Bitcoin (BTC) recovered a little over 10% in a recent rally, having established a local bottom on August 13th, but is currently down 68% from the record high in December. The market cap stands at US$109.93 billion, with US$1.65 billion traded in the past 24 hours.
The number of Bitcoin transactions per day has been slowly increasing since April and has averaged between 180,000 and 220,000 since June. This key metric has declined significantly for a number of leading cryptocurrencies throughout the year. Transaction costs have also declined significantly, as has the average transaction value in USD, which can be partially attributed to the decline in the price of Bitcoin. Unconfirmed transactions have also declined dramatically this year. There are currently less than 3,000 transactions pending confirmation, most of which were sent with a fee below 4 sats.
Using a network value to transactions (NVT) ratio, BTC remains in the upper-third of its historical range with the 28-day average beginning to decrease. Although NVT is difficult to compare between coins that use different transactions types, the ratio can be used to assess a network’s relative utility over time. NVT has not been this high since January 2015, which suggests decreasing on-chain network usage based on the dollar amount being transacted.
Additionally, inflection points in NVT can correlate with extreme highs or lows in price. With the rise of alternative on and off chain methods to send transactions, such as batching and Lightning Networks, the new normal for NVT may take many months to determine.
However, on-chain transactions per day have not only declined due to a lack of network use but also transaction batching, where one transaction is sent to many addresses at once instead of each transaction being sent individually. The ratio of outputs per transactions has averaged 2.7-2.9 outputs per transaction over the course of the year, suggesting the practice has become a mainstay. There have also been several days this year with a spike in outputs, indicating a concerted effort towards increase transaction efficiency.
Additionally, the protocol upgrade SegWit, which currently accounts for ~40% of transactions, has also been a significant contributing factor in the average fee decline. A SegWit transaction occupies less block space than a traditional transaction, allowing SegWit users to pay less in accumulated fees to achieve the same number of transactions.
The SegWit soft fork also enabled the possibility of further second layer network upgrades like the Lightning Network (LN), which enables trusted, bidirectional, off-chain, hub and spoke payment channels. This also paves the way for the possibility of instant payments, microtransactions, and increased scalability.
Since going live on March 15, the LN has continued to gain traction. The channels work much like a tab at a restaurant, which remains open until the client settles the bill. This format allows for numerous transactions to occur without a network fee, until the channel is closed.
Jack Mallers and the Zap team continue to release updates for their LN wallet. On the testnet, Zap has also worked for WooCommerce payments, an eCommerce plugin for WordPress, which accounts for more than 28% of all online stores.
Further, the networks hash rate and difficulty continue to post record highs, pushing mining profitability toward record lows. While many factors influence mining profitability, such as price, block times, difficulty, block reward, and transaction fees, decreasing profitability adds to the risk of further centralizing mining, both through mining pools and geographically. The next Bitcoin block reward halving is slated for May 2020.
The core of mining is solving Proof of Work (PoW), which has lead to ASIC proliferation throughout the network, and has also been the focus of criticism due to the amount of energy being utilized by the network. Current estimates on Digiconomist show an annual energy consumption of 73.12 TWh. This would place the network between the Philippines and Austria in terms of energy consumption by country per year.
Others see this energy consumption as an opportunity. Peter Van Valkenburg of CoinCenter, a non-profit research and advocacy center focused on the public policy issues facing cryptocurrency in Washington D.C., has argued that instead of destroying the planet, Bitcoin will push the energy market towards more sustainable alternatives, driving an energy revolution.
Bitcoin advocate Andreas Antonopoulos shares this view and has questioned the hidden resource needs required by other payment platforms. This week, the U.S. Senate Committee on Energy and Natural Resources will have a committee hearing on “Energy Efficiency of Blockchain and Similar Technologies” to discuss the matter.
There is also another decision from the U.S. SEC, due on August 23rd, regarding a BTC price following fund. Similar to the announcement for the SolidX/VanEck ETF, this decision…