Bitcoin: Cryptocurrency Use Is Quietly Surging Back to Its Peak
Bitcoin is quietly gaining momentum again. The number of confirmed transactions per day has reached levels not seen since 2017, the year when the world’s largest cryptocurrency surged in value and made international headlines.
“I look it the following way: 2017 was the year of the bubble where there was an increased number of transactions because of speculators,” Campbell R. Harvey, professor of finance at Duke University, tells Inverse. “That has subsided and the previous trend has been continued.”
Data from Blockchain.com shows the number of daily confirmed bitcoin transactions reached 328,417 on February 5, the first time since January 2018 that it has reached that level. At its peak in December 2017, bitcoin was worth nearly $20,000 per coin, but it has since slumped to just $3,462 at the time of writing. While the price crash at the start of 2018 was coupled by a decline in usage, the number of transactions per day has gradually risen to return to its previous high levels.
The number of confirmed transactions has taken a notably different trajectory to the price over the past few months:
While the previous rise in transactions may have been driven by investor speculation, Harvey says that this is “unlikely” the source of this 2019 surge “given the price has been heading downwards.” Investors are also not showing much interest in predicting the future price of bitcoin, as Harvey says there is “relatively modest volume” on futures trading platforms.
Another source for the rise could be that bitcoin is more useful now. When its value jumped at the end of 2017, the one megabyte limit on block size meant that users had to wait to confirm their transactions. The average time to confirm soared as high as 2,575 minutes, or nearly 48 hours, in January 2018. Today that figure is around 15 minutes, despite the jump in transactions:
New technologies may have helped shift bitcoin into something more usable. Segregated Witness, or SegWit, was an agreed policy change in August 2017 that rearranges the transaction data to use that one megabyte more effectively. During the late 2017 surge, just 10 percent of transactions used SegWit, but that figure has since jumped to 35 percent.
“It does point to an ongoing issue with regard to the constraints in the current bitcoin implementation in terms of block size,” Harvey says. “That problem has not gone away.”
Another technology causing a stir is the Lightning Network. This handles transactions away from the blockchain, holding them in a payment channel until it’s closed and the final results are written as one to the blockchain. Where bitcoin can handle around seven transactions per second, and Visa around 2,000 per second globally, the Lightning Network’s developers claim it can scale to handle billions of transactions in a second.
“LN, in particular, allows for a large number of off-chain transactions,” Harvey says. “To be clear, the channel is set up with an on-chain transaction and then all of the small transactions are purely done between channels (off chain). When any coin is repatriated from the channel — that is one chain. Hence, it is unlikely that LN has anything to do with the increased number of on-chain transactions.”
While bitcoin’s transactions are increasing, not everyone is convinced that its design can sustain a large number of users. Bitcoin Cash split from bitcoin in August 2017 with the idea that the block size needs to increase to support more transactions at once.
“I don’t think Segwit + Lighting are a viable path forward, the block size needs (or needed) to be increased,” Chris Wilmer, professor at the University of Pittsburgh and co-author of Bitcoin for the Befuddled, tells Inverse. “I think Bitcoin Cash, which is not an altcoin but simply the less talked about half of the fork that occurred in 2017, has the right idea.”
The author of this story has a stake in bitcoin and Ethereum.