You might have heard in news, websites, word of mouth or any other communication channel that the bitcoin transaction rate is somewhere between 3 to 7 transactions/sec.
If you are like me, you want to understand where this number come from or how it is calculated. So here it is. Before I get to the calculation, we need to define few terms and they are:
Transaction — is a transfer of bitcoin from one address to another. Example, Harinder transferring bitcoin to Jimmy inorder to buy bitcoin ebook.
Block — a group of transactions, marked with a timestamp and fingerprint of the previous block.
Block chain — is a list of validated blocks, each linked to its predecessor all the way to the genesis block.
If you want to remember them easily, just think of them as train, carriage & passengers.
Transactions is your passengers, carriage contain passengers (in this case it is block) and train consists of series of connected carriages (in this case it is blockchain). As shown below.
From the above graph we can see that the block size is getting towards 1MB and average transaction size is hovering around 505bytes. So…
How many transactions/block?
Formula: Transactions/block = Block size/average transaction size.
Average transactions/block = 1000000 Bytes/505 Bytes => 1980
What is the bitcoin throughput?
Formula: Transactions/sec = Transactions per block/ block time (in seconds)
Note: A new bitcoin block is on average discovered every 10 minutes. Therefore,
Transactions/sec = 1980/(10*60) = 1980/600 = 3.3
There you have it, now you know how bitcoin cryptocurrency throughput is calculated.