For a digital currency to function, constituent gears have to mesh together to create a perfect system. Transaction confirmation is a vital cog that helps to complete this system.
If you are a crypto enthusiast, the odds are that you know that the average Bitcoin transaction takes about ten minutes. Most cryptocurrency guides mention this fact, especially when talking about the shortcomings of Bitcoin.
Have you ever dug deeper to find out why?
If you haven’t, this piece has all the information you need. Even if you have a clue, a little extra content is always useful.
What Does Bitcoin Transaction Confirmation Time Mean?
In a nutshell, Bitcoin transaction confirmation time refers to the period between the initiation of a Bitcoin transaction and the sender verifying payment. This transaction time can be anywhere from a few minutes to several hours.
A Bitcoin transaction occurs in a decentralized format. One party sends coin to another without a central entity to execute the transaction as would be in mainstream processing. Therefore, a different mechanism has to come into play to standardize operations and limit incidences of fraud.
Enter the mempool.
A mempool is a queue where Bitcoin transactions that network participants have initiated sit awaiting confirmation. The more they are on the mempool, the more time it takes for the blockchain to confirm them.
Miners then take a bunch of transactions in the mempool and build a block of transactions. Every 10 minutes, only one miner can add a block to the blockchain. The competition is intense for this right to add the next block. Therefore, industrial miners, including cloud miners, and those with high computing power are at an advantage.
Each Bitcoin block can only accommodate 1MB of transactions every 10 minutes. Therefore, each byte on a block is precious to the network. Since each Bitcoin transaction is about 400 bytes (but varies) in size, a block can only accommodate about 2,500 transactions. This number puts into perspective how tough completion is for transaction confirmation.
Factors Affecting Bitcoin Transaction Confirmation Time
● Traffic/congestion on Bitcoin’s network- In the formative years of Bitcoin, fewer people used the system. However, as the coin got more and more popular, transaction congestion in the mempool became a real issue. Therefore, loads of transactions competing for finite block space causes congestion. This congestion means that transactions have to take some time because of the sheer numbers competing with the rigid block addition time in the Bitcoin network.
● Transaction fees- Given the congestion, it is in the miner’s self-interest to include transactions with higher fees first. Therefore, the average confirmation time for a transaction with higher fees is lower than the contrary. Currently, the block reward for successfully adding a block of Bitcoin transactions is 12.5 BTC. The miner gets the standard 12.5 BTC plus a varying amount of mining fees. Since block mining fees are cumulative of individual transaction fees, it makes economic sense for a miner to pick transactions with higher transaction fees first from the mempool. This fact means that your transaction fee can have a direct impact on the transaction confirmation time.As it turns out, your transaction may be stuck for hours because the fee is too little to be noticed by miners.
The Number of Confirmations: Etching on the Blockchain
Once your transaction is successfully in a mined block, the new transaction is verified. This event serves as the first confirmation. About 10 minutes later, the next block joins the blockchain, and your transaction gets confirmed again by the Bitcoin network. This process is the second confirmation.
When transacting using Bitcoin, certain services require multiple confirmations. A Bitcoin transaction without confirmation, zero confirmation transaction, means that the sender can still reverse it and probably double spend.
Certain services need only one transaction confirmation as proof of payment. However, to fully be sure that the customer will not reverse Bitcoin payments, many organizations need up to six confirmations. This number of confirmations can take over an hour to complete. However, it is a way to guarantee that the transaction is final.
Typically, the number of confirmations depends on the size of the transaction. For instance, one confirmation can be enough for transactions of less than $1,000. However, when transacting amounts greater than $100,000, it is advisable to wait for more than three confirmations. This number reduces the likelihood of transaction reversal.
The larger the size of the transaction, the higher the risk if the transaction gets reversed. When purchasing items using Bitcoin from a retail store, the store may need 6 transaction confirmations from miners. With 6 confirmations, the recipient can be sure that the Bitcoin they are receiving is not double-spent.
Double spending is unique to digital currencies. Nefarious actors who understand the blockchain network and the computing power can reproduce digital information and manipulate blockchain transactions.
Therefore, you first contend with the time it takes for your transaction to join a block, then an additional period of waiting for the requisite number of confirmations. A typical Bitcoin payment can take hours to complete depending on the first and second stage of transactions.
Bitcoin transaction confirmation time varies from transaction to transaction, depending on these variables. In extreme cases, transactions can take more than a day to reach completion.
Checking the Status of Your Bitcoin Transaction
Each Bitcoin transaction has a unique transaction ID.
Once you initiate a transaction, the wallet you use should give you the option of viewing the transaction on the block explorer.
● Copy the transaction ID. A transaction ID should look like this: 7a63789802e113b7059851sf0a8a5c3625db37541861dd982f56253b2d5c4ff9
● Paste the transaction ID on a block explorer. The explorer is a third party that reads the blockchain and shows the number of confirmations a transaction has among other details.
The higher your transaction fees, the more likely your transaction will join a block within 10 minutes. There are ways of fast-tracking a stuck Bitcoin transaction.
- Double spend with a higher fee/ Replace by fee protocol (RBF) – this technique involves replacing a pending transaction’s fee with a higher fee. If the original transaction has the mark of ‘RBF allowed,’ most of the network will allow replacement. Don’t use RBF with a zero-confirmation transaction as it can raise trust issues.
- Child pays for parent fee- This technique involves adding a secondary transaction to the mempool, with a high fee. Most miners will add the child transaction with the original transaction to the block. Therefore, the child transaction is a way to improve the chances of your transaction getting picked up by miners.
Notably, these methods cost extra money. How much it does depends on the transaction size. Therefore, if you have the time and patience, waiting it out is still a viable option.
What the Bitcoin Community Is Doing to Remedy the
Bitcoin enjoys a name recognition that most crypto platforms can only imagine. However, one talking point that altcoins like Litecoin have over Bitcoin is scalability. Bitcoin transactions simply take too long to get confirmed.
On their part, the Bitcoin community has come up with specific proposals and upgrades via BIPs to try and remedy the scalability problems in recent years.
They include the following:
- Segwit– Segwit (Segregated Witness) involves splitting individual Bitcoin transactions to mitigate block size limit problems. Network participants enacted this proposal in July 2017 in the form of a soft fork. Segwit removes the unlocking signature data from a transaction leaving only sender and recipient data in the original section. The separated data counts as only a quarter of the original transaction size. Signature serialization is separate from transaction serialization. Segwit penetration is continually increasing in the Bitcoin network.
- Schnorr signatures– Schnorr signature schemes is a proposal forwarded by Pieter Wuille and is meant to produce simple and efficient signatures. This efficiency creates a separate algorithm for
better cryptographic signatures. Bitcoin did not initially use Schnorr
because it is not standardized and was not available in crypto libraries.
- Lightning Network (LN)-LN implements Hashed Timelock Contracts (HTLCs) with bi-directional payment channels purposefully designed for scaling Bitcoin via an off-chain solution. It allows for secure payments across multiple peer-to-peer payment channels. Accordingly, any peer in a network can pay another peer directly without necessarily having an open channel between each other. This channel allows for rapid and trustless payments while simultaneously reducing the blockchain load. Lightning network is still a work in progress but can fundamentally transform Bitcoin transactions.
However, the reasons for these delays are justifiable if the network is to stay secure and functioning. Such shortcomings have facilitated the rise of altcoins even though none is likely to challenge Bitcoin soon. It will be interesting to see what the Bitcoin community can propose to reduce wait times and system overloads.
The current proposals, such as the Lightning Network, are exciting for future scalability and efficiency. Overcoming such hurdles is necessary if Bitcoin is to challenge fiat money in ordinary transactions truly.