Blockchain Transactions Speed: A Layman's Guide

Ready to dive into the world of blockchain? Let's break it all down for you!

When you're out there surfing blockchain news, you'll often come across the term "Transactions per Second" or "TPS." This is a key metric commonly used to measure a blockchain's performance, as different networks have varying TPS levels. So, why's it such a big deal in Web3? Strap in, because we're about to take a journey through the significant role TPS plays in the blockchain realm and beyond.

What's Transactions per Second (TPS)?

Simply put, TPS is a critical metric that measures a blockchain network's transaction speed. It reflects the average number of transactions the network can handle each second, with higher TPS typically associated with greater efficiency and a larger capacity for managing concurrent operations.

Now, TPS isn't just about raw power. It's significant when assessing scalability because it directly affects a network's ability to handle large volumes of transactions efficiently—something essential for supporting a multitude of users without experiencing bottlenecks or increased transaction costs. Naturally, improving TPS is a key focus in the blockchain dev community, with optimizations in network architecture, consensus algorithms, and advancements like sharding or Layer 2 solutions at play. These tweaks aim to streamline transaction processing, reduce latency, and ultimately offer a smoother, faster blockchain experience.

The Scalability Dilemma

Scalability is a key barrier to mass adoption of blockchain technology, as compared to traditional transaction processing systems, blockchain networks are relatively slower. Bitcoin, for example, processes up to 5-10 transactions per second, while Ethereum manages an average of 20-30 transactions per second under normal conditions. Even more recent networks often cap at around 400 transactions per second, while established payment networks, such as Visa, can handle an average of about 4,000 transactions per second.

Factors Impacting TPS

1. Block Size and Validation Times

TPS depends on various factors, such as the size of blocks and the time taken to validate transactions. Larger block sizes and quicker validation times generally mean the capacity to process more transactions per second. However, this comes at the cost of decentralization or security, with Bitcoin's smaller block size and longer block production time largely driven by the network's focus on security. It's important to note that Bitcoin and other early blockchain networks were designed to mitigate the adverse effects of traditional, centralized financial institutions, like banks and large tech companies, known for exploiting their power to inflict losses on the public on numerous occasions. Therefore, blockchain networks prioritized decentralization and security, thereby limiting scalability potential.

2. Vertical Scaling

As TPS limits are reached, networks often resort to a similar approach as traditional systems by scaling vertically. This involves increasing the CPU, RAM, and storage on existing servers, making it possible for only limited users to run a node. Over time, high demand for limited block space caused by network congestion led nodes to prioritize and process transactions in the order of fee paid rather than in the order received, creating inflated fee markets. Additionally, the fact that public blockchains record transactions in public ledgers, open to anyone, has resulted in unwelcome consequences, including front-running and MEV. As TPS hits a ceiling, network congestion causes outages and transaction fee spikes.

3. Consensus Mechanisms

The consensus mechanism used also plays a significant role in determining TPS. Faster and more efficient transaction validation and network communication can directly boost TPS. Mechanisms like Proof of Work (PoW), used by Bitcoin, can be slower and more resource-intensive, which in turn reduces its TPS and scalability potential.

Factors Enhancing TPS

As the blockchain sphere evolves, industry stakeholders continue to develop new solutions to the ongoing challenges of throughput and scalability. These solutions, such as Layer 2 solutions, sharding, efficient consensus mechanisms, and blockless architectures, will hold great importance as blockchain technology moves towards mainstream adoption.

1. Layer 2 Solutions

Layer 2 solutions are protocols built upon primary blockchains, such as Ethereum. They help increase TPS by offloading transaction processing from the main blockchain to secondary layers. These solutions independently handle transactions and then batch or roll up the results to the main chain, reducing congestion and allowing the main blockchain to validate transactions more efficiently, thus significantly boosting throughput.

2. Sharding

Sharding involves splitting the blockchain network into smaller, parallel segments called shards. Each shard processes its own transactions and smart contracts independently, leading to less overall congestion and a substantial increase in TPS.

3. Efficient Consensus Mechanisms

Consensus mechanisms, including Proof of Stake (PoS) and technologies like the Gossip protocol, improve TPS by streamlining transaction validation and network communication, ensuring faster consensus and enhanced efficiency. By selecting validators based on their staked tokens (PoS) or enabling rapid and efficient dissemination of transaction and block information across the network, these mechanisms boost the overall efficiency and speed of the blockchain network, leading to higher TPS.

4. Blockless Architectures

Blockless architectures significantly boost TPS by eliminating the traditional block-based structure. In blockless systems, such as those using a Directed Acyclic Graph (DAG), transactions are directly linked to each other rather than being grouped into blocks. This enables parallel processing of transactions, reducing confirmation times and increasing throughput. The removal of blocks alleviates bottlenecks associated with block production and propagation, allowing the network to scale more efficiently and handle a higher volume of transactions per second.

5. Parallel Transaction Execution

By allowing multiple transactions to be processed simultaneously, parallel transaction execution considerably enhances TPS in blockchain. This approach ensures more uniform utilization of computational resources across network nodes, thereby boosting overall efficiency and enabling blockchains to handle a significantly higher volume of transactions, thus improving the network's scalability.

6. Linear or Horizontal Scalability

Ideally, network throughput should be proportional to the number of nodes in the network. Increasing throughput means increasing the number of nodes (horizontal scaling) instead of upgrading servers (vertical scaling). This approach distributes the transactional load across multiple nodes, improving the network's capacity to support increased demand. Achieving linear scalability allows the system's transaction processing capacity to grow in direct proportion to the number of nodes, ensuring a consistently smooth experience for users as the network expands.

Wrapping Up

As TPS increases, it directly impacts a blockchain's potential for adoption in real-world applications, especially in industries such as finance, gaming, supply chain, and telecommunications. Enhancing TPS is not just about technical prowess; it's a necessary step towards achieving mass adoption, ensuring networks can efficiently and reliably support large-scale, practical applications in a decentralized manner. With these exciting advancements, the future of blockchain scalability and efficiency is looking brighter than ever!

Frequently Asked Questions (FAQs)

1. Is TPS the only factor that determines a blockchain network's efficiency?

No, TPS is an important measure of a blockchain network's performance, but it is not the sole factor that plays a role in determining a network's efficiency. Other crucial factors include factors such as latency, which affects the speed of transaction confirmation and overall user experience; scalability, which addresses the network's capacity to grow; and security, which ensures the integrity and trustworthiness of the network against attacks and malicious activities. Together, these elements contribute to the comprehensive efficiency and reliability of a blockchain platform.

Blockchain Transactions Speed: A Layman's Guide