The Financial Speed of Blockchain
Whenever we discuss the advantages of blockchain, one of them is definitely going to be â€œspeedâ€. 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 Bitcoinâ€™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.
Why is transaction processing speed important?
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.
Fastest blockchains on the market
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.
Red Belly Blockchain
This solution by the University of Sydney seems to beat many of the existing blockchains in the speed of processing transactions. The Red Belly developers claim that their innovation will be capable of handling 600,000 transactions per second leaving behind all others as well as their traditional counterparts, such as Visa.
What is behind the Red Belly Blockchain? The network is based on a new algorithm to approve transactions. This algorithm is expected to resolve more than one problem of Bitcoin. The algorithm invented by Dr. Gramoli and his team creates a non-forkable chain eliminating the risk of double spending that Bitcoin is exposed to. In Bitcoin, several miners try to append their blocks to the chain to win the reward, thus creating several branches. Bitcoin resolves this problem by selecting the longest chain as valid and discarding the rest.
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 â€œenforces integrity initially rather than recovering from inconsistenciesâ€. 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.
While talking about the fastest blockchains on the market, we cannot leave out EOS, the project by Block.one. In fact, EOS is a platform for building decentralized applications that can be easily and effectively scaled both up and out. The open-source software that Block.one is working on is called EOSIO. EOSIO suite is somewhat like an operating system with its own structure of accounts, databases, and authentication methods. EOS is designed to create an architecture that can scale out indefinitely without sacrificing the performance or speed. In the white paper, EOS creators claim that their blockchain architecture will eventually be able to handle millions of transactions per second.
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.
At the moment, EOS has not achieved that ambitious goal, but already exceeds most of the popular blockchains. In 2018, EOS set its all-time high of almost 3,000 transactions per second.
Zilliqa is a project of the National University of Singapore that was initiated with a focus on reaching high scalability and acceptable transaction processing speed in a blockchain network. Zilliqa is a public blockchain solution created with the aim of making a blockchain easily scalable out as it grows in size.
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.
This US-based startup has created quite a stir on the market of enterprise blockchain solutions. While other blockchains are fighting for thousands of transactions per second, Ternio claims to reach the dizzying million 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.
Ternioâ€™s outstanding processing speed has been confirmed by a third-party audit. Unfortunately, we cannot tell too much about their approach to creating their blockchain or the algorithms they are using. The company has chosen to keep their product proprietary and has filed for patents on their innovations. Until the patents are received, the team is keeping their secrets.
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.
We are going to follow these and other blockchain projects that promise to improve the blockchain technology and make it more effective for use by businesses of various sizes and industries. Subscribe to our blogÂ to always stay abreast of the latest news from the blockchain development sector. If you need detailed advice on implementing blockchain for your business, contact us for a free 30-minute consultation with one of our experts.