The Transaction Capacity Problems
“A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution,”
– Satoshi Nakomoto. This way Bitcoin was described by its creator when first introduced.
Prompt and totally secure peer-to-peer payment transactions were one of the most important Bitocoin’s values. Bitcoin is considered to be the dominant cryptocurrency now in the global market and shows more than 1.200% increase in value in the past year.
The transactions number on the blockchain of Bitcoin has increased as well along with the extreme growth of the cryptocurrency. It’s unbelievable, but up to 400.000 transactions have been conducted per day. Such s calability caused serious problems for the blockchain and more than 90.000 transactions were rejected being unconfirmed at the moment.
Each time we send a Bitcoin transaction from one wallet to another it is added to the mempool (memory pool), i.e. a pool of unconfirmed Bitcoin network transactions. That pool is actually maintained by other individual memory pools on machines which hold nodes (the blockchain ledger copy).
Miners select transactions to be verified from the mempool. As soon as miners confirm the transaction (when sender has enough Bitcoins to send), it is added to a new block eventually published to the blockchain. After that, other nodes reiterate through the published transactions and ensure the validity of the block before accepting it as a part of the ledger.
– An average size of transaction is approximately 250 bytes
– The size of the block is limited to 1MB
– One block holds about 4000 transactions (if divide 1MB by 250 bytes)
– A block is possible to be published to the blockchain every 600 seconds (10 minutes) on average.
– Thus, the rate of the transactions published is 6.66 per second (4000 transactions every 10 minutes).
How can the miner select a transaction to verify if there are more than 90.000 unconfirmed transactions? Transaction fees are an issue!
There is an option of adding a custom transaction fee to the transaction intended for the miner available to the sender. That helps a miner to select the transaction to be verified faster. Thus, in order to increase their profits, miners select those transactions which have the highest fee attached. Sure, you can send your transaction without adding a fee, but if there are transactions having higher fees in the pool yours is not going to be picked ever.
An average transaction fee grows along with the growth of the base of Bitcoin’s users. Only 7 transactions are being processed per second, and of course, everyone wants his transaction to be verified the soonest. An average transaction fee is about $3.58 for now. Sure, you might spend more on transaction fees than the transaction value! That’s the problem actually, and the transaction fees are still expected to increase! go to 3 parts