Despite the growing need for crypto scalability, many digital currencies remain relatively slow due to their technical infrastructure. Indeed, blockchain networks can attain formidable speeds, but this entails dealing with several design challenges.
Often referred to as the blockchain trilemma, the creation of a blockchain network that is concomitantly scalable, decentralized, and secure is proving difficult. Some projects claim to have solved the trilemma, and despite seeming so, haven’t had a chance to undergo actual stress tests under real-life conditions.
The Impact of Crypto Transaction Throughput on Relevant Industries
Not all cryptos and their blockchains require support for high transaction speeds. For instance, speed is mostly trivial in the case of a theoretical coin that’s used to transfer real estate ownership rights or a token that’s needed for governance voting. In such cases, most people wouldn’t mind if transactions take a few hours to confirm.
On the other side of the spectrum, there are industries that demand ongoing support for superior transaction throughput. Here are some examples:
This industry constantly finds itself in dire need of high transaction throughput; in this case, for each and every coin. The reasoning is simple - if a trader is slowed down by lengthy processing times, they’ll miss out on valuable gains.
Selling cryptocurrency at the right time, engaging in arbitrage, or getting involved in decentralized finance protocols all call for speedy transactions.
Nothing screams fast-paced as loudly as online gambling. When gambling with cryptocurrency, many users find themselves depositing and withdrawing multiple times per day, to the point that if a Bitcoin casino processes withdrawal requests instantly, the delay may occur due to the low bandwidth of the coin’s network.
Slow throughputs take the fun away and create inconvenient experiences. Moreover, blockchain-based casinos must record each bet as a transaction on the chain, so high-performance blockchains are indispensable.
Profiting on the decentralized finance market
With over $25.03 billion locked within DeFi smart contracts, thousands of users worldwide engage in market making, lending, borrowing, and yield farming. These are fast-paced activities that require quick transactions to harvest satisfactory gains. The nature of decentralized exchanges calls for speedy transactions.
Physical stores and e-commerce sites
We ought to remember crypto’s use case as a means of payment for goods and services. Slow transactions lead to unnecessary wait times that are essentially non-existent in the case of cash or cards.
Achieving Higher Transaction Speeds
The road to optimal transaction speeds is challenging, but the destination is certainly reachable for most cryptocurrencies and blockchain networks. Here’s how some digital currencies are optimizing their performance:
Scaling Bitcoin through the lightning network
As a layer-2 solution, Bitcoin’s lightning network was designed to rely on peer-to-peer micropayment channels to settle transactions prior to confirming them on the official blockchain. Using the funds on these channels, it’s possible to conduct transactions off-chain paying negligible fees.
Transactions only occur on-chain once channels are closed or funds within them adjusted. Moving most transactions off the blockchain helps reduce demand for limited blockspace.
Ethereum 2.0 introduces proof-of-stake and shard chains
With the introduction of Ethereum 2.0, the development team will switch from an energy-intensive Proof-of-Work (PoW) consensus algorithm to a more efficient Proof-of-Stake (PoS) solution. Additionally, the main Ethereum blockchain will be broken up into 64 shard chains that will improve scalability by processing transactions independently, thereby putting less strain on the network’s nodes and massively improving the transaction output.
Transaction and smart contract scalability on Plasma and Polkadot
The market has seen many other attempts at scalability enhancements. For instance, the Plasma smart contract solution envisions the blockchain as a tree with multiple off-chain branches. Each branch acts as a virtual machine that executes smart contracts based on the Polkadot blockchain.
Fast Coins and Acceleration Services
Most coins do not excel at high speeds, but some are faster than others. Here are a few examples:
- Ethereum currently handles about 15 transactions per second (tps), but is poised to improve its scalability following the deployment of ETH 2.0.
- Ripple claims to handle about 1,500 tps, but may support up to 50,000 in some cases.
- Bitcoin Cash, a fork from Bitcoin Core, has increased the block size to surpass 50-60 tps.
- Leveraging Segregated Witness (SegWit), Litecoin can surpass 50-55tps.
- Bitcoin can currently handle up to 7 transactions per second.
Transaction acceleration services are sometimes provided by miners to make sure that low-priority transactions are not left behind. Some services are available for free, whereas others may come at a low cost. Results may vary.
Given the market’s high-performance demands from popular digital currencies and their blockchains, high transaction speeds are desirable. Luckily, enhancement solutions exist, even in the case of cryptos whose original design did not include high-performance benchmarks.
Please remember that the value of investments, and any income from them, can fall as well as rise so you could get back less than you invest. If you are unsure of the suitability of your investment please seek advice.
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