With the increasing popularity of cryptocurrency as a payment method, the issue of instant transactions is heating up again. Although cryptocurrencies provide you with security, anonymity, decentralization and low fees, most of them are not as fast as you may expect. For example, the average confirmation time of Bitcoin transactions is 10 minutes – fast enough, but still a far cry from being instant.
Besides, to start making payments, you need to have a dedicated wallet, buy the desired coin at a cryptocurrency exchange, and find a vendor that accepts it as a payment. Seems like a whole mess of trouble, doesn’t it? How come it could be a viable option for instant payments?
Cryptocurrency vs Banks
When it comes to instant transactions, most people still prefer bank transfers that are more familiar and smooth. This is because many people regard cryptocurrency with suspicion. And they are not to blame for it – we have seen quite a few cryptocurrency scams and scandals over the years. Although the virtual currency community is constantly expanding, the pace isn’t so fast for now.
Mistrust is also fueled by the fact that the governments and financial institutions haven’t yet formed their attitude towards cryptocurrencies. Moreover, many influencers consider crypto coins a real bubble. As a result, most people simply don’t want to risk their money.
As the infrastructure evolves, more users jump on the crypto bandwagon though. In 2018, Brian Armstrong expressed his confidence that the cryptocurrency ecosystem would include 1 billion people in 5 years. And this may well be true once cryptocurrency payments are instant.
Below, we will talk about the steps taken by crypto enthusiasts to increase the transaction speed.
People have always needed some means of payment to trade goods and services. It was shells and stones thousands of years ago. Later, gold took the lead, with the mints popping up all around the globe. Today, it is paper money that has been created to simplify the process of transferring payments.
As the financial technologies evolve, people start wondering how to get rid of the old overly centralized banking system. Bitcoin comes as a solution.
Originally, it was meant to become peer-to-peer digital cash and it was actually doing well in its early years. Bitcoin cost almost nothing and was effectively used by a limited number of people. However, with every passing year, the popularity of the coin has been increasing, and so has the price. Today, Bitcoin is rather considered an investment asset than digital cash, which has led to disputes within the Bitcoin community. One group believes that Bitcoin should remain as it is, and the other advocates for fundamental improvements.
This separation has caused new cryptocurrencies to boom. However, the problem remains and there are those who were looking for a solution.
Cryptocurrencies and instant payments – is there a future together?
It would be unfair to assume that such a rapidly developing community isn’t looking for a way out of this situation. In attempts to find a solution, the second-layer technology and sidechains were introduced. They allow for seamless near-instant transferring of digital assets, and make the blockchain more scalable. Both solutions practically aim at taking the vast volume of transactions off the main chain, preventing the network overload. What’s more, they may pave the way for multi-currency transactions between compatible blockchains.
Let’s take a look at some of them.
The Lightning Network (LN) Layer-2 solution was built on top of the Bitcoin protocol, and was primarily designed to solve the Bitcoin scalability problem. This technology makes instant micropayments with lower commissions possible.
To understand how LN works, you need to imagine the payment channels that connect users. The funds, which need to be transferred between participants, are circulating in these channels. Let’s say you want to pay for your morning espresso with Bitcoins. It would be very troublesome and time-consuming to make it by using a simple Bitcoin transaction. The Lightning Network will help you fulfil your plans though.
You put 0.00001 Bitcoin in your ‘virtual vault’, which is actually the balance of a payment channel between you and a coffee shop. The cost of coffee, in this case, is 0.000005 BTC. The 0.000095 balance remains in your ‘vault’ after confirming the transaction, but will respectively decrease with each individual cup of coffee you buy. As you can see the process is simple and straightforward.
Raiden Network (RDN) is similar to the Lightning Network, but it is based on the Ethereum platform. The technology should allow users to still make large-value transactions on the primary chain, while taking the microtransactions to the secondary chains. Such transactions might be as fast as exchanging messages between users.
RDN CEO Heiko Hees claimed once that the Ethereum network would be able to increase the number of transactions per second up to 1 million thanks to Raiden Network. With such swiftness, cryptocurrency networks will become a good alternative to traditional banking systems.
However, the network is not fully functional at the moment. The scalability issue is very tough and it hasn’t been effectively resolved yet. Nevertheless, this is an extremely ambitious project with good prospects, for sure.
Cryptocurrencies like XRP or Dash were primarily created as a possible means of making instant payments. Since the very birth, XRP has deliberately been targeting the banking market and achieved great success. Many banks are beginning to use the technology behind this coin in order to give users an alternative option to transfer their funds instantly across countries. The likes of Fidor Bank and Cross River Bank have been cooperating with Ripple since 2014.
Dash, on the other hand, has a special feature, InstantSend, designed to support instant transfers. It can be activated for a specific individual transaction. The transaction is locked and then verified using the Masternode mechanism (special nodes that are managed by a group of users without a central governing body). The transactions are confirmed upon consensus. If an agreement cannot be reached, the transaction undergoes traditional approval, which takes time.
There are other coins that can offer you high-speed transactions, but we won’t be able to review them all in one article.
In the end, it’s up to you to decide
The best thing about cryptocurrency is that the average user is free to decide which coin to transact with, as the choice is wide. After Bitcoin had been created as an all-embracing cryptocurrency, smaller and more specific coins began to appear. Each of them was designed to meet its specific purpose and occupy the untapped niche.
The instant payment niche is no exception. Today, there is a sufficiently large selection of options to meet this demand – XRP, DASH, EOS, NEO, and so many more. So, it’s up to you to decide whether to use one of them or opt for the major coins enhanced by the second-layer solutions.