The Financial Speed of Blockchain

Whenever we discuss the advantages of blockchain, one of them is definitely going to be “speed”. Indeed, with no intermediaries to process transactions and no complicated approval systems, blockchain transaction processing speed should be amazing.

However, once we look closer, we see that the oldest blockchains, while having a number of other advantages, lose spectacularly when it concerns speed. The textbook example is that Bitcoin processes 7 transactions per second, Ethereum — 20 transactions per second, while Visa with its traditional infrastructure can do as many as 24,000 transactions per second. Twenty-four thousand against seven — it seems that speed is not Bitcoin’s strongest suit.

The problem of speed is directly related to the problem of the network scalability. As the blockchain gets bigger, it becomes increasingly difficult to reach the consensus required to approve or reject the transaction.

The poor speed of Bitcoin is a problem that creators of other blockchains consider their top priority. Indeed, low speed can become a true showstopper when we think of blockchain applications for enterprises, such as global payment or trading systems. Today, there are quite a number of blockchains that boast high transaction processing speeds and thus can become a platform of choice for enterprise blockchain solutions.

When we talk about transaction processing, we in most cases mean financial transactions. Private payments, transfers between companies, currency exchange transactions — millions of such operations occur every day. Sometimes, they involve whole chains of banks and a number of exchange transactions just to send money between members of the same family.

Cross-border financial transactions are among the most time-consuming. Especially when the destination is a country with a different currency and banking system, a transfer can take days. Besides, such transactions are rather expensive, too. The commissions may be as high as 20% of the amount that is being sent.

Enterprises will benefit from the increased processing speed, too. Often, agreements are made so that any obligations as to delivering the goods or providing the services commence only after the payment has been received. With banks processing payments for several days, the whole chain stops waiting until the money reaches its destination.

Financial institutions and commercial enterprises recognize the importance of a higher transaction processing speed and are eyeing the blockchain hoping that it can resolve their problems. But what about the seven transactions per second?

Currently, blockchain developers are working to address the low speed and scalability issues that cause Bitcoin and Ethereum to be agonizingly slow, and we already see several solutions that seem to have what it takes to, finally, turn blockchain into a fast network.

We have compiled a short list of blockchain solutions that show truly great performance in terms of transaction processing speed. They may be at different stages of development, but they are definitely the ones to follow in the nearest future.

This approach means that a lot of computing power is wasted raising the already high energy consumption. As a result, the Proof-of-Work algorithm that Bitcoin uses causes the network to be poorly scalable and, therefore, slow. On the other hand, this algorithm is extremely environment-unfriendly for the energy amounts it uses.

According to the creators of the Red Belly Blockchain, their solution applies a different approach. If we may quote Dr. Gramoli, directly, Red Belly “enforces integrity initially rather than recovering from inconsistencies”. Thus, the problem of forking is resolved by preventing fork formation altogether.

Another victory of the Red Belly Blockchain is low energy consumption as compared to Bitcoin. Again, this can be credited to the consensus algorithm that the team is using. These two factors — low energy requirements and the unprecedented transaction processing speed — make Red Belly attractive as an enterprise solution for building global financial networks.

At the moment, the team has successfully tested the Red Belly Blockchain performance in a data center consisting of 300 computers. The network proved capable of handling 660,000 transactions per second. It seems that this project is worth following, as it may become one of the pack leaders on the blockchain market.

EOS uses the Delegated-Proof-of-Stake consensus algorithm where block producers are selected by voting. DPoS does not prevent blockchain forking, as such, but keeps it to the minimum, as with DPoS nodes do not compete for adding their blocks to the chain. Rather, they work together towards generating new blocks. If a fork does occur, EOS uses the same approach as Bitcoin — selects the longest chain.

DPoS is, on the one hand, more economic than PoS as it requires much less power to generate blocks. On the other hand, it is much better scalable and, thus, capable of much higher transaction processing speeds. EOS supports the so-called inter-chain communication where multiple blockchains can be running next to each other communicating between themselves and forming a united system. This feature creates enormous scaling opportunities allowing Block.one to hope to reach millions of transactions per second one day.

To reach this goal, Zilliqa uses the so-called sharding technology. It divides all nodes in the network into smaller groups, or shards, 600 nodes each. The workload in the network is also divided between the shards, thus, different shards work on processing different transactions.

Zilliqa uses two consensus algorithms — Proof-of-Work and Byzantine Fault Tolerance. PoW is required only for nodes joining the blockchain and serves only as the proof of identity. Within the shards, the consensus is reached by BFT.

As for the transaction processing speed, Zilliqa is currently at about the same level as EOS with 2,400 transactions per second in a test network. However, the goal of the team is to reach at least 15,000 transactions per second.

In fact, the name of the blockchain that Ternio is developing is Lexicon, and it is aimed at becoming an effective solution for creating B2B architectures. Initially, the Ternio team forked Hyperledger Fabric and built their blockchain on it.

The only thing we can say is that we are going to follow the news from Georgia, home to Ternio, as when they finally release their product, it is going to be something to talk about. More than a million transaction per second, after all!

With our little research, we barely scratched the surface of the problem, as there are dozens of projects all over the globe working on reaching the same solution — making blockchain faster and better scalable while retaining its capabilities as a distributed ledger.

The achievements of the most notable projects suggest that the new high-throughput blockchain is just around the corner. With different approaches to transaction approval, consensus algorithms, network organization principles, we may expect one or more fast and effective blockchain solutions quite soon.

While some projects are focused on optimizing the blockchain technology for enterprise and others — on creating fast and convenient public solutions, we may very well see blockchain-based innovations in various industries. Banks will appreciate fast and secure payment channels, insurance companies — immutable record-keeping, large enterprises — security and consistency of intra-enterprise networks.

Get a FREE Estimate of Your Project

Related posts:

By Killian Faith-Kelly

Connection is engraved in our DNA. From the moment we take our first breath we know what connection feels like. Growing up, we always surrounded ourselves with people that make us feel comfortable…

The other morning as I was watering some plants in my garden I got lazy. Rather than walking around the pool, I opted to send the arc of water from the hose over the pool to my newly planted rosemary…