Fast and safe. The future of transactions in crypto
Shopping is easy. You put things in your cart, pay, and leave. Now imagine that you have to wait one hour at the store for your payment to be approved. The lack of speed in cryptocurrency transactions is one of the biggest roadblocks on the way to full adoption. Fortunately, various consensus mechanisms and second-layer solutions can solve this issue.
There is a common opinion that one of the advantages of cryptocurrencies is the speed of transactions. The matter, however, is not so simple. For Bitcoin, the transaction time is 60 minutes. For some other cryptocurrencies, it is only a few seconds. This primarily depends on the structure and technology in which the specific cryptocurrency operates.
Verification takes time
To understand it better, let’s look at the genesis of Bitcoin, the first cryptocurrency that ever existed. BTC was created with blockchain technology, which is an open distributed ledger operating in a decentralized network. Unlike in a centralized network, anyone can get access to the transaction database.
If blockchain has no central point to oversee what’s going on, then who is in charge? The answer is other participants of the network. Their liability is to verify transactions using computing power. The authenticity of a transaction is decided by reaching a consensus. Implemented mechanisms start from PoW (Proof of Work), PoS (Proof of Stake), Delegated PoS, Delayed PoW, to Proof of History.
The verification period is related to the time required to find enough block confirmations. In other words: the network capacity. The more transactions waiting in queue for acceptance, the longer it takes to verify them.
How to measure the speed in crypto?
There are specific measures related to transactions in the blockchain. Transactions per second (TPS) shows how many transactions can be processed every second. From the point of convenience and security, the critical measure is transaction confirmation time. It tells the user how much time is necessary for their transaction to be approved and added to the blockchain.
The fast and the slow
Bitcoin requires six blocks of confirmations. It takes 10 minutes for each block to be mined and 60 minutes overall. And Bitcoin’s current transaction efficiency is around 7 TPS. BTC may be the mother of all coins but is not a front-runner when it comes to speed.
There is a plan to overcome this challenge with the Lightning Network, a second-layer solution placed on top of Bitcoin’s existing blockchain. It was launched in 2018 and is currently in the beta phase. The aim here is to improve the scalability of Bitcoin transactions in the network.
In a nutshell, the transactions will go off the blockchain through individual payment channels and then connect back. This solution is expected to scale up to 10,000 TPS and even beyond.
Ethereum, on the other hand, is much faster with 25 TPS and around 6 minutes of real transaction time. One of the most anticipated upgrades in the crypto market is Ethereum 2.0. Vitalik Buterin, the creator of the ETH, aims to boost the network speed to 100,000 TPS.
In comparison, traditional payment networks like VISA and MasterCard can process around 24,000 to 65,000 TPS. With current demand, it usually ranges from 1,700 to 2,400 TPS, meaning they are only using a fraction of their total capacity.
There are plenty of other cryptocurrencies on the market, enabling transfers in less than a minute and with immense efficiency. These are the features of coins such as: Ripple (1500 TPS), Stellar (1000 TPS), NEO (10,000 TPS), Waves (100 TPS), Steem (10,000 TPS), Nano (1000 TPS), TRON (~2000 TPS), EOS (4000 TPS), Cosmos (10,000–40,000 TPS), Solana (up to 65,000 TPS), Algorand (1000–45,000 TPS) and Avalanche (4500 TPS).
These differences depend on consensus methodologies. Bitcoin and Ethereum work on Proof of Work, requiring the network to resolve equations to secure transaction blocks. Types of consensuses incorporated later, like Delegated PoS or Delayed PoW, attempt to increase the TPS and alleviate the transaction confirmation time.
The second-layer solution
A concept that can be a game-changer is the second-layer solution. The second layer is a framework where transactions take place. They are processed off the main chain but without sacrificing the network’s security. It’s like moving a great portion of the work to a higher floor where everything goes faster because there are more resources.
There are a few cryptocurrencies based on this architecture. Among them is ELCASH. Although the details of the coin are yet to be presented, the project aims to resolve slow and expensive transfers.
According to the ELCASH whitepaper, the first layer is the Consensus Layer (PoW) to ensure the integrity of the blockchain executing the consensus algorithm across participants. A fast transaction layer (the second one) is created on top of the network to improve the transaction speed.
What do the users themselves think and want? According to the Nielsen Group research, one second is enough for a human to notice a delay, and 10 seconds is the upper cap to keep the user’s attention. 0.1 sec provides the user with a feeling of a system reacting instantly. But for blockchain’s scalability, it is not only to provide higher TPS, but also for maximizing the security of the transactions.