When researching a blockchain network and assessing its potential, there are three main factors to take into consideration: decentralization, security, and scalability (speed). The problem that most blockchain projects are looking to solve is the ability to have all three of those factors working in harmony. Generally, there is some sort of compromise that means the network is less secure but faster, 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).
Transactions per second then (TPS) becomes a key factor when looking at a blockchain network’s potential at a global scale. If a network cannot handle transactions quickly, it won’t be able to be adopted as a mainstream payment option. However, TPS is not the same as transaction finality. Before examining how long transactions take place on Bitcoin, Ethereum, and Cardano, let’s first separate the two concepts of TPS and transaction time to finality (TTF).
Transactions Per Second vs Finality
Transactions per second, or TPS, refers to the number of transactions that occur in one second in a system. Visa generally processes about 1700 TPS every day. In theory, a high TPS should mean that a blockchain can process X number of transactions per second, but TPS doesn’t measure the time it takes for a transaction to be finalized. This is a key distinction because only once a transaction is finalized is it guaranteed to be immutable and final.
Many networks like Bitcoin use probabilistic transaction finality. This means that the transactions are not final right away, but after a certain number of blocks have been added (often referred to as confirmations).
For example, Bitcoin finality usually requires 6 block confirmations, while Ethereum requires 25. This means that once the transaction is shown on the network it still takes that number of blocks for the transaction to be considered valid and irreversible. The time it takes for a block to be added to the chain multiplied by the number of block confirmations required is then the real time it takes for a transaction to be finalized. With the current regulatory bills in various stages of approval that are calling for transactions to be reversible, this is a key metric.
Time to finality, or TTF, then becomes a more accurate measure for a blockchain network’s speed and capability than TPS. It’s not that great if a network has a high TPS but still takes multiple minutes for the transaction to be finalized and irreversible.
Finality is extremely important for any crypto asset that is hoping to be usable as a payment method as no merchant would want to have to wait multiple minutes to be guaranteed that they will receive the payment they’re supposed to. Nor would you as a consumer want to stand there for the same reason.
Bitcoin Transaction Speed
Bitcoin has long been known to have a fairly slow TPS at 7. Of course, this doesn’t refer to finality, which at 6 block confirmations and an average of 1 block per 10 minutes, means it actually takes an hour for your transaction to be guaranteed and finalized. Obviously this is not fast enough to be taken seriously as a 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, 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 6 block confirmations, but paying a higher fee should mean it’s included earlier and thus finalized earlier.
Bitcoin Lightning Network Speed
The Bitcoin Lightning Network is a layer-2 blockchain network. This means it is built on top of Bitcoin’s base layer. The Lightning Network uses smart contracts and bidirectional payment channels to essentially remove the need for block confirmations. This means that transactions are instant, with the only limitation being the number of channels that are currently available.
Without getting too technical, 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 handle 1,000,000 TPS with instant finality and much cheaper fees than on the main layer.
With this sort of system, the transactions aren’t sent to the base layer and confirmed until channels are closed, but they’re enforced because of the smart contracts. This prevents any sort of bad acting and allows for instantaneous payments that are guaranteed. This is also essentially how all layer-2s work; they keep transactions off the main blockchain layer until it’s necessary to finalize them, but guarantee their finality through smart contracts.
Ethereum Transaction Speed
Much like Bitcoin, Ethereum’s base layer has a pretty slow TPS at 30. However, with 20-25 second block times, this means that Ethereum transactions are confirmed much sooner than Bitcoin’s. The main issue with Ethereum transactions, apart from the scalability of them, is their transaction fees, which can be quite high, especially if the network is congested.
At the height of the decentralized finance and NFT boom in 2021, you could have been paying up to $200 USD just to swap tokens. With the downturn in the crypto market, and lack of congestion on the network, it’s more like $3 nowadays. However, Polygon and other solutions for Ethereum have been making serious headway since those high fee days.
Polygon Network Speeds
Polygon (MATIC) is just one of a few layer-2 networks built on top of Ethereum that are meant to reduce transaction costs while increasing transaction speeds. At a base level, Polygon is able to process 7,000 TPS, much higher than Ethereum. Generally, Polygon requires 15 confirmations on the Polygon network layer for a transaction to be final. With an average of 2 seconds per block, this means it takes about 30 seconds for the transaction to be finalized, certainly faster than either the Bitcoin or Ethereum base layer, though not faster than the Lightning Network.
Basically it’s a matter of cents not dollars to send Polygon.
Polygon has recently announced their beta mainnet for the zkEVM, set to launch on March 27, 2023. It alone will be able to increase the TPS of Ethereum’s main layer to 2,000, a huge step up. This will reduce congestion and transaction costs.
Cardano Transaction Speed
Cardano works quite differently from both Bitcoin and Ethereum because of its eUTXO model. Very quickly, this allows many transactions to be bundled into one transaction, from multiple parties. You can also attach a nearly endless number of tokens and NFTs to a Cardano transaction without having to pay much additional cost.
This means on Cardano, you can send some ADA, an NFT, and 5 different tokens, all in one transaction for one low cost. This is in contrast to a network like Ethereum, wherein you’d have to send ETH in one transaction, an NFT in another, and each token in 5 separate transactions.
Cardano’s TPS is closer to 1 than anything else, but before you scoff, consider the fact that transactions are bundled, meaning both your and another person’s transaction are often bundled together. This means that there can actually be something like 100 transactions/transfers within that one “TPS”. This is being scaled constantly by Cardano as well, and like Ethereum and Bitcoin, there is a layer-2 solution in the works called Hydra. If implemented successfully, it could scale Cardano to be as fast as the Lightning Network.
Closing Thoughts: Speed Isn’t Everything
The reality of crypto transactions is that there are varying ways to consider them complete, and varying ways in which they function within a blockchain network.
As you can see, TPS isn’t the whole story when it comes to seeing how long a transaction will take. In fact, it’s somewhat irrelevant most of the time, especially with models like Cardano’s. One thing is certain, they’re only going to be finalized faster and faster as these blockchain networks are continuously upgraded and optimized.