Transactions Per Second (TPS) in Blockchain Explained

When exploring blockchain related news, you must have encountered a term called “transactions per second” or “TPS” frequently. This is a common term used to measure a blockchain’s performance, with different networks recording varying levels of TPS.

If you’re wondering why this seemingly interesting term is one of the most sought after metric in Web3, start reading this blog because it is indeed interesting and crucial to understand the significant role it plays in the realms of blockchain technology and other distributed ledger technologies.

What  is Transactions per Second?

Transactions per Second (TPS) is a critical metric used to measure the throughput or transaction speed of a blockchain network. This metric reflects the average number of transactions that the network can process each second. High TPS is often associated with greater efficiency and enhanced capacity for handling simultaneous operations, making it a key indicator of a blockchain’s performance.

But its significance does not stop here. TPS is particularly important in evaluating the scalability of a blockchain, as it directly affects the network’s ability to manage large volumes of transactions efficiently. Networks with higher TPS can support more users and transactions without succumbing to congestion, which can lead to slower transaction times and higher processing fees. As such, improving TPS is a major focus within blockchain development, involving optimizations in network architecture, consensus algorithms, and other technological enhancements like sharding or Layer 2 solutions. These advancements aim to streamline transaction processing, reduce latency, and ultimately provide a smoother, faster blockchain experience.

Scalability is one issue that’s been a barrier of sorts when it comes to mass adoption of blockchain technology. Compared to traditional transaction processing systems, blockchain networks are relatively slower. For instance, Bitcoin’s throughput can go up to 5-10 TPS. In the case of Ethereum, it stands between 20-30 TPS. Even the more recent networks process an average of 400 TPS. Meanwhile, established payment networks and social apps like Visa and Meta (Facebook) can process an average of 4000 TPS. 

Factors Affecting Transactions per Second

1. Self-imposed Block Limits

The TPS of a blockchain network depends on various factors. One of the most important is block size. Bigger block sizes mean a network can process more transactions per second. Secondly, shorter validation times in blockchain networks can also ensure higher throughput. But that comes at the expense of decentralization or security.

Bitcoin, for instance, has a smaller block size and longer block production time due to its rightful obsession with security. More recent networks tweak their architectures to achieve high scalability while still capping their limits to prevent malicious attack vectors. Remember, in the wake of the 2008 financial crisis, Bitcoin and other early blockchain networks emerged as a means to mitigate the adverse effects of traditional centralized institutions, such as banks and big tech, repeatedly leveraging their power to inflict widespread losses on the general public. Therefore, blockchain networks started developing their protocols focused on decentralization and security by essentially limiting their scalability potential. 

2. Vertical Scaling

Limiting TPS eventually results in network congestion. In order to decongest and increase scalability, more networks opted to scale vertically similar to traditional systems. Scaling vertically includes significantly increasing the CPU, RAM and storage of existing servers. At that point, only limited users can afford to run a node. When network congestion resulted in higher costs to operate a node coupled with the high demand for limited block space, nodes started prioritizing and processing transactions in order of highest fees paid by end users instead of processing transactions in the order they were received leading to inflated fee markets. 

And since public blockchains record transactions in public ledgers which are open to anyone, new unwelcome consequences began running amok – front-running and MEV. Whenever blockchains experience higher demand, vertical scaling causes transactions per second (TPS) to hit a ceiling, limiting further throughput and causing outages and transaction fee spikes.

3. Consensus Mechanism

Remember, permissionless, public blockchains rely on public participants (nodes who use computer servers) to reach consensus on the order and validity of transactions. So the TPS of a blockchain depends directly on the consensus mechanism used and how quickly and efficiently transactions are validated and added to the network. Mechanisms like Proof of Work (PoW), used by Bitcoin, can be slower and more resource-intensive, reducing its throughput and scalability capacity.

Factors Improving Transactions Per Second

Industry stakeholders are continually developing new solutions to address the ongoing challenges of throughput and scalability. As the blockchain technology evolve towards mainstream adoption, these solutions will hold extremely high significance.

1. Layer 2 Solutions 

Layer 2 solutions are protocols that are built on top of layer 1 networks like Ethereum. They help increase TPS by offloading transaction processing from the main blockchain (Layer 1) to secondary layers. These solutions handle transactions independently and then batch or roll up the results to the main chain, reducing congestion and allowing the main blockchain to validate transactions more efficiently. This significantly boosts the overall transaction throughput.

2. Sharding 

Sharding helps increase TPS by dividing the blockchain network into smaller, parallel segments called shards at the main layer. Each shard processes its own transactions and smart contracts independently, allowing multiple transactions to be processed simultaneously. This parallelism reduces the overall load on the network, significantly enhancing its transaction throughput and scalability.

3. Efficient Consensus Mechanisms

Mechanisms such as Proof of Stake (PoS) and the Gossip protocol enhance TPS by streamlining transaction validation and network communication. PoS selects validators based on their staked tokens, significantly reducing the computational effort and time needed to create and validate blocks compared to PoW. On the other hand, the technologies like Gossip protocol enables rapid and efficient dissemination of transaction and block information across the network, ensuring faster consensus. Together, these mechanisms improve the efficiency and speed of the blockchain network, leading to a substantial increase in transactions per second.

4. Blockless Architectures

Blockless architectures significantly boost TPS in blockchain networks by eliminating the traditional block-based structure. In blockless systems, such as those using a Directed Acyclic Graph (DAG), transactions are linked directly to each other rather than being grouped into blocks. This allows for parallel processing of transactions, as each new transaction validates one or more previous transactions, leading to a reduction in confirmation times and an increase in throughput. The removal of blocks alleviates bottlenecks associated with block production and propagation, enabling the network to scale more efficiently and handle a higher volume of transactions per second.

5. Parallel Transaction Execution

As suggested in the previous sections, parallel transaction execution substantially enhances the transactions per second (TPS) in blockchain by allowing multiple transactions to be processed simultaneously, rather than sequentially. This approach enhances the utilization of computational resources such as CPU and memory more uniformly across network nodes, thereby boosting throughput and improving overall efficiency As a result, blockchains that implement parallel processing can handle a significantly higher volume of transactions, improving the overall network scalability.

6. Linear or Horizontal Scalability

Ideally, the rate at which the network processes transactions should be proportional to the number of nodes in the network. Increasing throughput means increasing the number of nodes (horizontal scaling) as opposed to vertical scaling. This approach distributes the transaction load across multiple nodes processing transactions concurrently, significantly enhancing the network’s capacity. Horizontal scalability is extremely hard to achieve in the realm of decentralized distributed ledger tech because there is no one silver bullet a network can employ to achieve this. It requires networks to implement an optimal architecture and consensus mechanism, incorporate lightweight validator nodes, and adopt advanced techniques such as sharding and auto-scaling. But when a network achieves linear scalability, the system’s transaction processing capacity scales in direct proportion to the number of nodes, thereby maintaining and ideally enhancing transaction speeds as the network grows.

The Bottomline

In conclusion, the ability of a blockchain to handle a high transactions per second (TPS) rate is crucial for its adoption in real-world applications especially in industries such as gaming, supply chain, exchanges, social media, telecommunications among others. As TPS increases, it directly influences a blockchain’s scalability, making it suitable for widespread use across various industries. Therefore, enhancing TPS is not just a technical achievement, but a necessary step towards achieving mass adoption, as it ensures the network can support the demands of large-scale, practical applications efficiently and reliably in a decentralized way – an all-encompassing attribute traditional Web2 systems lack, accelerating the demand for decentralization in the first place!

Frequently Asked Questions (FAQs)

1. Is TPS the only factor that decides the efficiency of a blockchain network?

No, TPS (transactions per second) is an important measure of a blockchain’s performance, but it is not the sole factor that determines a network’s efficiency. Other critical aspects include latency, which affects the speed of transaction confirmation and overall user experience; scalability, which addresses the network’s ability to grow and manage increased demand through more nodes or additional layers; and security, ensuring the integrity and trustworthiness of the network against attacks and fraud. Together, these elements contribute to the holistic efficiency and reliability of a blockchain platform.

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