Setbacks in Crypto Transactions That Should Be Addressed
We’ve all heard a lot about cryptocurrencies and blockchain. People talk so much about the good, and the hype could easily blind us from industry setbacks. Not like the drawbacks come anywhere close to what blockchain and cryptocurrencies provide. More people are adopting digital currency, and institutions are accepting them as payment.
Tesla CEO’s acceptance of Bitcoin was part of what threw Bitcoin to an all-time high earlier in 2021. However, for anyone getting started in the crypto world, it’s necessary you know what to expect of digital currency transactions. In this write-up, we look at the main points in crypto transactions that developers need to address.
Crypto Transaction Fees
One of the reasons cryptocurrencies became a hot topic after their invention was their potential to cut financial transaction costs. It became possible to send money peer-to-peer, eliminating the need for third-party services and the costs associated with them. In addition, adopting virtual currencies meant that people would no longer have to pay the high fees even for international transactions or maintain minimum account balances.
However, cryptocurrency users haven’t had their best track when it comes to transaction fees. Ethereum users have been the most affected by the transaction fees issues, as the gas price hits an all-time high between 2020 and 2021. The skyrocketing gas prices have been a major pain point considering that the Ethereum blockchain is a host of services in the crypto space.
Transactions became highly uneconomical, especially for smaller transfers. Unfortunately, the situation was no better for Bitcoin in 2021. Bitcoin transactions hit an ATH in 2021, with the average transaction fees reaching nearly $60.
Considering that Bitcoin and Ethereum are the two largest crypto coins in a list of over 4000 coins, people may want to re-think their adoption. Therefore, developers need to develop solutions for the fluctuation of transaction costs to build confidence in their users. The Ethereum team is already taking steps to combat the challenge through its Ethereum Improvement Proposal and the launch of Ethereum 2.0.
Slow Speed Transactions
Cryptocurrencies are relatively fast when compared to conventional money transfer systems. One can initiate transactions at any time of the day and even complete international transfers within a few minutes. Considering that international fund transfers could take as long as a week in traditional banking, digital sounds perfect.
However, it’s not always the case for some crypto coins. Blockchain networks like Ethereum’s have millions of activities happening simultaneously, which results in congestion of the network. Transactions need verification by miners who receive their rewards from the transaction fees paid. Since transactions do not have specified fees, miners prioritize those whose gas limits are set higher.
Consequently, the transfers may not be as fast for individuals who cannot pay higher fees. Scalability has also been a major issue of blockchain. The Ethereum blockchain, for instance, failed to accommodate all the activities running on the blockchain effectively and still maintain the speeds of transactions. Ethereum processes about 20 transactions per second with a confirmation time of 5 minutes on average, according to the blockchain council.
The Nature of Crypto Transactions
In conventional banking, it’s always easy to maintain the safety of cash and transactions even though it is in the hands of third parties. This is because banks maintain all account and transaction information, and they can always track the movement of funds.
That way, it is possible to know to whom the funds are being transferred, how much, and at what time. The capability also makes it possible to reverse wrongful transactions, which is a feature that is lacking for crypto transactions.
We all make errors. It’s possible to make an unexpected transfer on either currency. Unfortunately, in cryptocurrency, it is impossible to reverse a wrong transaction. Once your money goes to the wrong address, it is not possible to reverse it. Even worse is that the addresses cannot be traced to their true owners to request a refund.
The anonymity makes it impossible to track the movement of funds. Unfortunately, it also acts as an incentive for hackers, knowing they won’t be found after accessing wallets and transferring funds.
The Complexity of Wallet Addresses
In cryptocurrency, wallets serve as the banks. Each wallet has its address, and the owner is the sole custodian of the address and the keys. While they provide a much-desired control over one’s money, keeping up with them is no joke.
First, you can never recover your wallet if you lose your private keys, which means losing your funds. Additionally, you need to know the wallet address so that you can give it out and receive coins, just like it happens with conventional bank account numbers.
However, the wallet address is not like the bank account you can easily memorize. It’s usually a series of random numbers, letters, and symbols which is purely impossible to cram. It can become a pain in the neck to provide it straight up, forgetting that a simple mistake will mean losing the expected cash.
Despite the setbacks mentioned above, digital currency transactions surely are the future of the world. Unfortunately, some of the limitations have been significant obstacles to adoption, including government rejection. However, the adoption levels of cryptocurrencies continue to rise every day, and some governments are even launching their virtual currencies dubbed Central Bank Digital Currencies.
Furthermore, developers are working out solutions to these challenges through launching Ethereum 2.0 and EIPs. For example, Ethereum 2.0 introduces sharding which will see the network hit 10,000 transactions per second. Similarly, the gas fees issue was most prominent in the first quarter of 2021, and we can already see significant drops towards the end of the second quarter.