As has become a common theme in recent years, cryptocurrencies were practically unstoppable in 2021. The aggregate value of all digital currencies ended the year around $2.2 trillion, marking a near-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 B. Meanwhile, nonfinancial uses could impact everything from paper trails to supply chains.
But in order for blockchain to become mainstream in a financial and/or nonfinancial sense, it has to be scalable. In other words, it has to be built in such a way that a large number of transactions can be handled per second without compromising the effectiveness or security of the network.
The “Big Two” of crypto, Bitcoin (CRYPTO:BTC) and Ethereum (CRYPTO:ETH), currently lack this scalability, and are respectively capable of a modest seven transactions per second (TPS) and 13 TPS. However, the following five cryptocurrencies are some of the fastest-scaling networks on the planet.
In terms of scalability, one of the most-promising cryptocurrencies is Solana (CRYPTO:SOL). According to its development team, Solana is capable of up to 50,000 TPS. That’s a more-than-7,100-fold improvement over Bitcoin. To offer some context, payment processor Visa can handle around 24,000 TPS.
The secret sauce that’s helped Solana scale its network and process transactions so quickly is its proof-of-history consensus protocol. Normally, validators would need to talk to each other to determine how much time has elapsed between events. With Solana’s unique proof-of-history protocol, a record for an event is established when it occurs, thusly eliminating this back-and-forth between validators.
Transactions on the Solana ecosystem also happen to be incredibly inexpensive (about $0.00025 per transaction). This means it takes about 4,000 transactions before a user would rack up $1 in fees. This scalability, speed, and affordability is precisely why more than 400 projects, including those focused on decentralized finance (DeFi), are currently being developed within Solana’s ecosystem.
In terms of payment-focused networks, Stellar (CRYPTO:XLM) is capable of rapid scaling, and offers incredibly attractive transaction fees and processing times. According to developers, Stellar is capable of around 3,000 TPS. For a payment network, it blows most digital currencies out of the water.
A typical transaction on Stellar’s network goes as follows: A fiat currency is converted to Lumens (XLM, the protocol token of the network), sent to its desired destination, and converted back to a fiat currency of choice. The time elapsed for a payment to validate and settle after a user initiates a payment? Less than five seconds.
Furthermore, 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 rack up $1 in fees. Compare that to the wire fees a user can be charged to send money with a traditional financial institution, or the up-to-one-week wait time to validate and settle cross-border payments with existing infrastructure.
Among large 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 handle in excess of 4,500 TPS, all while offering a transactional finality of less than two seconds. Again, to put this into perspective, average transactions for Bitcoin and Ethereum take a respective 60 minutes and six minutes to validate and settle. Avalanche takes under two seconds for the full trip.
What’s made Avalanche so intriguing 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 create dApps on the Ethereum blockchain. The thing is, the EVM is operating on Avalanche’s network. Thus, developers can create dApps on Avalanche and enjoy much faster transaction times, considerably lower fees, and no scaling issues.
A fourth fast-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 100 times faster than Bitcoin and close to 75 times faster than Ethereum.
What’s really interesting about IOTA is that, unlike the other crypto projects on this list, it’s 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 can imagine a string of connected transactions over time, it would begin to resemble a tangled web (ergo, the “Tangle”). IOTA’s developers chose this approach over blockchain to avoid the consensus slowdowns that occasionally plague blockchain networks.
Something else to note is that transactions on the IOTA network are feeless. This means IOTA has an inherent competitive edge over virtually all blockchain networks and traditional payment infrastructure.
The fifth and final fast-scaling cryptocurrency is Cardano (CRYPTO:ADA). Back in 2017, Cardano was capable of around 250 TPS. However, with the eventual launch of the Hydra upgrade, which I’ll discuss in a moment, theoretical targets of 1,000,000 TPS have been postulated.
Arguably the greatest thing about Cardano is its development team, which has laid out clear steps as to how the network will be improved over time. The Shelley upgrade in the summer of 2020 increased the number of nodes each network participant could run, and ultimately sent the number of daily transactions on the blockchain skyrocketing higher. This was followed by the Goguen update in September 2021. Goguen introduced smart contracts to the network, and opened the door for it to compete with Ethereum over dApp development.
However, the Hydra upgrade, which has no timetable, could really turn heads and raise eyebrows. Hydra would funnel transactions to off-chain staking pools, which are known as Hydra Nodes. The idea here is that moving transactions off the main blockchain ensures the network won’t slow down while being rapidly scaled.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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