When creating a blockchain network the blockchain trilemma is one of the most difficult things to overcome. Basically, the trilemma dictates that a network will have to sacrifice one of decentralization, security, or scalability (speed) in order to function. That’s why most blockchain projects are looking to solve this issue.
As a result, many networks are less secure but faster, or more secure but slower, or something to that extent. This is part of the reason layer-2 solutions such as Polygon and the Bitcoin Lightning Network have been created. These sorts of solutions allow the security of the main layer (Ethereum and Bitcoin for Polygon and the Lightning Network) to be maintained while increasing the transaction speed of the network (scalability).
In this guide, we’ll discuss transaction speed and finality for blockchain networks and then provide examples from some popular chains.
Transactions Per Second vs Transaction Finality
Transactions per second then (TPS) is a key factor when looking at a blockchain network’s potential at a large scale. However, TPS is not the same as transaction finality. Before examining how long crypto transactions take, let’s first define the two concepts of TPS and transaction time to finality (TTF).
Transactions per second, or TPS, refers to the number of transactions that occur in one second in a given system. Visa’s network generally processes about 1700 TPS all day, every day. In theory, a high TPS for blockchain means it can process X number of transactions per second, but TPS doesn’t measure the time it takes for a transaction to be finalized (also referred to as settlement). This is a key distinction because only once a transaction is finalized is it guaranteed to be immutable and final.
When you cash a check and there’s a hold put on it, that’s because the money hasn’t been settled, meaning it has yet to be pulled from the other person’s account and put into yours. Until that’s done, you can’t use the funds.
Many blockchain networks such as Bitcoin use something called probabilistic transaction finality. This means that the transactions are not final immediately, but once a certain number of blocks have been added (block confirmations).
For example, Bitcoin finality requires 6 block confirmations, while Ethereum requires 25. This means that once you see the transaction on the network, it still takes X number of blocks for the transaction to be valid and irreversible. Transaction finality is then the time it takes for a block to be added to the chain multiplied by the number of block confirmations required.
Time to finality, or TTF, is therefore a more accurate measure for a blockchain network’s speed and capability than TPS. Finality is extremely important for digital assets that are hoping to be usable as a global payment method, as no merchant would want to have to wait multiple minutes to have your transaction go through and be final. You as a customer wouldn’t want to stand there for the same reason.
Let’s take a look at transaction speeds on Bitcoin and Ethereum, along with one of their Layer-2 solutions.
Bitcoin Transaction Speed
Bitcoin has a fairly slow TPS at just 7. As we’ve just discussed though, this doesn’t refer to finality. Bitcoin needs 6 block confirmations and at an average of 1 block per 10 minutes, this means it actually takes an hour for your transaction to be finalized. Clearly, this is not fast enough to be taken seriously as a global payment method, but this is why there has been so much work done on Bitcoin’s Layer-2 Lightning Network.
It’s also worth noting that with Bitcoin (and Ethereum), you can pay a higher transaction fee in order to have your transaction included in an earlier block than it might be otherwise. You’ll still be subject to block confirmations, but paying a higher fee should mean it’s included in an earlier block and thus finalized earlier.
Bitcoin Lightning Network Speed
The Bitcoin Lightning Network is built on top of Bitcoin’s base layer. The Lightning Network improves on the main layer because it uses smart contracts and bidirectional payment channels to remove the need for block confirmations. This means that transaction finality is near instant, with the only limitation being the number of channels that are currently available.
Essentially, the more bidirectional payment channels that are open (nodes), the faster the network, as it can route payments through any open channel. The Lightning Network can already handle 1,000,000 TPS with instant finality and much cheaper fees than on the main layer, it just needs nodes.
In Lightning’s system, the transactions aren’t sent to the base layer and confirmed until channels are closed, but they’re enforceable because of the smart contracts. This prevents bad actors and allows for instantaneous payments that are guaranteed. This is also essentially how all layer-2 networks function; transactions are kept off the main blockchain layer until it’s necessary to finalize them, but their finality is guaranteed through smart contracts.
Ethereum Transaction Speed
Ethereum’s base layer also has a slow TPS at 30. However, Ethereum has 20-25 second block times, meaning ETH transactions are confirmed much sooner than Bitcoin’s (about 10 minutes max). The bigger issue with Ethereum transactions, apart from their scalability, is the transaction fees which can be quite high, especially if the network is congested.
At the height of the decentralized finance (DeFi) and NFT boom in 2021, you’d be paying up to $200 USD in transaction fees just to swap tokens. With the downturn in the crypto market, and subsequent lack of congestion on the network, it’s much cheaper now. However, Polygon and other layer-2 solutions for Ethereum have been becoming increasingly popular.
Polygon Network Speeds
Polygon (MATIC) is one of multiple layer-2 networks built on top of Ethereum that are meant to reduce transaction costs while increasing transaction speeds. Arbitrum (ARB), Optimism (OP), and Base are all other examples.
At a base level, Polygon is able to process 7,000 TPS, much higher than Ethereum. For finality, Polygon requires 15 confirmations on the Polygon network layer for a transaction to be guaranteed. With an average of 2 seconds per block, this means it takes about 30 seconds for the transaction to be finalized on Polygon. This is certainly faster than either the Bitcoin or Ethereum base layer, but not faster than the Lightning Network.
Polygon is also working on other solutions which will take congestion off the main Ethereum layer such as their zkEVM, which was released in August 2023.
Closing Thoughts
The reality of how long crypto transactions take is that there are varying ways to consider them completed. There are also varying ways in which transactions function within a blockchain network. As you have seen, transaction finality is more important than TPS when it comes to seeing how long a crypto transaction will take. Over time, crypto transactions are only going to be finalized faster and faster as these blockchain networks are continuously upgraded and optimized.
