When a deal arises on your favorite cryptocurrency exchange, you might be ready to take the plunge and make your trade. However, before you get ahead of yourself, transactions on a cryptocurrency exchange such as CryptoExchange.com are a little more complicated than that and may require some time to be posted on the currency’s blockchain. This means that there is no simple answer to how long a cryptocurrency transaction takes. Instead, the answer depends on two key factors, the number of transactions in the queue and how long it takes the nodes in the blockchain to confirm the transfer.
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Cryptocurrency transactions explained
Cryptocurrencies are all digital. This means they can’t be physically exchanged from one person to the next. To ensure that these transactions occur, each transfer documents the public key of a trader’s crypto wallet and posts it on the public ledger. The underlying blockchain technology works since this record takes careful note of where a bitcoin is being held and no double spending can occur.
Within each transaction, there are three key parts:
- The input or code that shows your coin’s history, including your public key and where the currency is coming from.
- The number of coins that are being transferred.
- The output which is also known as the public key or address of the transaction.
These three parts form a transaction message that is passed on to cryptocurrency miners to validate and confirm the transaction.
With this background in mind, we can begin understanding the determining factors behind transaction time.
Transactions are based on volume
One factor that influences how long a cryptocurrency transaction will take is the number of transactions. The more transactions that happen, the more transactions that will need to be verified. This can be compared to going to a busy restaurant on a Friday night. The more people in front of you, the longer the wait will be to get your table. However, some cryptocurrency exchanges give users the option to pay a higher fee for a quicker transaction time. Think of passing the hostess a bribe for the table you want at the restaurant. The underpaid hostess will willingly accept your money and reduce the amount of time for you to be seated.
This analogy is similar in more ways than one. Consider that bitcoin miners will have less incentive to prioritize confirming your transfer when you submit a bitcoin transaction with lower fees. As more transactions occur, yours might quickly get buried as miners work their way through. This isn’t to say the transfer will never get confirmed. When there is less volume, your transaction can still be approved relatively quickly.
Miners need to confirm a transaction
Each time a transaction occurs, your transfer is stored on the blockchain. To do so, the transfer must be confirmed by a certain number of miners. This verification process is necessary because the risk exists that unconfirmed transactions can be reversed, or a double-spending situation may be presented. In most cases, the larger the amount of cryptocurrency you are transferring, the more confirmations required (some exchanges say in large amounts, 60 confirmations are needed).
When a confirmation occurs, miners work to solve a complicated mathematical puzzle, also known as a proof of work. These puzzles are complex and require a significant amount of computing power. Each puzzle needs to be complicated so transactions can’t be undone. Unfortunately, there are a limited number of miners that can process blocks and a limited number of transactions that occur for each block, which is why the constraint exists. Once this puzzle is completed, the cryptocurrency network can add the block to the blockchain. Each validation is represented in its block.
In the example of bitcoin, a transaction typically takes six confirmations before it is processed. With each block taking approximately 10 minutes to mine, a transaction will take an hour to be posted, on average. While this timing may vary, it is important to remember that transactions are the very underpinning that makes cryptocurrency work. Ironically, they are also the most significant hurdle the technology must overcome to be scaled widely.
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