Throughput

What Is the Throughput in Crypto?

Within the cryptocurrency ecosystem, the term throughput refers to the capacity of a blockchain network to handle a specified volume of transactions within a given timeframe. Throughput can be expressed in TPS (transactions per second), TPM (transactions per minute), and TPH (transactions per hour). 

Blockchains have two essential throughput metrics:

Maximum TPS, which denotes the peak transaction capacity a blockchain can support during periods of high activity or congestion.

Average TPS, which represents the typical number of transactions a blockchain can process per second under normal network conditions.

As an illustration, Bitcoin typically processes about 5 transactions per second, with a peak capacity of 7 transactions per second.

Throughput is influenced by several factors, one of the most important – block confirmation time. It refers to how long it takes for a transaction to be validated and permanently recorded on the blockchain. The shorter the confirmation time, the faster the crypto processing speed.

Why Throughput Matters in Crypto

As the crypto user base continues to swell, surpassing 600 million in 2024, the need for efficient transaction processing becomes of high importance. When a blockchain network can’t process transactions efficiently, the following issues may be faced:

• Transaction delays occur when confirmation times slow down, reducing efficiency.
• Higher fees arise when networks are congested, which leads to increased costs to prioritize transactions.
• Scalability challenges occur as blockchains with low throughput struggle to support large-scale or global use.

High throughput is crucial for businesses that rely on crypto processing, such as exchanges, payment gateways, and DeFi platforms, to make use of fast transactions. High throughput allows platforms to handle a large volume of transactions quickly. It also helps with scalability, so as the platform grows, it can manage increased traffic without slowing down or raising fees.

Factors Affecting Throughput in Crypto

The transaction-processing speed of a blockchain is determined by several key factors, including the consensus mechanism, block size, network traffic, and the number of nodes, all of which influence how quickly transactions are validated, processed, and added to the blockchain.

• Block size. Larger blocks can hold more transactions, increasing throughput.
• Network traffic and congestion. High transaction volumes can cause congestion, slowing down processing, especially during market surges.
• Consensus mechanism. The method used to validate transactions impacts throughput. Proof-of-work (PoW) networks have lower throughput due to the complexity of mining. Proof-of-stake (PoS) networks are generally faster because they use validator stakes instead of complex computations.
• Number of nodes. More distributed nodes can improve processing efficiency. However, poorly optimized networks with slow nodes may reduce throughput.

How to Improve Throughput in Crypto

Here are the top 5 effective strategies that may help improve throughput in crypto:

• Sharding. At the core of this strategy is a facility to break a blockchain into smaller, independent units. These units are called shards and are capable of processing transactions on their own. Throughput increases as a result of the reduced load on the main chain.
• Layer 2 solutions. Such solutions move transactions off the main blockchain, improving efficiency while maintaining security and decentralization. For example, the Lightning Network (Bitcoin) processes transactions off-chain and settles them later, while Plasma (Ethereum) uses child chains to manage transactions before finalizing them on the main blockchain. These solutions help reduce congestion, lower fees, and increase processing speed.
• Proof-of-Stake consensus. Proof-of-Stake (PoS) replaces the energy-demanding Proof-of-Work (PoW) system. Validators are chosen based on their stake in the network rather than computational power, reducing transaction validation time and therefore increasing throughput.
• Block size adjustments. To get more transactions to be processed in each block, it’s possible to expand the block size. It requires higher computational power and can affect network performance, on the other hand. That’s why the balance between scalability and security is of high importance.
• Expanding node infrastructure. Faster transaction processing and validation are achieved through a well-distributed network with efficient nodes. By increasing node participation, both network reliability and transaction finalization speed are improved.