Why maximum transaction capacity of blockchains might be of lesser importance after all.

Could it be that too much time is spent in the blockchain sphere on discussions about maximum transaction capacity? It is presented as a technical problem that needs to be solved before blockchain applications can be adopted big time. But is that really true?

There is indeed a problem, it just happens not to be technical.

Often the maximum transaction capacity of Bitcoin is mentioned (around 7 tx/second) and compared with the maximum transaction capacity of Visa (around 25.000 tx/second as far as anyone knows). If the number of pending transactions in the memory pool exceeds the maximum capacity of the next block, buyers that want to be sure their transaction will be processed right away, start to offer higher fees. When this process continues for a while, fees start to become higher and higher, up to tens of dollars or more. Once this happens, you cannot pay your coffee with crypto any longer, since the fee could be 10 times the price of your latte.

As a reaction to this, many competing blockchains have launched in the last year, claiming to solve this problem with capacities of hundreds, thousands or even millions of transactions per second and very low or even zero fees. When we look however at the transactions these blockchains are processing right now, many of them do not pass the one transaction per minute threshold.

In practice, raising capacity and lowering fees is apparently not sufficient to attract a flood of transactions onto your blockchain. And raising it even further, is like trying to bike faster on an empty highway by building extra traffic lanes. The traffic is simply not there (yet), so building extra traffic lanes is irrational.

This is exactly the reason why Visa does not have the capacity for 25 million transactions per second: it is simply not necessary today. Whenever this theoretical maximum should come into sight, a few phonecalls to service providers would suffice to put 1 or 2 extra zeroes behind this number — and with over USD 5 billion in revenue, the costs would probably not hold them back either. Not that they would need to pay much more.

Imagine that every transaction equals 0,5 kilobyte, so 4 kilobit/seconds (probably it is way less) and takes less than 1 second to process. At home I do have a standard 40 Mbps cable connection, so my 30 euro/month connection could facilitate up to 10.000 of these transactions (!). This means that Visa could theoretically run it’s infrastructure on a typical day on a few multi-core servers and my home connection.

Considering this, I am trying to understand what the discussion is about: Bitcoin Cash forking for more transaction capacity, working even towards 128 MB blocks, but why? The transactions to fill these megablocks are at this point simply not in sight. Should they ever, there would be time to act, as the blockchain community is proving every time a bottleneck becomes apparent.

So maybe we can better spend our time on figuring out how to attract real world use cases, and reserve our worries about exceeding the technical limits of the blockchain for that beautiful day when they come indeed into view.

PS: for simplicity’s sake I have left out Bitcoin lightning transactions