ONEs become a common topic in recent years, cryptocurrencies were practically unstoppable in 2021. The combined value of all digital currencies ended the year at around $2.2 trillion, nearly tripling in 12 months.
The reason investors are so excited about cryptocurrencies is the potential utility of the blockchain technology that underlies them. The financial application of blockchain could revolutionize the way money is sent from point A to point B. Meanwhile, non-financial uses could impact everything from paper trails to supply chains.
But for blockchain to become mainstream in a financial and/or non-financial sense, it needs to be scalable. In other words, it must be built to handle large numbers of transactions per second without compromising the effectiveness or security of the network.
The “Big Two” of Crypto, Bitcoin (CRYPT: BTC) and ether (CRYPT: ETH), currently lack this scalability and are capable of a modest seven transactions per second (TPS) and 13 TPS, respectively. However, the following five cryptocurrencies are among the fastest scaling networks in the world.
In terms of scalability is one of the most promising cryptocurrencies Solana (CRYPTO:SOL). According to its development team, Solana is capable of reaching up to 50,000 TPS. That’s a more than 7,100x improvement over Bitcoin. To provide some context, payment processors Visas can handle around 24,000 TPS.
The secret ingredient that has helped Solana scale its network and process transactions so quickly is its proof-of-history consensus protocol. Normally, examiners would have to talk to each other to determine how much time elapsed between events. With Solana’s unique proof-of-history protocol, a record is created for an event as it occurs, eliminating this back-and-forth between validators.
Transactions in the Solana ecosystem are also incredibly cheap (about $0.00025 per transaction). That means it takes about 4,000 transactions before a user would start charging $1. This scalability, speed, and affordability is precisely why more than 400 projects are currently being developed within the Solana ecosystem, including those focused on decentralized finance (DeFi).
Regarding payment-oriented networks, Stellar (CRYPTO: XLM) is rapidly scalable and offers incredibly attractive transaction fees and processing times. According to developers, Stellar is capable of reaching around 3,000 TPS. For a payments network, it blows most digital currencies out of the water.
A typical transaction on Stellar’s network works as follows: a fiat currency is converted into lumens (XLM, the network’s protocol token), sent to the desired destination and converted back into a fiat currency of your choice. The time elapsed to validate and settle a payment after a user initiates a payment? Less than five seconds.
In addition, the average transaction fee is only 0.00001 XLM. Thus, it would take about 350,000 transactions on the Stellar network before a user would start charging $1. Compare that to the transfer fees a user can be charged for sending money with a traditional financial institution, or the wait of up to a week to validate and process cross-border payments using existing infrastructure.
Among the major cryptocurrencies avalanche (CRYPTO: AVAX) is one of the most exciting smart contract-based blockchain networks. Smart contracts are the protocols that verify, facilitate, and enforce the negotiation of a contract between two parties.
In terms of scalability, Avalanche claims to be able to process more than 4,500 TPS while offering sub-two second transaction finality. To put this in perspective, average transactions for Bitcoin and Ethereum take 60 minutes and six minutes, respectively, to be validated and settled. Avalanche takes less than two seconds to complete the entire journey.
What has made Avalanche so fascinating is the compatibility of its smart contract-driven network. It’s no secret that decentralized application (dApp) developers have preferred the Ethereum Virtual Machine (EVM) to build dApps on the Ethereum blockchain. The thing is, the EVM is run on Avalanche’s network. So developers can build dApps on Avalanche and enjoy much faster transaction times, significantly lower fees and no scaling issues.
A fourth rapidly scaling cryptocurrency is IOTA (CRYPTO: MIOTA), which can be used for everything from sending data to money. IOTA claims to be able to process “around 1,000” TPS, which is well over 100x faster than Bitcoin and almost 75x faster than Ethereum.
The really interesting thing about IOTA is that unlike the other crypto projects on this list, it is not blockchain based. Rather, its network, known as the “Tangle,” is a direct acyclic graph that requires new transactions to confirm at least two previous transactions. If you could imagine a series of connected transactions over time, it would resemble a tangled web (i.e., the “tangle”). IOTA’s developers preferred this approach to blockchain to avoid the consensus slowdown that occasionally plagues blockchain networks.
It should also be noted that transactions on the IOTA network are free of charge. This means that IOTA has an inherent competitive advantage over virtually all blockchain networks and traditional payment infrastructure.
The fifth and final fast scaling cryptocurrency is Cardano (CRYPTO:ADA). In 2017, Cardano was capable of around 250 TPS. However, with the eventual start of the Hydra upgrade, which I will discuss in a moment, theoretical targets of 1,000,000 TPS were postulated.
Arguably the best thing about Cardano is its development team, which has laid out clear steps on how to improve the network over time. The Summer 2020 Shelley upgrade increased the number of nodes each network participant could run, ultimately skyrocketing the number of daily transactions on the blockchain. This was followed by the Goguen update in September 2021. Goguen introduced smart contracts to the network, opening the door for it to compete with Ethereum for dApp development.
However, the Hydra upgrade, which doesn’t have a timeline, could really cause a stir and raise eyebrows. Hydra would route transactions to off-chain staking pools known as Hydra Nodes. The idea here is that moving transactions off the main blockchain ensures the network doesn’t slow down while rapidly scaling.
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Sean Williams has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Bitcoin, Ethereum, and Visa. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.