Glossary

Transactions per second (TPS) refers to the number of transactions a particular blockchain can handle per second. Higher speeds mean higher payment efficiency, possibly at the expense of decentralization.

What Does Transactions per Second (TPS) Mean?

In blockchain, transactions per second (TPS) is the number of transactions a blockchain network can process each second or the number of transactions executed per second. The term is quite popular in the crypto space, especially when talking about scalability.

How to Calculate Transactions per Second (TPS)

To calculate TPS, you have to know the block time, the average transaction size, and the block size. Block time is the average time it takes to create a new block in a chain. Bitcoin’s is 10 minutes. The average transaction size you’ll have to calculate. The block size is the size of a block in a chain. Bitcoin’s is 1 MB.

If we use an example, a block size of 1MB with an average transaction size of 1 Kb and a block time of 30 seconds will equate to a theoretical TPS of 33 (1MB/1Kb)/30 seconds=33). 

Currently, Bitcoin’s TPS is 7, which when compared to other cryptocurrencies isn’t the quickest. For example, Ethereum, on average, processes 20 transactions per second, which is almost twice Bitcoin’s transactions rate. 

With Ethereum 2.0 on the way, things are about to get much better for the second-largest crypto coin and network.

Other crypto coins with higher TPS rates than Bitcoin include Ripple (1,500 transactions), Bitcoin Cash (60 transactions), Litecoin (56 transactions), and Dash (48 transactions)

Compared to PayPal, which can handle 193 transactions per second, and VISA, which can handle about 25,000 transactions on average, cryptocurrencies still have a long way to go before completely replacing such traditional ways of transacting. 

Bitcoin’s decentralization makes it hard to scale up without sacrificing on some things. Achieving greater speeds comes at the expense of decentralization, which defeats the whole idea of a decentralized ecosystem, the coin and technology aim for. 

While Bitcoin stands out as a top-performing network, many blockchain projects exist that boast high TPS numbers. However, a deep dive into their inner workings shows such high performance is due to some sacrifices to the network. 

Several technologies have been in development for many years to help with the transaction rates of blockchains. Bitcoin has SegWit, an on-chain scaling solution to low transaction rates. SegWit removes overheard from a Block, creating extra space for more transactions in the block. 

Besides Segwit, there is the Lightning Network, which is an off-chain scaling solution to low transaction rates. A lightning network enables transactions to take place outside a blockchain. 

Understanding Bitcoin’s TPS helps with understanding how the network behind the world’s leading crypto-coin works. It also helps with knowing the challenges facing blockchain technology as a whole. 

As more solutions keep coming up to help with the blockchain scalability problem, there is still more to learn about the technology. Currently, there is yet to be found a robust solution that achieves high TPS while retaining decentralization.

Transactions Per Second (TPS)

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