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Cryptocurrencies: Does Fast Transaction Time Matters?

Does fast transaction time matters? Some claim that fast transaction time and/or speed don’t really matter when it comes to cryptocurrencies. Is this true? We address the issue in this article.

Pete (a.k.a. toknormal) noted the following at the Bitcoin Forum. Our remarks are in bold:

Hi Folks

I am a professional eCommerce systems developer and this is something that has been bothering me for a while regarding coins which are promoted as being “fast”.

The only advantage I can see of a coin having fast transaction times is for use at POS (Point of Sale) terminals. However, if cryptocurrencies ever get near supermarket checkouts, I think it’s very unlikely that people will be doing actual blockchain transactions right at the checkout. – Are fast transaction times at POS terminals the only advantage of a fast cryptocurrency? What about transactions where ordinary folks like you and I choose to transact, especially when the value of the product/service bought, sold or traded is very time-sensitive? In terms of supermarket checkouts, logic dictates that actual block chain transactions could be done right at the checkout if you’re dealing with a fast cryptocurrency. E.g. transactions in FastCoin (FST) can be completed within 48 seconds! Now even if the only benefit of fast cryptocurrencies was to reduce the transaction time at POS, wouldn’t you say that is an excellent benefit on its own, especially when security is not compromised? Yet, Pete and others wish to claim that “there’s very little advantage in pushing transaction times for “cryptos” below the level of a few minutes because they’re not going to be manifesting themselves at the point of sale anyway.”

What’s likely to happen is that transaction clearing houses like Visa and Maestro will handle the transaction at the point of sale and then carry out the actual “underlying” money (in this case blockchain) transaction as they do today. – Yes, a clearing house will be needed when you’re dealing with slow cryptocurrencies at POS terminals, but why add a third party to the transaction if it is not really needed or required? Again, transactions in FastCoin (FST) can be completed within 48 seconds, without the need for a clearing house or the additional cost it will bring. What is the point of a cryptocurrency if you cannot exclude parasites to the greatest extent possible, even if it means you have to wait a couple of seconds longer? However, when it becomes minutes and hours, then it certainly becomes an issue.

What people need to understand is that there is a whole industrial layer *on top* of the real money system which takes care of buffering the waiting time away from the customer at the point of sale. That “clearing house” layer also has time to resolve problems like the occasional delay etc. – We’re dealing with cryptocurrency here, not your traditional money system or transactions within a traditional money system. So what is his point exactly? Apples should be compared to apples. To hell with the “whole industrial layer *on top* of the real money system” (or the parasites for that matter lol). Who needs a parasite when a transaction can be concluded by two parties without the need of a third party, especially when the third party doesn’t really add anything of value? A huge part of what makes cryptocurrencies super beneficial is the fact that parasites can be excluded to a great extent, especially in transactions where one currency doesn’t need to be exchanged for another. Yes, one could argue that other users in the block chain are third parties needed to complete transactions, but the fact of the matter is that they are not parasites that add extra layers of cost without adding any value. They add value in a mutually beneficial manner. This is why peer-to-peer networking, one of the primary drivers of cryptocurrencies, is so effect. It is about a team effort to unleash value to the greater whole, not about a parasite that wish to add an unnecessary cost layer, which is not to the benefit of the whole or even most individuals. Thus, common interest gets placed before self-interest, but both the individual and the group or team benefit, not only a selective few.

You can see this today – when you pay for your supermarket goods and leave the place, the transaction won’t show up in your bank account for a while. That’s because the supermarket POS systems are not actually doing the money transfer – only sending a number to a server which instructs the clearing house to debit an account. This process is extremely fast. It also allows for problem resolution without bothering the customer. cryptocurrencies are never going to get near this level of “smoothness” and performance because crypto’s are doing everything at once – they are both handling the point of sale support AND doing the underlying money transfer. – Again, he is using the status quo or the way how transactions are done in the traditional money system as a point of reference, which is completely off-based when you’re dealing with a fast cryptocurrency such as FastCoin (FST). Why add an extra layer(s) when it is not really needed or required? I mean, when given the option, why will folks not choose to wait 48 seconds for a transaction to complete if they know it will cut out the middle man and/or an extra layer of cost? In fact, even if a clearing house becomes a necessary evil, it will make more sense to even them to deal with faster cryptocurrencies, especially when it comes to day-to-day transactions that can quickly amount to millions of transactions.  We mean, the value of cryptocurrencies can change immensely within a couple of minutes, can one really believe that clearing houses will want to take that sort of currency risk, especially considering that they will want to swap different cryptocurrencies in order to manage their risks? Perhaps yes, but will it not come at a hefty price to the consumer and introduce many unnecessary and/or hidden costs?  In addition, why should merchants be held ransom by clearing houses?

So my thinking is that there’s very little advantage in pushing transaction times for “cryptos” below the level of a few minutes because they’re not going to be manifesting themselves at the point of sale anyway. That “clearing house” layer is always going to be needed. – Yes, there is “very little advantage in pushing transaction times for “cryptos” below the level of a few minutes”, when you’re not really comparing apples to apples. Fortunately many can compare apples to apples, and do for one, appreciate the fact that some apples fall faster from the tree than others. This is not say or claim that slower cryptocurrencies should be excluded or have no benefits, it is rather to say that faster cryptocurrencies cannot be excluded on account of the reasons stated by Pete (and others who share his sentiment). We mean, who likes to wait hours or days when money could have been in his/her account within 48 seconds (using FastCoin (FST) as an example), especially when there are no additional costs involved in facilitating a transaction?

What I think is that there are 2 optimal transaction times for “cryptos”

[1] – sub 5 minutes is very good because it competes well with banks doing “real” money transfers. It’s also a reasonable waiting time for email confirmations for internet transactions. – We agree, but how about sub 1 minute? In fact, why do Pete state that there is “very little advantage in pushing transaction times for “cryptos” below the level of a few minutes” and that there is “very little advantage in pushing transaction times for “cryptos” below the level of a few minutes”, but admit “sub 5 minutes is very good because it competes well with banks doing “real” money transfers”? Now based on Pete’s logic, but not on his conclusions, then sub 1 minute should be construed as excellent, because it should even take the banks doing “real” money transfers to the cleaners. This is assuming Pete is correct when he claims that sub 5 minutes are enough to effectively compete with the banks. We mean, there is a notable difference between less than a minute and a minute, not even to mention the difference between 1 and 5 minutes. This is especially true if you consider the fact that it takes 48 seconds to fully complete a transaction in FastCoin (FST).

[2] – sub 1 minute MAY be good for certain limited things like buying a train ticket at a station platform – We don’t get it. So “sub 1 minute MAY be good for certain limited things like buying a train ticket at a station platform”, where speed is of the essence, but not necessarily at POS terminals, because it is for one claimed that clearing houses will be needed? To be brutally honest, even if fast cryptocurrencies are only used to buy train tickets at station platforms, can you see the huge benefit of this alone?

[3] – pushing it further than that is a waste of time. POS is never going ot be doing direct blockchain interaction. Even 30 seconds is far to long for a supermarket queue and the vendor is exposing themselves to far too much risk in having to support the full underlying money transfer – Again, we beg to disagree on account of the reasons already stated.

So I think coins, having got the transaction times down to sub 5-minute, should just forget about performance and concentrate on socio-economic issues (like distribution) and reliability. – Ok, so based on Pete’s take, then all cryptocurrencies should forget about performance. We say this, because how is performance improved, when cryptocurrencies offer complete transaction speeds of 5-minutes or more?

Pete

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In conclusion: The ability of a cryptocurrency to ensure that transactions get completed in a quick manner does matter. This is despite the best of claims to the contrary. In fact, it will not surprise us the least bit if the market choose to place a higher value on such crytocurrencies at the end of the day, especially when security is not compromised. Since when does speed not matter, especially when it comes to the time it takes to fully complete a transaction, while excluding as many parasites as possible in the process? If you share our sentiment, you might want to consider an investment in the fastest cryptocurrency.

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