Why Transaction Speeds Matter
Transaction time is one of the most important factors of cryptocurrency, and it’s been one of the largest obstacles to widespread adoption. While these transactions have certainly gotten faster in recent years, they still take much longer than traditional forms of payment. The gap is rapidly closing, however, and some currencies are leading that race faster than others. Learn why transaction speeds matter, and discover how advancements in speed will propel crypto as a whole into a brighter future.
What Are Speeds Like Now?
Cryptocurrency simply cannot match the transaction speed of traditional payment options in its current state. To put this in perspective, Bitcoin can process about five transactions every second, while Visa can process 1,700 transactions in the same period of time. Additionally, any kind of cryptocurrency may require that a new block be added to the chain, and this alone can take up to 10 minutes to be added and verified.
The current speeds are one of the main obstacles to crypto being adopted by major businesses as an actual currency. Not only is it inconvenient, but it poses problems considering how fast the value of crypto can fluctuate. When you make a purchase, the value of whatever cryptocurrency you’re using could change by the time that purchase is actually processed, and depending on how that value changes, either the purchaser could be underpaying or the seller could be overcharging.
Proof of Work
Proof of Work, or PoW, is an essential part of how the blockchain works. When blocks are added to the chain, cryptocurrency has to be mined by solving complex equations. This is how blocks are verified. Given that it takes about 10 minutes for this to be done, each block only being able to hold about 500 transactions limits the possibility of crypto severely. Even if transactions were able to be instantly verified, cryptocurrency would still only be able to max out at 500 transactions for every 10 minutes given the limit of a block, which is still far slower than Visa’s 1,700 transactions per second.
If cryptocurrency grows to be more popular, then more and more people will be mining and trying to create blocks. While there are incentives to encourage this to go faster, the bottleneck is inevitable. As it stands, there need to be alternative solutions that account for the disadvantage that even instant transaction times would cause.
Proof of Stake Solution
The Proof of Stake, or PoS, solution to this problem does come with advantages, but there are disadvantages too. With this system, you can validate transactions by “staking” them, removing the need for miners. This cuts down on transaction times significantly, and it allows people to monetize their crypto without having to liquidate.
There is one major problem with the PoS solution, however, in that it takes quite a bit of resources to be able to “stake” your crypto. Because of the resource cost, the only people who will be able to reliably do this are those with a gargantuan amount of processing power. Centralizing the power of crypto in the hands of those who already have resources simply replicates the same central problem of the traditional financial system.
The more promising answer is a second-layer solution. This essentially creates a second layer of recording that allows for transactions to be recorded on the blockchain at a later time. It pushes the need for blockchain security down the line, allowing small transactions to be handled immediately.
When a second layer is used, it functions much like a shared wallet. Each can redistribute funds to that wallet as they see fit. Later on, that wallet can be closed, and the final balance is subsequently stored on the blockchain. The idea of this stems from how businesses handle cash transactions in which they bring their cash to the bank at the end of the day. The only difference is that the currency is all digital with crypto, and with the right infrastructure, it could be easier to manage than cash.
With several solutions available for increasing the speed of crypto, you’ll find that the transaction speeds of crypto transactions are going to drastically increase in the near future. The faster they get, the wider they’re going to be adopted for general use. Remember, they need to be as convenient as cash if they ever hope to supplant cash, and the best solutions for transaction speeds always seem to come from considering why cash is able to work so well.