You may or may not have discovered that Bitcoin is slow. Compared to traditional payment systems like VISA Bitcoin can’t compete. To put this to numbers, VISA handles around 1.700 transactions per second, and Bitcoin only 7. Also, Bitcoin uses a blockchain, which has scalability issues on a larger scale. Every 10 minutes, miners add one new block to the blockchain. Every block contains transactions. So, is Bitcoin too slow?
Bitcoin is too slow for everyday payments like buying coffee or paying for drinks at a bar. The transaction confirmation would take at least 10 minutes. Nobody would want to wait that long until his transaction gets processed.
Why is Bitcoin so slow?
So, the reason why a Bitcoin transaction is so slow is because of two different factors.
- Block time
- Block size
Every 10 minutes, miners mine a new block. So, a user that submitted a transaction to the Bitcoin blockchain has to wait at least 10 minutes. A transaction is only confirmed if it’s added to a block. Users usually have to wait even longer.
Because miners can choose on their own what transactions they include in the next block. They choose the transactions that pay the highest transaction fees first. In other words, if you pay more, your transaction gets prioritized by miners. On an exchange wallet, there is usually a fixed fee. If you control the wallet, you can also control the transaction fees.
The block size or block size limit is in Bitcoins case 1 MB. In other words, one Bitcoin block could contain 1 MB worth of transactions. On average, one Bitcoin transaction is 250 bytes big. So, one Bitcoin block has on average 4000 transactions. Now we know everything to calculate the Transactions per second rate (TPS) of Bitcoin.
TPS = 4000 / (10 * 60) = 7
The Bitcoin network can handle on average 7 transactions per second. The problem is, that this doesn’t scale. If more users use the Bitcoin network, it would still handle only 7 transactions per second. If more users want to use the Bitcoin network, the transaction fee would explode. Users would have to pay absurd transaction fees.
What would happen if we change the Bitcoin block time or block size?
Let’s have a look at why Bitcoin doesn’t change either block time or block size. The network of Bitcoin is decentralized. You can check out this post to get a detailed explanation of each network type (centralization vs decentralization).
Decentralization in Bitcoin’s case means that there are many computers in a network. They store the same version of the blockchain and have a connection to each other. They also update the blockchain with each other if they receive a new block from a miner.
So, what would happen if we change the block size or block time of Bitcoin? If we would take the block time from 10 minutes to 5 minutes, it would mean that the blockchain grows twice as fast. The Bitcoin blockchain grows on average 144 MB per day. If we would reduce the block time to 5 minutes, it would grow 288 MB a day.
As a result, the network is less decentralized in the future. The network is less decentralized because people don’t want to invest more money. They would need better equipment or they can’t be a node of the network anymore. If the blockchain would be less big, it would mean that more people can afford to become a node.
If we would change the block size from 1MB to 2MB, it would result in the same issue. The blockchain would grow twice as fast. The network would be less decentralized and fewer nodes verify transactions.
I should mention that the block size mentioned is in reality the block size limit. It doesn’t mean that there have to be transactions up to 1 MB in a block. Small altcoins for example only have a few transactions (2-10) per block. As a result, one block can be 0.1 MB big. On the Bitcoin network, there are always transactions waiting to be confirmed by miners. That’s the reason why every block usually uses the maximum capacity possible.
Bitcoin as a store of value – Is it still too slow?
A lot of people state that Bitcoin is one of the best stores of value in the world. They also state that Bitcoin should not be seen as a currency because it has scaling issues. Bitcoin is one of the best stores of values for many reasons.
- It has a capped supply
- It is transparent
- It is easily tradeable around the globe
- Censorship resistant
So, is Bitcoin still too slow to be a good or the best store of value?
No, Bitcoin is fast enough to be a store of value. If we use Bitcoin, we should be aware that we have to wait a little bit, but it is a good store of value. That means, one Bitcoin holds its value over months and years.
It doesn’t mean that Bitcoin the price to a currency like USD changes. It changes and Bitcoin is extremely volatile. It means that we know that the supply of Bitcoin is only 21 million and there will not be more mined after that.
That means, we know that one Bitcoin itself and even 1 satoshi holds its value against all other Bitcoins. That’s the reason why Bitcoin is a good store of value.
Zero confirmation Bitcoin payments – Are they fast enough?
Here is the reason why zero-confirmation Bitcoin payments should never be trusted. If you submit a transaction to the Bitcoin network, it goes into a Mempool of a node. The Mempool is a pool for all unconfirmed transactions. Miners choose transactions from the Mempool and include them in a new block.
Sometimes, nodes can go offline or lose data from the memory. Also, a transaction that is not on the blockchain yet is treated differently than transactions on the blockchain.
For instance, you never “really” spend your coins, if your transaction is not included in a block. If your transaction gets lost and is never confirmed by miners, it means you never spend your coins. You could submit your transaction to the network again and it would confirm it after some time.
Also, sometimes one Bitcoin block gets reorganized. It happens rarely, but it happens. It means that the last block of the blockchain gets replaced. It happens because nodes follow the longest blockchain. Imagine two miners find a block at the same time.
The network would fork in network A and network B. If network A receives the next block first, the network would follow that blockchain. If network B receives a new block first, the network would follow that blockchain.
Usually, if your transaction was in one of that block, it would be included in a block later or declined. As already mentioned, this happens rarely and you would not lose your coins. You could submit a new transaction to the blockchain. The network would think that the old transaction never happened.
How can I make a Bitcoin transaction faster?
You can only make a Bitcoin transaction faster by paying more transaction fees. By paying more, miners focus on your transaction because they want to earn more. The least amount of time you have to wait is at least 10 minutes because one block is mined every 10 minutes.