Cryptocurrency Transaction Speed: Why Bitcoin and Altcoins Must Improve Velocity
Since their introduction ten years ago, cryptocurrencies have steadily gained popularity, mainly as an asset for speculation and investment. However, they've struggled to find widespread usage as actual currency, and this is in large part due to the very slow transaction times offered by many of these systems. Older cryptocurrencies – particularly Bitcoin – use software architectures that sometimes leave users waiting for minutes or even hours before their transactions can be verified.
In order to compete with the dominant digital payment systems, cryptocurrencies will need to significantly improve this metric so that users can make purchases with the same speed they're accustomed to. Fortunately, newer cryptocurrencies are beginning to address this concern, and investors are taking notice, anticipating that these will become the most popular digital currencies in the coming years.
The Importance of Speed
Transaction speed is most commonly measured in transactions per second (TPS); most digital payment platforms, such as credit cards or PayPal, can support hundreds or thousands of transactions each second, offering users a seemingly instantaneous verification of their purchases.
PayPal supports approximately 200 TPS, whereas Visa claims it can scale up to about 24,000; however, in reality, virtually no system will ever need to process tens of thousands. In comparison, Bitcoin performs very poorly: it can typically support between two and three TPS, leaving customers waiting for sometimes several hours before their sale is finalized and making it a poor choice for most retail applications.
In e-commerce sales, speed is particularly important, since customers are used to instant transactions and have reported in surveys that slow loading or complicated checkout procedures can quickly sour their impression of a retailer.
Recent research indicates that a lengthy checkout page will cause over a quarter of customers to abandon their purchase, and a survey from Google suggests that over half of web users will leave a web page that takes more than just three seconds to load; given modern users' insistence for speed, asking them to wait several hours to verify a purchase is simply not sustainable.
Promising Alternatives to Bitcoin
Bitcoin was the first cryptocurrency, and it introduced the blockchain architecture to the world. While this was an immensely powerful innovation that has inspired thousands of related services, Bitcoin's most significant limitation is its proof-of-work algorithm; it depends on users known as “miners” to run demanding computer programs in order to verify each block of transactions. The limited size of this network of miners, as well as the huge amounts of computer power required, have prevented Bitcoin from being able to scale up and handle a large volume of transactions.
Several newer cryptocurrencies have taken Bitcoin's basic ideas about blockchains and revised them in order to handle significantly more transactions.
Ripple – the third most popular cryptocurrency in terms of its market share – was designed with transaction speed in mind, and its development team claims that it can easily handle 1,500 TPS, with the potential to scale up to even compete with Visa. Ripple has its roots in banking software that was developed even before the introduction of Bitcoin, and it achieves its improved speeds by eschewing the proof-of-work algorithm and instead working with trustworthy institutions to achieve consensus and ensure liquidity.
A similar project that was developed by one of Ripple's co-creators is Stellar, though it hasn't gained anywhere near as significant of a market share and remains used primarily as an intermediary for a currency exchange service. Stellar claims to offer around 1,000 TPS, and has attracted the attention of several powerful financial institutions.
A third cryptocurrency engineered for fast transactions is T.OS, which can handle approximately 1,000 TPS and is promoted by its developers as suitable for use in brick-and-mortar retail. The T.OS network achieves this speed by separating it into two tokens, one for exchanges and one for transactions, and it ensures stability for users by pegging the currency’s value to the fiat of the country they reside in.