Bitcoin By the Numbers: 2018 Recap
I’ve always been fascinated with the raw numbers relating to the operational status and growth of Bitcoin, especially as we ride the rollercoaster of the adoption life cycle. It’s why I created Statoshi.info in 2014 to track bitcoin metrics from the perspective of a full node.
To that same end, I’ve compiled statistical measurements of Bitcoin’s growth in 2018 from a variety of sources. It is difficult to see all of the moving pieces since the data is so distributed, but the picture becomes more clear when you bring them all together.
A couple things are clear: 2018 was the worst year for Bitcoin. Also, 2018 was the best year for Bitcoin. It just depends upon which metrics you’re focused.
Bitcoin is at the forefront of an increasingly complex ecosystem that continues to grow in a variety of ways. And for the tenth straight year, it stubbornly refused to die.
Relative search interest is quite high in developing countries.
Academic interest continued to increase, which is great for the long-term prospects of this industry as we continue to gain a greater understanding of what we’re building.
Funding and Forking
While it feels like the ICO bubble has popped, funding via both traditional and new methods hit all-time highs in 2018.
Interestingly, Bitcoin Cash appears to have caused chaos in the markets yet again, this time with its own contentious fork.
As we’ve seen several times over Bitcoin’s history, crashes cause flight from more speculative crypto assets to the relative “safe haven” of BTC, which results in the relative share of the market value going up.
While development of Lightning Network made significant progress in 2018, which I’ll cover later on, due to its stronger privacy features we’ll always have more accurate statistics of on-chain activity.
A more controversial aspect of the changing nature of bitcoin is the transaction fees. Rising fees caused significant frustration for users trying to transact in smaller amounts of value during late 2017, but they have since fallen off a cliff due to a variety of factors. Lower transaction demand, improved fee estimation algorithms, adoption of segregated witness, and transaction batching have resulted in more efficient use of block space and less contention for this scarce resource.
It appears that various entities have used the opportunity of lower fees to consolidate their UTXOs. Xapo has claimed that 4M of the consolidated UTXOs were theirs; it looks like Coinbase also consolidated 7M or so.
Bitcoin Data Anchoring
While you may think of bitcoin as being a cryptocurrency, some users think of it as a trust anchor. By embedding data into Bitcoin’s blockchain, other systems can gain new properties such as tamper evidence and immutability.
The amount of outputs that embedded data into the blockchain increased significantly in 2018, though at time of writing it’s unclear what the most popular OP_RETURN based protocols are other than Omni.
But OP_RETURN isn’t the only way to anchor other systems onto Bitcoin’s blockchain. Sidechains use pegging mechanisms to cryptographically lock BTC on the main chain and then allow users to unlock a proportional amount of tokens on a sidechain. This allows for experimentation with other features that are unlikely to be added to the Bitcoin protocol. At time of writing the only two production sidechains are RSK and Liquid.
At the beginning of 2018, the lightning network was mostly on testnet. The mainnet lightning network began forming (against the recommendations of developers) in late December / early January.
Lightning’s capitalization grew slowly for most of the year with a few notable bursts. In July, Andreas Brekken added a quarter million dollars (35 BTC) to the network, which generated a fun news cycle around “one person controlling half of Lightning Network.” Brekken removed his BTC from Lightning not long after, citing that the risk was not worth the reward.
In November a new service started adding a ton of nodes and channels to which they assigned the aliases of LNBig.com. It appears to be an entity that is highly dedicated toward seeing Lightning Network succeed.
It’s probably fair to say that Lightning Network has grown in excess of general expectations.
Network Security and Health
The number of reachable nodes didn’t fall much in comparison to the exchange rate — my suspicion is that people who run these nodes are highly dedicated to Bitcoin and/or using them for economic purposes, thus they are unlikely to turn off the node due to exchange rate volatility.
On the other hand, the sharper drop in unreachable nodes makes sense if many of these were newcomers to Bitcoin during the recent bubble, who had installed Bitcoin Core (on a home computer behind a router) to use as a wallet and then lost interest when the price fell.
There’s no obvious explanation for the following statistic, but it was more about Germany losing fewer reachable nodes than the US during 2018.
A variety of improvements in block propagation have been implemented by Bitcoin Core over the past couple years and as nodes are upgrading, they appear to be having an effect. There’s also a new highly performant miner relay network, but more on that in a bit.
To calculate this: (Dec 31 hashrate — Jan 1 hashrate)/31536000
Keeping orphan rates low is important for miners. Matt Corallo has been focused on this problem for over 3 years and is now on the second iteration of his miner relay network.
Cost of Node Operation
Anyone who has been following the Bitcoin space for long is likely aware of the scaling debate that resulted in a variety of both software forks and blockchain forks. The good news for node operators is that it appears the resources required to fully validate the entire history of the blockchain are decelerating, meaning that node operators should be able to take advantage of the deflationary nature of technology.
I ran performance tests of Bitcoin Core’s initial block download in February and October, comparing the 0.15 and 0.17 releases, and sync time actually decreased.
In terms of total storage required, the annual growth rate is now down to 25%, which ought to be easily addressed by increasing hard drive density. And of course you can always run a pruned node (though it will still have to download all of the data during the initial sync) that only needs 10 GB or so.
Pretty much everyone was well aware of the drop in exchange rate during 2018. As Bitcoin’s exchange rate fell, so did many other economic metrics.
However, actual transaction volume in terms of BTC remained rather flat during 2018. This can also be seen in blockchain.com’s chart.
In terms of M1 Money Supply, Bitcoin fell fairly far.
From a relative historical standpoint, the drop was the most painful experienced over the period of a calendar year.
To calculate the above, use the formula:
Jan 1 exchange rate * (x³⁶⁵)=Dec 31 exchange rate
Online trading volumes predictably dropped as the general interest in Bitcoin waned over the year, though there were some exceptions in the offline peer to peer trading markets.
BitMEX uses an insurance fund to avoid Auto-Deleveraging in traders’ positions. The fund is used to aggress unfilled liquidation orders before they are taken over by the auto-deleveraging system. The Insurance Fund grows from liquidations that were able to be executed in the market at a price better than the bankruptcy price of that particular position. It would appear that a lot of margin traders got rekt on BitMEX in 2018.
At a protocol level, there was a great deal of work done in 2018. Bitcoin Core and Lightning Network Daemon repositories were particularly active.
Source: calculated from the default development git branch of each repo.
git shortlog — summary — numbered — since 2018–01–01 > contributors.txt
To remove stats from upstream contributors, output the upstream’s shortlog to a file and remove the numbers. Then you can use grep to remove those names from the downstream repository’s shortlog.
grep -vwF -f ../upstream/contributors.txt contributors.txt
Most people are only familiar with the exchange rate of Bitcoin, if that. But exchange rate is just one of many metrics we can use to observe the evolution of this ecosystem. While any given metric can be gamed or may be taken from sources that aren’t 100% reliable, by using a diversity of metrics and sources we can get a better rough idea of what’s going on.
Yes, Bitcoin fared poorly in terms of exchange rate in 2018. But by almost any other metric the system is improving and growing. Those of us who are dedicated to this system shall continue to BUIDL and add value; we have no control over the market but I expect that it will catch up to us sooner or later.