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 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.
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.
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