Ask CryptoVantage: What Causes Slow Bitcoin Transactions?

Bitcoin’s Blockchain Architecture

Blockchain is the underlying technology that facilitates most cryptocurrencies. At its core, the blockchain operates as nothing more than a ledger recording all the transactions that take place in the Bitcoin network.

These transactions are verified to be true by a decentralized network of anonymous miners who communicated with one another to verify transactions using a proof of work protocol. While PoW rewards miners who crack the cryptographic code that enables them to publish transactions on the blockchain for rewards, not every miner who participates in the process is rewarded. As miners compete to win rewards, the PoW protocol places an average time for miners to compete which is about 10 minutes. This is called the “block-time.”

Also, each block of transactions is limited in terms of the number of transactional data it can hold. This technical architecture of Bitcoin’s blockchain limits Bitcoin’s transactional throughput to 7 transactions per second.

Bitcoin’s Transaction Fees

Apart from the rewards that Bitcoin miners receive for publishing and verifying transactions on the blockchain, they also receive the transactional fees paid by network users who move Bitcoin from one wallet to the other. However, Bitcoin’s transaction fee model is designed with an invention that contributes to further slowing down the network.

While Bitcoin transactions come with a fee, technically, these fees are more like a voluntary tip to the miners for confirming the transaction than a fee to facilitate the transaction. Bitcoin transactions can still be confirmed on the blockchain even with zero transactional fees paid however, network users pay miners a fee to prioritize the verification of one transaction over another.

Therefore as the network grows, it becomes more advantageous for miners to prioritize transactions with compensation attached than ones without. As demand for Bitcoin increases and given the limited number of transactions that can be published in a block, network congestion emerges as a result of network users bidding higher transaction fees to have their transactions published. Throughout the process, some transactions are left unpublished. This slows down the Bitcoin network even while transaction fees continue to rise.

Possible Solutions Include Lightning Network

Bitcoin’s blockchain network has proven to be revolutionary however, inherent limitation in its blockchain architecture has made the entire network slow and incapable of handling microtransactions. Given that network fees can go as high as $10 per transaction, it would not be feasible to pay for coffees with Bitcoin.

The fact that Bitcoin’s blockchain network has a limited number of transactions that can fit in a block adds to the quick rate at which the network is likely to get congested. And with congestion comes hiked transactional fees and longer transaction confirmation periods leading to an endless cycle that could even take days to confirm a single transaction (especially if the transaction doesn’t have a high transactional fee attached).

Solutions such as the Bitcoin Lightning Network have emerged. The lightning network is operated on top of the main Bitcoin network as a second layer of payment infrastructure for Bitcoin transactions. Lightning makes fast and cheap Bitcoin transactions a reality.

Other blockchain networks are also working on a variety of consensus mechanisms that will improve the scalability of cryptocurrency transactions.