Bitcoin’s First Decade (2010–2020) in 7 Charts
Bitcoin celebrated its eleventh birthday today, on January 3, 2020. Here’s 7 charts that illustrate the phenomenal growth since 2010 (and some challenges ahead).
Bitcoin has flourished during its first full decade, capturing the imagination of cryptographers, programmers, economists, traders and more. Bloomberg recently reported BTC as the best-performing asset of the decade, displaying a remarkable 9,000,000% rise.
At the start of 2010, Bitcoin was an underground, grassroots movement — few knew about it and even amongst those that did, many doubted it would go so far. Fast forward to late 2019, and Bitcoin is firmly etched into the mainstream consciousness (check out our review of the top events and themes in 2019 that helped to solidify this).
In this article, we’ll look at different visualisations that tell the story of Bitcoin. To start with, an interesting story of adoption is told by the number of active addresses on the Bitcoin network.
Bitcoin’s Active Addresses Tells a Story of Adoption
Number of bitcoin addresses closely linked to price movements.
Since Bitcoin addresses are not linked to identities, it’s not easy to estimate how many people hold and use bitcoin. Some proxy measures include the number of active addresses and the number of addresses with at least 0.1 BTC.
The number of active addresses on the Bitcoin network has increased from less than 1,000 in 2010 to almost 600,000 today. Although it’s still down from its peak in 2017 of approximately 1 million active addresses, the long-term trend is still up.
The 30-day median of the number of active addresses and the price for bitcoin’s entire history have a correlation of +0.77. The chart below shows how the two values tend to follow each other, with the theory being that the more active users drives the price of bitcoin higher. As usage falls, so does the price. While the correlation is fairly strong, it does not indicate causation.
Charting the number of addresses with at least 0.1 BTC shows that the upward movement has slowed slightly in 2018–2019, and the figure is approaching 3 million addresses with at least 0.1 BTC.
Coin Metrics uses the number of address with a balance of at least $10 to give an indication of the number of retail holders, since this is large enough not to be dust and small enough to capture most holders. A larger value of 0.1 BTC could therefore represent investors with more conviction regarding bitcoin.
An important thing to note is that since there will be a maximum of 21 million BTC and the world’s population is 7.8 billion, the global bitcoin per capita is roughly 0.0027 BTC.
Hash Rate Continues to Break All-time Highs
More and more computing power is being devoted to Bitcoin.
Miners are required to confirm transactions on the Bitcoin blockchain. Once a transaction is submitted, miners confirm these transactions in order of the amount of fees paid.
The hash rate, which measures the total computing power dedicated to the Bitcoin network, has reached all-time highs in January 2020 despite the price falling from $20,000 two years ago. The increased hash rate is a sign of increased security (although what really matters is how distributed the hash rate is).
The chart below shows Bitcoin’s hash rate over time. Different mining epochs are clearly visible, with the first era being CPU mining.
The sharp increase from January 2010 onwards represents the entrance of GPU miners and pushed the hash rate to 1 billion hashes per second.
We see another large steep increase as amateur ASICs started to mine bitcoin in 2013. Finally, the entrance of competitive players who specialised in ASIC mining and produced 16 nanometer chips in 2016. As the halving comes closer (and the block rewards are cut in half), Bitcoin mining will become even more competitive.
Bitcoin’s Volatility has Fallen, but Remains High
Volatility is not likely to go away anytime soon.
One of the biggest criticisms of bitcoin is that it is too volatile to be used as a means of exchange. However, the price volatility of the cryptocurrency has been tempered somewhat since 2010.
The least volatile months in Bitcoin’s history were April 2013 and October/November 2015. We are yet to see the relatively calmness seen during these periods, even though volatility has been falling for most of the past two years, as shown by the chart below.
How Will BTC-USD React in a Recession?
Heading into 2020, there are fears of a recession, but what will the effect on Bitcoin be?
Since its inception in January 2009, BTC-USD has not lived through a full-blown recession in the world’s largest economy, the United States. In such a downturn, risk-off sentiment may become so strong that cryptocurrencies could free-fall in a recession scenario. However, the bullish perspective is that bitcoin will start to assert itself as a safe haven.
The chart below shows the relationship between the probability of a recession in the US in the next 12 months and the monthly return of BTC-USD. The correlation between the two is very weak at -0.206, suggesting there’s no significant relationship between the two. Bitcoin will continue to do its own thing if a major recession hits.
The chart shows that the largest gains were in the months when the probability of a US recession were estimated to be below 12.5 percent — although these were during the early years of bitcoin when volatility was a lot stronger.
Number of Bitcoins in Circulation Passes 18 Million
A major milestone was hit in 2019 when the number of bitcoins in circulation passed the 18 million mark.
In contrast, the M1 money supply for the US Dollar continues unimpeded and is in the trillions of dollars.
The M1 money supply of the US Dollar has more than doubled since August 2010 from $1.4 trillion to $3.8 trillion in December 2019. In the same time, Bitcoin’s issuance schedule has followed a pre-programmed rule.
The daily bitcoin issuance is set in stone by the monetary policy in Bitcoin’s C++ code, shown below:
int64_t nSubsidy = 50 * COIN;
// Subsidy is cut in half every 210,000 blocks
// which will occur approximately every 4 years.
nSubsidy >>= (nHeight / 210000);
While Bitcoin will never cross 21 million units, the growth of the US money supply has no bounds. Crossing the 18 million mark highlighted the scarcity of bitcoin and reminded us all that that there are just 3 million BTC left to be mined.
Bitcoin Fees as a Percentage of the Block Reward
The block reward subsidy will be reduced from 12.5 to 6.25 in May 2020.
With the falling block subsidy and bitcoin’s finite supply, the transaction fees must rise over time to incentivise miners to secure the network. Once miners can generate enough from fees to compensate for the falling block rewards, this will also be a sign that Bitcoin is ready for mass adoption.
The proportion of the block reward that miners earn as fees has fallen from its heights of around 30% at the peak of the mania in 2017 to just 1.10% at present.
SegWit, the Lightning Network, and sidechains like Liquid will make interpreting this number more difficult and accounts for some decrease in fees.
Going into 2020, the block reward will be cut in half to 6.25 BTC per block in May. There are only a few more halvings left for a fee market to develop, to sustain miners and ensure the security of the chain for the future.
As Satoshi Nakamoto said, “I’m sure that in 20 years there will either be very large transaction volume or no volume”. Once we reach the end of the 2020s, we will find out which of those two scenarios will be true. A large transaction volume will be required for a fee market to develop, which is vital for Bitcoin’s continued success.
Interdax looks forward to what the next decade will bring for Bitcoin and cryptocurrency.
What do you think the next decade holds for bitcoin and cryptocurrency? Let us know in the comments below!
