Bitcoin economy: State of the Nation

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Monday 04 May 2015

Bitcoin’s #1 use is still as an instrument of speculation, and so it’s hardly surprising that a long, long period of decline in price has brought with it a pall of depression about the virtual currency’s future.

In the words of one trader-developer, ‘The market is technically a manic/depressive psychotic. That means it is delusional and says things that are, well, insane. Like LTC is 30x more valuable than NXT, or AUR is 10% of bitcoin…’ Fortunately, though, the price is not the value. Behind the scenes the bitcoin infrastructure is progressing in leaps and bounds. Let’s take a look at exactly what’s been going on over the last year.

BitPay: ‘from investment to currency’

The first wodge of information comes courtesy of BitPay, which recently released its figures from 2014. They tell an interesting story – though not, with hindsight, one that’s particularly surprising.

Some 100,000 merchants accept bitcoin now, of which 53% are BitPay’s accounts – a nice slice of the action for them. The total number of BitPay transactions has risen by 250% on last year (563,568 from 209,420), but the amount processed in each transaction has almost halved – $281 from $513. BitPay reasonably interprets these figures as showing that people are using bitcoin as cash more and more, and as an instrument of speculation less and less. ‘As merchant and consumer adoption increases, bitcoin is moving from an investment commodity to a payment method… The investors are usually the first ones to hop on new technology, but as bitcoin circulates more, and as the amount of transactions increases, we should see bitcoin being used by more and more average consumers.’

Whilst the expanding infrastructure of merchants gives bitcoin holders places to spend their coins, it’s very likely that the burst of the speculative bubble has given them a reason to do so. The miserable market conditions of last year have essentially acted like a severe dose of inflation, making coins worth less than they were. That’s exactly the trick central banks play to get people to start throwing cash around to stimulate the economy (lowering interest rates, quantitative easing) because they know people won’t want to hold onto cash that will buy less tomorrow. In other words, bitcoin’s bear market has prompted a strong rise in real-world commerce. There’s a silver lining to every cloud.

Bitcoin directory

The second tranche of data comes from BitScan’s list of merchants. BitScan represents the largest crypto directory and marketplace in the world, with some 9,000+ businesses signed up. You can see a list of new sign-ups month-on-month here. It’s encouraging reading.

March 2015 saw 194 new businesses join BitScan’s directory. In February 134 joined. 89 in January, 80 in December 2014. Here’s a chart for the last year:

Sign-ups

Naturally there’s quite a lot of variation, and earlier in BitScan’s history more businesses per month signed up. Once the initial wave of newcomers was over, things stabilised and then continued to rise. BitScan’s corner of the bitverse, as well as BitPay’s data, shows that bitcoin is still very much alive and kicking.

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