How Bitcoin Transactions Compare to FedWire

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Bitcoin can process an average of around 12,000 transactions per hour, or around 288,000 per day. Its maximum capacity is about seven transactions per second, or a maximum of 604,800 transactions per day. The value of these transactions regularly exceeds $1 billion a day, according to Blockchain.com.

In contrast, the world’s largest money-processing payment network, FedWire, settles down approximately 811,000 transactions worth $3.9 trillion every day. Although FedWire does not operate 24 hours a day, the US Federal Reserve has announced plans for a 24/7 payment service called FedNow for July 2023.

Read more: FedNow is coming next year and authorities are hoping it’s a crypto killer

Blocks of data on the Bitcoin ledger contain an average 2,000 transactions. Miners process blocks approximately once every ten minutes. According to Blockchain.com, the average confirmation times interval from 3.5 minutes to 13.2 minutes.

Miners will generally choose the transactions with the highest transaction fees per byte to be included in the next block. The fees are based on the number of bytes used by a transaction and the speed at which the sender wishes to send the bitcoin rather than the “dollar value” of the transaction.

If the bitcoin network is not very congested, someone can settle tens of millions of dollars worth of bitcoin in an hour for less than $1 fee. This is certainly beyond the capacity of FedWire today.

Importance of Scaling Bitcoin Transactions for Everyday Use

Bitcoin’s growth as a layer of financial settlement is impressive, but more growth is needed to make it competitive with “traditional” interbank settlement services like FedWire.

A few years ago, SegWit effectively doubled the data processing capacity of Bitcoin. Bitcoin’s previous 1MB block size limit was increased to 4 million weight units (WU), effectively doubling usable block space to around 2MB if each transaction used SegWit.

Increasing the block size didn’t entirely prevent congestion, of course. The mempool, which temporarily stores unconfirmed transactions, swelled in size in 2013, 2017 and 2020. This increase in congestion had the side effect of drive up transaction fees.

Some are hoping that Layer 2 or 3 solutions could help scale Bitcoin. These off-blockchain and pre-processing solutions only write data to the base Bitcoin blockchain (layer 1) when needed.

Layer 2 scaling solutions ⏤ including Bitcoin’s most popular Layer 2, the Lightning Network ⏤ could bring Bitcoin closer to a peer-to-peer electronic system cash system for current transactions.

With a Layer 2 solution like Lightning, Bitcoin holders who currently use the technology primarily as a store of value could transition to using it for everyday purchases when they can more easily buy coffee with it.

Many also hope that tax law changes could help increase Bitcoin’s utility; Currently, there is no de minimus tax exemption for Bitcoin transactions in most developed countries, so each transaction must be itemized and reported to tax authorities.

Read more: Bitcoin developer has solved the existential Lightning problem – offline payments

Transaction fees are essential for long-term security

Bitcoin’s transaction fee market is important in combating certain types of mining attacks. Nodes can reject blocks that don’t follow the consensus rules built into Bitcoin’s code. However, miners could attempt variations of a majority (“51%) hashrate attack that injects blocks with empty or malicious transactions.

This form of attack competes with legitimate miners who seek the incentive of transaction fees plus Bitcoin’s block reward subsidy to include block transactions.

More decentralized than smaller digital assets

Bitcoin nodes and mining rigs exist all over the world. More than 10,000 Bitcoin full nodes are accessible on six permanently inhabited continents. The United States and Europe have the highest concentration of Bitcoin full nodes.

Less decentralized coins tend to have vulnerabilities that make them more vulnerable to attacks like the dreaded double spend. A fork of Bitcoin, Bitcoin Cash, suffered a double-spend attack that cost an exchange $12.4 million on July 17, 2022. The same as before past in May 2019, but Bitcoin Cash never solved the problems that led to it ⏤ including not increasing the hashrate spent on securing its alternative version of Bitcoin.

Bitcoin remains the most valuable blockchain in the world, with tens or even hundreds of billions of dollars in transaction settlements every month. While the dollar value is still a fraction of the amount that FedWire processes daily, it could compete with mainstream settlement options if it continues to evolve through Layer 2 solutions.

For more informed news, follow us on Twitter and Google News or listen to our investigative podcast Innovated: Blockchain City.

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