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Current Constraints Facing Exchange Tokens

October 12

Transaction Speed

Transaction speed remains one of the major limiting factors when it comes to the mainstream adoption of cryptocurrencies. Decentralised exchange tokens currently present on the market offer transaction speeds several orders of magnitude lower than centralised solutions.

With blockchain as the architecture of choice for the dominating exchange token frameworks, the limitations of ‘blocks’ prevent more than a few transactions per second to be processed.

To highlight this:

  • Bitcoin processes approximately 7 transactions per second
  • Ethereum (although not expressly designed as an exchange token), processes around 15-30 transactions per second
  • Litecoin (Bitcoin’s largest competitor) has a reported ability to process 56 transactions per second
  • In comparison, Visa reportedly processes on average 1,667 transactions per second to keep up with worldwide transactional demand, with that number jumping during peak periods.

A low transaction throughput severely limits the speed at which a transaction can be confirmed, and thus how usable the currency is as a medium of exchange. For example, a customer attempting to purchase a bagel on their way to work using one of the above cryptocurrencies would be forced to wait anywhere from 20 minutes to an hour while their transaction was confirmed and the merchant was able to verify that the payment was successful.

Average confirmation times are only an indicator as well—Bitcoin blocks can regularly take 20 or even 30 minutes to be included in the chain. Heavy congestion on the network or orphaned blocks can add to this number, stemming from heavy usage or malicious attacks.

Scalability

Scalability within the scope of cryptocurrencies refers to the ability for a cryptocurrency to continue to provide its service to the same level despite a (potentially huge) influx of users. No decentralised solutions exist that have adequately demonstrated a high enough level of security coupled with enough transactions per second, thus none of these can be considered scalable enough to act as a mainstream currency. Many solutions attempt to offer speeds comparable to Visa’s, however fall short when it comes to either decentralisation or security.

Blockchains have had a contentious history, with many forks occurring due to debates surrounding the effectiveness and safety of increasing block sizes, changing confirmation times, or introducing short to medium-term solutions (such as Bitcoin’s Segwit and Lightning Network). In fact, all blockchain-based currencies have to wait for block propagation and verification across the network, putting a cap on their maximum throughput.

Security

Comprehensive security measures are absolutely required for a currency to function, both for the currency itself and the institutions holding it. If bank account holdings could be modified easily by third parties, or printing new banknotes were easy, the system would quickly collapse. The new Australian polymer banknotes contain 12 different counterfeiting countermeasures to combat this.

The same holds true for cryptography-based digital currency. If security vulnerabilities exist within the currency or wallets in custody of it, the potential for the entire system to crumble is very real. Bad actors will likely not be isolated to a single location (as they would be with physical currency) once news of the exploit spreads. Over the years, hundreds of millions of dollars have been hacked or lost due to bugs and vulnerabilities in cases such as the DAO hack or Parity’s killed smart contract.

Ease of Use

Although the process to buy, use and sell exchange tokens is becoming more abstracted for both users and businesses, the steep learning-curve remains a large and intimidating obstacle for most. In fact, in a poll posted on a popular internet forum, 75% of those using cryptocurrencies were at least university educated.

Fortunately, as the interest present by larger institutional players in the cryptocurrency space has ramped up, more focus has been placed on simplifying the user experience and creating educational resources to aid in adoption.

Sources

  1. https://www.comp.nus.edu.sg/~prateeks/papers/Bitcoin-scaling.pdf
  2. https://ethstats.net/
  3. https://cointelegraph.com/news/who-scales-it-best-inside-blockchains-ongoing-transactions-per-second-race
  4. https://mybroadband.co.za/news/security/190348-visanet-handling-100000-transactions-per-minute.html
  5. https://banknotes.rba.gov.au/counterfeit-detection/list-of-security-features/
  6. https://www.investinblockchain.com/reddit-cryptocurrency-survey/

Disclaimer: We believe this information is correct at the time it was produced. However, this industry evolves at a rapid speed and we do our best to update incorrect/outdated information as fast as possible. Give us a tip by contacting us 1

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Sam Volkering

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Sam is the Editor for Exponential Investor (UK) a publisher of investment newsletters focusing on cryptocurrency, small-cap, microcap and technology stocks. He’s also the author of ‘Crypto Revolution: Bitcoin, Cryptocurrency and the Future of Money’. In addition to his editorial work, he’s an advisor to exciting, new crypto and digital asset projects, such as Zucoins.

He spends his time hunting down the most exciting crypto and stock opportunities on the planet which are potential-packed, risky, exciting small-caps or tech breakthroughs transforming our future through cutting-edge technologies. He is also a leading expert in the UK and Australia on crypto-assets and their future impact on the world.

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Mate is an entrepreneur at heart. After graduating from the International Business School in Budapest in 2012, he helped launch Superior14, a successful food supplement company. He then became interested in crypto after hearing about Bitcoin in late 2012 and began Bitcoin mining in mid-2013 using custom-built ASIC miners. In 2013 he founded the media company, Bitcoinist.com.

After a successful exit in 2015, Mate met Roger Ver and co-founded Bitcoin.com, one of the original and industry-renowned cryptocurrency resources. Mate focuses on a broader vision and communicating that vision to others while staying on top of industry trends. His goal and passion are to make cryptocurrencies as popular as possible.

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Robert is the CTO at Zukaz and Zucoin and brings a wealth of knowledge and experience within IT, web and app development. Rob started out developing PC games during high school, having then use those 3D skills to design a car-of-the-future that was featured at the Melbourne International Motor show, 3 years running, even managing to take out the title. Amongst numerous other involvements, including having his photography featured at the National Gallery of Victoria, he spent the next couple of years coordinating with overseas manufacturers to import, develop and design software and support for GPS security trackers.

For more than the past decade, he has dove deeply into web systems, spending countless late-nights-and-next-mornings building, maintaining and providing support for hundreds of varying web systems. Those client contracts and projects spanned network, IT, server and application stacks, within industries such as agriculture, tourism, engineering, manufacturing, medical, finance, retail, beauty, among others.

Today, he is responsible for leading the overhaul of technical systems, processes and products inside the company and its two product divisons. He is leading the deployment of a new, ground-up, more efficient serverless infrastructure for web app development, built-in house, powering the future of our products and services.

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As the Founder of Zukaz and Zucoins, Allan Endresz is responsible for running all facets of the business. Allan has a proven executive management track record and over 30 years of experience driving sales growth in the technology and finance industries. Prior to starting Zukaz and Zucoins, Allan was heavily involved in Mergers and Acquisitions and other advisory roles.

At Zucoins, he has built a strong development team and holds the long-term vision for the company. Allan is a strong visionary that never gives up on his goals and dreams. Allan and his team are now developing the world’s first augmented reality tokens that, in real-time and securely store or exchange transactions between everyday users within the Zucoin ecosystem.

Zucoins are the only medium of exchange within an existing e-wallet seamlessly integrated with the augmented reality technology of the Zukaz app.