At this point, most people are at least vaguely familiar with the phenomenon that is Bitcoin. Most people have seen the headlines and seen how the price of Bitcoin has skyrocketed within the last year or so, rising from about $1,000 in the beginning of 2017 to a high of about $20,000 towards the end of the year, Bitcoin is now firmly in the public eye.
However, while most have heard the name, most aren’t familiar with how Bitcoin works. Bitcoin can be rather complicated for the uninitiated but in this article, we’ll go over Bitcoin transaction times and the basic framework of how a Bitcoin transaction is initiated and completed.
Initiating a Bitcoin Transaction
Bitcoin was originally designed as peer-to-peer electronic “cash”, as detailed in the original Bitcoin whitepaper published in 2009 by pseudonymous founder(s), Satoshi Nakamoto. As with everyday cash, this means Bitcoin can have a wide variety of uses, such as buying a coffee or even buying property.
When a user decides to buy something with Bitcoin and thus initiates and completes a Bitcoin transaction, he or she starts the transaction by sending Bitcoin from his or her Bitcoin wallet to the wallet of another individual or organization.
This transaction becomes part of a “block”, which contains multiple transactions. Bitcoin “miners”, who confirm blocks (and thus transactions), compete with each other to find a nonce, or random string of numbers, that when found, allows a block to be confirmed and added to the blockchain (the series of blocks that is the record book for all Bitcoin transactions). Miners are rewarded with transaction fees and block rewards (if they find the right nonce) for their efforts.
While that’s a rather simplified explanation of how a Bitcoin transaction is started and completed, it is more or less how Bitcoin transactions work. However, the work behind the scenes is rather complicated and Bitcoin transactions can take longer to complete than it took you to read that explanation.
Bitcoin Transaction Times
Though handing over cash in real life for a transaction is almost instantaneous (however long it takes you to put cash in someone else’s hands), Bitcoin transactions are more like credit card transactions and can take a little while.
As mentioned previously, transactions become part of blocks, which are added to the blockchain by miners. When the block that a transaction is part of is added to the blockchain, it has been mined at a “depth” of one block. This is also referred to as “one confirmation”.
A block (and all the transactions within it) is confirmed more and more times with each subsequent block that is added to the blockchain. So, for example, if a block is added to the blockchain and 5 more blocks are added to the blockchain after it, it has been confirmed 6 times (usually considered the standard for Bitcoin transactions to be fully confirmed and validated as a measure against double spending, or the spending of a certain amount of Bitcoin more than once in order to cheat the other party).
The time needed for one confirmation of a block, and thus transaction, is variable and depends on how much people are trying to send and receive Bitcoin as well as transaction fees (miners prioritize transactions with higher transaction fees). Unfortunately due to Bitcoin’s increase in popularity and the Bitcoin development community’s inability to react to this growing demand on Bitcoin’s network (see the Bitcoin scalability problem), the confirmation time for a single block has gone up exponentially in recent times.
As of March 28, 2018, the average Bitcoin block confirmation time is 18 minutes. Since averages aren’t always a good indicator of reality because outliers (in this case, outlier transactions) can significantly push up or down the average, perhaps it’s a better idea to look at the median Bitcoin block confirmation time, which as of March 28, 2018, is 7.5 minutes.
Regardless of which figure we use, it’s clear that Bitcoin blocks (and thus transactions) take a long time to be processed and confirmed. If we assume the standard 6 confirmations for a Bitcoin block to be confirmed, the average Bitcoin transaction time is 108 minutes, or 1 hour and 48 minutes, and the median Bitcoin transaction time is 45 minutes.
This is a very long time for a transaction to clear vs. cash, which is instant, and credit, which usually takes a few seconds, at least at the point of sale.
While 6 confirmations is normally considered the standard for Bitcoin transactions to be fully confirmed, it is up to merchants and other people who accept Bitcoin to decide if 6 confirmations are needed to confirm a transaction.
Normally, for situations where losing money due to double spending wouldn’t be a big deal, such as with inexpensive products or services, people may not necessarily wait for 6 full confirmations of a transaction and even consider a transaction completed as soon as the transaction is seen on Bitcoin’s network (can be verified by inputting a transaction ID into a block explorer, such as blockchain.info).
Here is a basic guide to how many Bitcoin confirmations are enough for transactions based on transaction amount:
- 1 Confirmation: Enough for amounts less than the Bitcoin equivalent of $1,000.
- 3 Confirmations: Enough for amounts between the Bitcoin equivalents of $1,000 and $10,000. Many Bitcoin exchanges require 3 confirmations for Bitcoin deposits to exchange wallets to be considered valid.
- 6 Confirmations: Enough for amounts between the Bitcoin equivalents of $10,000 and $1,000,000.
- 60 Confirmations: Enough for amounts greater than the Bitcoin equivalent of $1,000,000.
All things considered, Bitcoin is a revolutionary technology and its underlying blockchain technology may change the world in ways in which we can’t even imagine.
However, transaction times can take a while, which may impede Bitcoin’s adoption by the general public, who may view Bitcoin as being less convenient than traditional payment methods like physical cash or credit. Indeed, while the standard number of confirmations for a Bitcoin transaction to be validated is 6 confirmations, some even recommend that 144 confirmations be required for maximum safety (see “How Many Confirmations is Enough”).
At an average Bitcoin transaction confirmation time of 18 minutes and a median Bitcoin transaction confirmation time of 7.5 minutes, 114 confirmations would require an average of 43 hours and a median of 18 hours to be confirmed, which is unacceptable by most people’s standards.
Clearly, Bitcoin transactions can be rather slow and many hope that the community will somehow be able to address this problem so that Bitcoin can continue to be used in the future.