Measuring Crypto Adoption

Bitcoin’s Health Metrics

Bitcoin’s health metrics can be broken down to three key criteria, each with a number of metrics that can be used to measure them. Achieving Scarcity - Measuring integrity of the Monetary Supply. Security - A measure of how Secure the network is. Usage - Measuring how many people are actually using Bitcoin?

Is Bitcoin Achieving Scarcity?

Bitcoin’s protocol - its rules - state that there will only ever be 21 million bitcoin in existence - this is the commitment to scarcity. So how do we measure that? The Bitcoin network is open source, enabling services to look at the number of Bitcoin mined and know exactly what the circulating supply is.

Based on the predictable growth in supply seen, we can predict the maximum supply of 21 million bitcoin will be reached in the year 2140. You will often see a chart of the total supply of bitcoin shown in conjunction with a measure of inflation - showing the rate that the supply is growing each year.

Inflation is a measure we should all be familiar with, telling us how much the price of goods, for example, are going up each year.

Measuring Bitcoin Issuance

If the issuance works as planned then maximum total supply will be reached as expected and Bitcoin can be expected to achieve digital scarcity. At that point, miners will only receive rewards from transaction fees, as there will be no new blocks to mine. There are however, other factors you should consider in assessing scarcity.

Lost Coins

How many coins are lost and therefore unspendable? This is impossible to know with certainty, but estimates put the figure at around 20% of supply. This means the true measure of Bitcoin scarcity i.e spendable coins, is probably only 80% of those known to have been mined.

Satoshi’s Coins

You might also argue that the 1,000,000 bitcoin estimated to have been mined by Satoshi are unspendable, and should be discounted from supply measures. This however, is subject; just because those coins haven’t moved, doesn’t they may not in the future.

Fungibility

There have already been instances where certain Bitcoin addresses have been blacklisted. The U.S. Treasury Department’s Office of Foreign Asset Control ,has listed specific addresses connected to criminal indictments which essentially cordon-off these from use. They are tied to hacking or scams from North Korea, Iran and China, but could be a sign of things to come. Should this approach broaden, those addresses and any funds held could only be spent at great risk.

Hashrate

There is no point in a scarce money that isn’t secure. The role Miners play is not only to ‘issue’ new bitcoin, they also secure the network and that security can also be measured in an objective way, which is crucial - it is known as Hash Rate.

Hash Rate is the estimated computing power committed to mining over a 24hr period. Given that Bitcoin works on incentive, the energy a miner expends must be less than or equal to the reward for the work/energy contributed - converted at fiat market rate - or they wouldn’t participate.

The higher Hash Rate goes, the harder Bitcoin is to corrupt and therefore, the more secure it is. It seems the hashrate increases over time.

Measuring Usage

Number of blockchain adresses is the raw measure of the number of unique reference points on the Bitcoin blockchain that funds can be sent to and from. It shouldn’t be confused with actual users as addresses can be created at no cost, and one user can have multiple addresses.

Number of transactions per day is more meaningful as it measures actually activity, though doesn’t specify what that activity relates to. Average daily transaction value is important. If the average value of transactions increases, this suggests greater confidence in the network.