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Blockchain Transaction Speed: Factors and Limitations Influencing General Adoption

Blockchain Transaction Speed: Factors and Limitations Influencing General Adoption

Cryptocurrency & Blockchain

Cryptocurrency has improved the finance sector by enhancing security and general efficiency. The allure of cryptocurrency, especially compared to the traditional financial sector, is evident because crypto enhances speed and scalability. Since the average cryptocurrency transaction is instantaneous, the industry has been pitched against the slower traditional sector, with proponents considering a possible fiat replacement with time.

Cryptocurrencies and the appeal for their instant withdrawals have been applied to the online casino industry, attracting interested gamblers with the promise of instant transactions. Cryptocurrency casinos process deposits, withdrawals, and bets, much quicker than traditional methods that require several intermediaries, especially for cross-border transactions. However, transactions may not always be instantaneous and are easily affected by the following factors.

Factors Affecting Crypto Transaction Speed

  • Network Congestion: Some blockchain networks may be easily congested when there is high demand. During periods of frequent simultaneous trades, the resultant congestion on the network can reduce transaction speed. Unfortunately, some blockchains struggle with scalability, impeding their ability to process multiple transactions simultaneously. This means that transactions are delayed until earlier trades are successfully processed. Traders also have to pay higher transaction fees during periods of network congestion.
  • Transaction Fees: Charges are incentives paid to miners to prioritize transactions. With no congestion, traders can set minimal fees and still have their transactions processed immediately. However, applicable fees when the network is clogged can affect the speed of the transaction. This is because miners prioritize and process transactions with the highest fees before others. In some cases, transactions initiated with low fees may be delayed for hours, especially if other traders set high fees.
  • Blockchain Network: The blockchain handling the transaction directly affects its speed since some blockchains are more scalable than others, and can accommodate many more transactions. For instance, Solana is one of the fastest and most scalable blockchain networks, with more than 5,000 transactions per second (tps) in actual scenarios. According to Solana’s whitepaper, the network can process 710,000 tps in theory. On the other hand, Bitcoin has a much smaller throughput, with only 7tps. 

Limitations to Quick Blockchain Transactions

  • Scalability: This is a major problem faced by most blockchain networks. One primary factor impacting a blockchain’s scalability is its consensus mechanism. Networks like Bitcoin, which use the proof-of-work (PoW) method, require extensive computational and energy requirements for transaction validation. Unfortunately, these requirements limit the network’s throughput. As blockchain adoption increases and the network receives more transactions, congestion worsens, and fees generally increase.
  • Confirmation Time: This is essentially how long it takes to include a transaction in a block. For instance, Bitcoin’s average block time is 10 minutes, while Ethereum is much faster, at 13 seconds per block. In general, this means that the Ethereum blockchain is considerably quicker. However, factors like network congestion can still significantly affect the confirmation time, leading to slow transactions.
  • Centralization Problems: Decentralization is a fundamental principle of blockchain technology as it ensures that no single entity can wield undue control of the network. Through decentralization, blockchains resist censorship, promote trustlessness, and assure users that all recorded data are secure. However, there are solutions to transaction speed that may compromise blockchain decentralization and increase centralization risks. For instance, some blockchain networks enhance speed and scalability by using permissioned consensus mechanisms or delegated proof-of-stake (DPoS), which transfers the responsibility of transaction validation to a few delegates. Unfortunately, the process undermines the decentralization and trustlessness of the blockchain, inadvertently giving undue power to a few select nodes.
  • Security Compromise: Like the likelihood of centralization risks, solutions that optimize for speed may also sacrifice security. When a consensus algorithm is designed to prioritize speed, it becomes more susceptible to a 51% or Sybil attack. Although these solutions ensure that transactions are processed rapidly and miners receive more charges, they make blockchain networks more vulnerable to hack attempts.

Possible Solutions That Improve Blockchain Efficiency

  • Layer-2 and Off-Chain Platforms: These solutions help increase blockchain scalability by enhancing transaction speed. Off-chain scaling solutions, like Bitcoin’s Lightning Network or the Raiden Network on Ethereum, help to process transactions outside the main network. On the other hand, a layer-2 protocol has a much broader scope and may include platforms that process transactions off-chain or use sidechains to improve scalability while maintaining on-chain activity. 
  • Cross-Chain Interoperability: Some solutions enable the transfer of assets between different networks. This process allows one asset to leverage features and enhancements of multiple blockchains, reducing congestion on either. The ability to transfer assets across chains improves transaction speed and further promotes blockchain scalability.

Wrap Up

Blockchain’s ability to disrupt the financial sector by increasing transaction speed is largely predicated on solving scalability issues. These issues impede adoption, making it difficult for institutional entities to consider blockchain a viable alternative to fiat platforms. However, with extensive focus and developments across solutions like layer 2 services and platforms that facilitate cross-chain transfers, blockchain could be well on its way to becoming the preferred method for global finance.

Blockchain Transaction Speed: Factors and Limitations Influencing General Adoption