Blockchains: Which Should You Choose for Crypto Transactions?

Would you spend $50 for a gallon of gas when you can buy it for $.05? While it sounds absurd, that’s exactly what’s happening in the crypto world right now. Traders are paying crazy prices to have their crypto transactions executed. And why? It’s not just about the demand for the coins. It’s all about the blockchain. So before you make your next trade, here’s some basic blockchain information that can help you cut down on fees.

All crypto trades are conducted on a blockchain. Believe it or not, the blockchain that you choose to conduct your trades can have a big impact on price. Why? Because the faster your transaction is processed, the more likely you’ll buy or sell at the price you want. And the lower the fee on the blockchain, the more money you save to buy other coins.

However, when it comes to speed and fees, not all blockchains are created equal.

First, what’s a blockchain?

Think of a blockchain simply as digital database or ledger that’s made up of, well, blocks of information.

“A blockchain collects information together in groups, also known as blocks, that hold sets of information,” explains Investopedia. “Blocks have certain storage capacities and, when filled, are chained onto the previously filled block, forming a chain of data known as the “blockchain.” All new information that follows that freshly added block is compiled into a newly formed block that will then also be added to the chain once filled.”

What types of blockchains are there?

There are several different types of blockchains which are often described as public, private, and federated/consortium.

A public blockchain, which is used in the digital currency world, is open to anyone who would like to use it. This type of blockchain is called “decentralized” as the computers on this blockchain’s network are located all over the world rather in one “central” location such as a bank or financial institution.

A private blockchain can be owned by an organization or entity and is not open to the public. The digital ledger created on a private blockchain is closed so transactions are private.

A federated or “consortium” blockchain is owned by multiple organizations, which makes it decentralized like a public blockchain. But it gives the entities the flexibility to make some of its information public or private.

Private and Consortium blockchains are known to run faster than the public blockchains. That’s why companies or organizations often choose these blockchains to operate their businesses.

But within the crypto world, transparency is what drives the market. The decentralized nature of the public blockchain is what makes the transactions secure and “immutable” meaning that they can’t be changed. Because if someone tries to change a “block,” the entire system of computers would immediately call out the discrepancy in a very public way.

So how does the blockchain work in a crypto transaction?

Let’s use a Bitcoin (BTC) as an example. Trader A decides to purchase a Bitcoin. Using a crypto exchange, Trader A places the order. The order is then sent out to a worldwide network of computers run by individuals and groups that are known as “miners.” Why? Because like miners, they dig into a mathematical equation that will serve as proof that Trader A’s order has been completed. Once the equation has been solved, Trader A’s transaction is recorded on the blockchain, giving it a digital “timestamp” that can’t be changed. That’s it.

Which public blockchains are leaders in the crypto space?

While there are many blockchains being used in the digital currency world, two are most widely mentioned: Ethereum and TRON. Each has its advantages and disadvantages, which are outlined here.

The Ethereum Network

Ethereum is the most widely known and used public blockchain. This peer-to-peer network allows you to buy, lend or borrow assets such as Bitcoin. It also is used to create agreements or contracts, or build applications, all without an intermediary such as a bank. Its native coin Ether (ETH) has the second-largest market capitalization in the digital coin world. The coin acts like a subway token, giving the holder permission to build on the network.

The popularity of the Ethereum network has contributed to the downside of using this blockchain which is transaction speed and fees. People choosing this blockchain find that the fee or “gas” required to complete a transaction is high, which reduces the value of a digital wallet. Transaction times can be slow, impacting the ability to “time” a trade.

TRON

Like Ethereum, the TRON blockchain is used to build decentralized applications and conduct smart contract transactions. What makes TRON different is its transaction speed and lower fees. TRON is said to process 2000 transactions per second, versus Ethereum’s 15 transactions per second. Plus, current “gas” fees on the Ethereum network are running anywhere from $50 to $90 per trade, versus 0,1–2 TRX per transaction on TRON.

The faster transaction times on TRON coupled with lower fees is attracting attention in the market, including those who use the TETHER (USDT) stable coin to conduct trades.

“The growth of the tether on Tron came as transaction fees on Ethereum remain high, frustrating many crypto traders who frequently use the stablecoin during trading to exit quickly from short-term trades and lock in gains with an asset at a stabilized value,” Yahoo finance reported in April.

So which blockchain network should you choose?

Choosing a network is entirely up to you. The popularity of Ethereum has created a large demand for use on its network and with its native coin Ether in the number two crypto position, many gravitate to this blockchain. In contrast, TRON offers quicker transactions and much lower fees, and is gaining ground. Choosing a blockchain network is a personal choice with many factors to consider. Knowing your options can make trading more effective, efficient and affordable.

Joyce Pavia Hanson
Contributor

Originally published at https://www.stex.com on May 11, 2021.