Speed is one of the major reasons why people prefer crypto to traditional payment methods. However, while transferring some units of Cardano will be done instantaneously, transferring an equal amount of Bitcoin takes 60 minutes on average.
Having to wait for that long is frustrating and defeats the purpose of practicality for which these crypto coins were intended in the first place. And most times, while many people wait for such transactions to be confirmed, all they can wonder is, “Why is it taking so long?”
The answer combines five major factors to be discussed in this article. To set the ball rolling, let’s briefly discuss the meaning of crypto transaction speed.
Without further ado:
Meaning of Crypto Transaction Speed
Crypto transaction speed measures the time it takes for some crypto units to be transferred from one party to another and confirmed on the blockchain network. This value is expressed in Transactions Per Second (TPS.) As a result, a high TPS value indicates a fast crypto transaction speed and vice versa.
A cryptocurrency’s transaction throughput is a measure of its efficiency. To be called the fastest crypto, this efficiency must be demonstrated by implementing processes that ensure recipients get their funds within minutes or even seconds.
However, many activities occur within the time gap of initiating the transaction, reaching its destination, and confirming it across the distributed network. Each process contributes to how fast the entire operations take before reaching completion.
As such, crypto transaction speeds are affected by the following factors:
Block time is the duration between adding two new blocks to the blockchain.
For instance, Litecoin’s average block time is 2.5 minutes, implying that when a block of Litecoin is added to the blockchain, it’ll take 2.5 minutes before the next block is added.
Comparing this block time to Bitcoin’s 10 minutes shows that Litecoin has a higher transaction speed than Bitcoin. Consequently, the shorter a crypto’s block time is, the faster the crypto’s transaction speed, and vice versa.
In either case, both are faster than most traditional payment methods like cards and bank transfers, which can take days to be processed. That’s why many of the fastest payout online casino sites are now accepting crypto, so players can receive their winnings much quicker. Similarly, in the e-commerce sector, businesses are beginning to adopt cryptocurrency payments to capitalize on its swift transaction capabilities. This is particularly beneficial for cross-border transactions, where traditional methods can be slow and fraught with high fees, allowing for a more seamless and efficient customer experience when purchasing goods internationally.
Imagine each block in the blockchain being the individual pages of a book you’re building by stacking one page on another. Think of the block size as the size of each page you add to that book. A page with a large size is automatically capable of holding more information than one with a smaller size. Consequently, it’ll save you time because instead of stacking two pages (with a time interval between each page), you can fit more information on a single page.
A block size measures how much data a block can contain. In this instance, data refers to individual transactions to be processed on that blockchain (and the information to be added to each page described earlier). So, cryptocurrencies with larger block sizes can process more transactions simultaneously than smaller ones, and vice versa.
Despite boosting transaction times, larger block sizes may cause issues, potential security risks, and centralization concerns.
Blockchain Network Congestion
A congested blockchain network also significantly reduces the crypto transaction speed. This is a situation whereby a network has pending transactions while fully occupied. The situation often arises when the construction of new blocks on a blockchain takes so much time, and the block sizes are limited. A sharp increase in the number of transactions on the blockchain can also cause this.
Consequently, there’ll be a backlog of unconfirmed transactions in the blockchain’s memory pool or “mempool.” The fact that the transactions are unconfirmed highlights the effects of network congestion on the speed of crypto transactions. Remember, transactions need to be network-approved to be considered “complete.”
Therefore, blockchain network congestion increases the wait times for unconfirmed transactions to be packaged into blocks from the mempool. Many users try to remedy the situation by raising their gas fees so that the blockchain prioritizes their transactions.
Transaction fees are additional service costs incurred after carrying out an activity on a blockchain. Cryptocurrencies and blockchains charge transaction fees for activities like completing a fund transfer or taking out a loan.
Network fees are typical examples of crypto transaction fees. These fees are paid to the miner, who’ll include your crypto transaction in the blockchain’s block. It’s like tipping the attendant who’ll include your order on the Chef’s list in a local restaurant. Like tips, the value can be altered depending on how pleased you are with the service and how much you have. Finally, the amount tipped often attracts a warmer and better service from the attendant.
Likewise, transaction fees affect the processing priority of transactions. As such, miners prefer transactions with sufficient fees when deciding on the next block to be mined. On the other hand, transactions with insufficient transaction fees are only attended to when the blockchain network congestion is reduced. They are processed on a best-effort basis.
Network Consensus Mechanisms
Network consensus mechanisms or algorithms refer to a cryptocurrency’s unique procedure in confirming and approving transactions. They are programs employed by cryptocurrencies, blockchains, and distributed ledgers to synchronize the distributed network into agreement about the ledger’s state.
Crypto transactions often involve several computers connected across the same network yet distributed across various locations. These arrangements are bound to have disputes and contradictions. Network consensus mechanisms are the regulatory software protocols encoded into the blockchain to achieve that distributed agreement.
The following are some examples of network consensus mechanisms used by various cryptocurrencies and blockchains:
- Proof of Work (PoW)
- Proof of Stake (PoS)
- Delegated Proof of Stake (DPoS)
- Proof of Burn (PoB)
- Proof of Activity (PoA)
- Proof of Capacity (PoS)
Each of these mechanisms has varying levels of scalability and efficiency, depending on their unique process for bringing all nodes of a distributed network to a synchronized agreement. As a result, a cryptocurrency’s consensus mechanism significantly affects its transaction speed.
For example, the Proof of Work (PoW) consensus mechanism used by Bitcoin involves solving the hash — an encrypted blockchain puzzle — using complex computational tasks. This process involves multiple steps and parties, resulting in Bitcoin’s significantly lower transaction speeds.
On the other hand, the Proof of Stake (PoS) consensus mechanism uses a more energy-efficient approach, which also takes less time to confirm and approach crypto transactions.
All transactions on a blockchain are recorded in a continuously growing list of ordered records called blocks. Depending on its properties, each cryptocurrency has a set time interval between the successive addition of new blocks, called the block time. Likewise, the amount of transactions each block can process concurrently varies across cryptocurrencies.
Based on these two factors, some cryptocurrencies experience network congestion when transactions exceed capacity. However, users try to jump the queue by bidding higher transaction fees.
Despite this trick, the network’s program for confirming and approving these transactions is another intrinsic feature to be considered. Nonetheless, these features collectively play various roles in determining the crypto’s transaction speed.