Traffic
This is the load on a given network at a particular time. In simple terms: if less transactions are being requested, the traffic is low; if more transactions are being requested, the traffic is high. High traffic may cause delays for the transaction to be confirmed. Hence the transaction goes in a pending state.

4) Transaction fee
Fee paid by the transmitter as an incentive to the network to get the transaction settled quicker.

A word of caution!

Transaction speed should not be confused with block time. Transaction speed measures how fast an individual transaction takes to get settled. Block time, on the other hand, is fixed. On the Bitcoin network, a block will be appended to the blockchain every 10 minutes and on the Ethereum network, the block time is about 15 seconds because the block size is as low as 30 kb.

Sometimes a transaction may be committed on the Bitcoin network in as little as 9 minutes and sometimes it may even take up to a week! Sometimes transaction fee is as low as couple of cents and sometimes fee is as high as $34!

The Ethereum network once came to a complete halt due to the CryptoKitty frenzy. All other ICOs and businesses operating on the Ethereum network slowed because about 20% of the network’s capacity for executing transactions was being occupied by trades in digital collectible feline. At CryptoKitty’s peak, the transactions in queue stood at 20,000–25,000.

This clearly indicates that the present state of any blockchain network is anything but stable.

It is facts like these which are preventing blockchain from becoming a “go-to platform”. From the off, blockchains have been compared to traditional legacy systems like Visa and PayPal in terms of the number of transactions that are being handled per second. However, one must keep in mind that Visa achieved a maximum speed of 24,000 tx/s (transactions per second) after decades of research and blockchain isn’t even a decade old. Yet, the world is seeing major breakthroughs with different blockchains already.

Even though the transaction speeds of all blockchains are nowhere near Visa, it is surprising to note that blockchain platform Ripple has already overtaken PayPal in the race. The Ripple team claims that their platform is in fact capable of handling 50,000 tx/s. Currently, it takes just 4 seconds for a transaction to be confirmed on the Ripple blockchain.

Let’s take a look at the statistics for several platforms:

• Bitcoin network: 7 tx/s (confirmation: ~60 minutes)
• Ethereum network: 15 tx/s (confirmation: ~5 minutes)
• Litecoin network: 56 tx/s (confirmation: ~30 minutes)
• Bitcoin cash network: 61 tx/s (confirmation: ~60 minutes)
• Ripple network: 1,500 tx/s (confirmation: ~4 seconds)
• Stellar (Ripple fork): 1,000 tx/s; (confirmation: ~2 seconds)
• Visa: 24,000 tx/s in real time (Visa claims this can reach 56,000 tx/s)
• PayPal: 193 tx/s (PayPal stated that it handled 450 tx/s on cyber Monday in 2015)

Even though Visa still rules the market, blockchains are not far behind. In fact, research is being carried out on how to make blockchains faster and more scalable without compromising on security.

It’s time to dive deep into the technicalities of transaction speed

Transaction speed ultimately narrows down to following engineering aspects:

1. Block time
2. Block size

tx/s can be enhanced if block time is reduced and block size is increased.

Sounds easy doesn’t it? But it is not. Let’s see why:

If block time is decreased (i.e. if blocks get appended to the blockchain quicker than they are already) then it may result in an accumulation of orphan blocks. Orphan blocks are blocks which are not attached to the main blockchain via a preceding (parent) block. Suppose the block time of the Bitcoin network is reduced to 5 seconds from 10 minutes, the tx/s will take a huge leap but the stability of the blockchain will take a hit. Blocks will be validated by achieving global consensus, but the chances are that the block won’t be able to find its parent block and, ultimately, will be discarded. At present, there are zero orphan blocks on bitcoin network.

Hence, reducing block time is not very wise.

What happens if we increase block size?

Bitcoin cash is actually a result of increased block size. However, back in 2010, Satoshi Nakamoto limited the block size to 1 MB. This was fixed due to security reasons; particularly for securing the blockchain against DoS attacks in which hackers may inundate the blockchain network with blocks of infinite size to hijack the network.

Lesson: increasing block size is also not wise.

Big claims, little proof

Despite of such limitations, there are ICOs which claim to have created a blockchain network by forking Ethereum and still say they can achieve speeds x100 faster. But is that really practical or those are just unsubstantiated claims made to attract investors?

Estimating true transaction speed of any given blockchain is tricky and often results in a dead end. A lot of altcoins are promising surprisingly massive tx/s but these numbers are not proven yet. To prove these results, stress testing has to be done.

There is a huge gap between operating in a secured, lab testnet environment and a mainnet distributed around the world. Most of these altcoins operate at lightning speed in the lab but significantly worse in the real world.

Let’s take a look at the mathematics of claims of speeds significantly higher (like x100) than Ethereum network itself:

Base block size on Ethereum = 780 kb.

If we reduce block time from 15 to 5 tx/s will increase from 15 tx/s to 45 tx/s.

Let’s say claimed tx/s = 2000 tx/s

By increasing block size to accommodate 2000 tx/s, the block size should increase roughly by (2000/45) ~ 45 times ~ (780 kb x 45) = 35,100 kb.

Upload/download speed of at least 35 Mbps.

35 Mb is very data-heavy to process the block in less than 5 seconds.

At this rate, a person joining the blockchain after a year has to sync multiple TBs of data to become a full-node.

Decentralisation vs. speed

So what about ideas like Lightning Network, Plasma, Cosmos, Raiden Network, PolkaDot which are being engineered by blockchain gurus to scale blockchains. These technologies are still under development and may launch anytime in the coming years. However, these solutions achieve their speed by compromising on the decentralisability of the network by pushing it a little bit towards centralisation. Concepts like “off-chain transactions” and “sharding” are coming into the picture. (Analysing these concepts is beyond the scope of this article.)

The day blockchain scales and transaction speed are enhanced will be a great day for humanity. A day when credit cards would most likely disappear, where fiat currencies could become a thing of the past. Imagine a world without any euros and dollars; how unbelievable does that sound! On that day, the statement: “blockchain is the next big thing after internet” would be just. The way we imagine trade would be completely redefined.

The organisation which comes up with the first solution scalable solution will forever be remembered and praised in computer science history.

Niharika Singh is a curious IT engineer in the making who is fond of technology, poetry, and cakes. It’s her passion to learn and present my own views about various upcoming technology, especially FinTech. She’s been into blockchain for 3 years now, reading and researching about DLTs.

Blockchain Business Review from Apla provides high-quality educational material from the world of blockchain to inform the business community of the competitive advantage that can be gained by integrating distributed ledger data storage within organizations. Our mission is to promote knowledge about blockchain and its uses in both the private and public sector and demonstrate the value of blockchain integration.