Latency

What Is Latency?

Latency is the time lapsed between input and output in computing. The term covers the time delay between receiving and processing the input into output information. Latency can occur between user and computer interactions, which is called IO Latency. Network latency happens as data travels between computers and servers.

In crypto terms, latency occurs in two forms. One is the latency between sending a transaction to a network and receiving a confirmation of acceptance by the network. After receiving the first confirmation, the transaction is presumed to be final. Finality is an assurance in blockchain that the transaction cannot be changed, canceled, or reversed. Since a blockchain is built from transaction blocks, the trading block is assumed to be ‘set’ into the blockchain. 

Importance of Latency for Cryptocurrency

Since blockchain is hoping for widespread adoption and support, having low network latency on crypto exchanges is crucial. Unfortunately, having a long delay between payment and confirmation of payment causes user restlessness.  

The latency level of a crypto exchange shows its processing power. This reflects the transaction processing capabilities and will impact trading volumes. For example, many day traders use bots to automate their trades, and bots can operate and issue a high volume of orders at a time. This means that exchanges need to be able to handle very high transaction volumes per second. 

Exchanges with low latency and high processing capability will be able to process high volumes without lagging or slowing down. As a result, such exchanges can facilitate day traders better and make better trades based on the pricing swings in the market prices. 

Now, if the reverse was true, and the exchange has high latency, it will process orders with a lag. This lag implies that traders do not get to book their trades at the prices they initiated the trade at. This results in orders booked at incorrect prices and miscalculations in the trading strategy. This creates problems for traders and causes them to miss out on the opportunities they are trading for.