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As with any potential investment, numbers and values is a good place to start a review in terms of viability. In this post we take a look at the current state of the Bitcoin network from a numerical perspective, and discuss what they mean from an investment standpoint.
Let’s dive in!
To preserve a level of accuracy beyond the publication date, we’ve rounded up numbers. After all, this is a system that moves incredibly quickly.
Bitcoin supply is set at 21,000,000. In the financial world where central governments can choose at will to mint new fiat currency, this finite availability is a rare quality of bitcoin, akin to gold. Its rate of issuance is built into the code, meaning that we can confidently predict the date the final bitcoin will be mined.
The finite supply of bitcoin, coupled with its decentralised nature, means that bitcoin is a global, unified currency, free from monetary policies and artificial manipulation to ease, or drive, economic cycles. Deflationary by design, it will be interesting to analyse as bitcoin finds its price position as the number of newly ‘minted’ bitcoins halves within the next year and we see a classic economics case of supply and demand play out.
In order for bitcoin to become mainstream, it requires backing. Backing by individuals and merchants. Individuals can encourage merchant adoption by pushing for bitcoin payment acceptance and merchants can promote individual use by offering the option. It’s a beautifully symbiotic relationship. And one that is clearly underway.
If we look at the number of user wallets today compared to 2 years ago, there’s a reported 483% increase, while merchants are boosting ahead at 711% adoption in the same period. This mutual uptake indicates a strong appetite from both individuals and merchants alike, fuelling the mainstream adoption of bitcoin as an accepted means of payment.
Further to the above, it follows then that another valuable metric to consider when looking at the adoption of bitcoin is the average daily transactions. The chart below, from Blockchain.info, highlights the average daily number of transactions taking place over the last 2 years, again showing an overall increase, especially when considered as a smoothed linear. With an average daily transaction count of around 40,000 in August 2013, and 65,000 in the same period a year ago, it’s evident that usage is steadily picking up.
When looking at the potential longevity of a new technology, a good place to look is the developer interest. Why? Well, the level of interest points to the investment developers and engineers are making in terms of contributing to or building on the technology. Modern developers make use of GitHub and the number of commits within bitcoin reveals steady and growing interest, up from 1,800 in November 2013 to just shy of 8,900 today, showing a 376% increase.
Another hint at developer allure is the growing number of APIs being developed in the bitcoin space. There are currently 386 Bitcoin APIs available on Programmable Web, up from a mere 46 in June of 2013.
Add to the mix an estimated US$1b dollars of venture capital being poured into bitcoin-related businesses this year, and once again we have a strong indication of ongoing investment in the technology.
And then it gets interesting...
Despite all the climbing values in terms of adoption, usage and interest, Bitcoin’s market cap is low. Remarkably so when we compare to the likes of PayPal at £30b or Western Union at £6.62b. The impressive growth in the innovation hasn’t been factored into the price, and as such a lot of meat is left on the bone.
Bitcoin is a massively undervalued commodity, presenting a firm case for significant return on investment in the long-term (perhaps, even over the medium-term). And a return we’re excited to realise.