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Where are bitcoin transaction volumes heading?

For the year-to-date at the end of August 2015, the total number of bitcoin transactions has increased by 70% over the same eight-month period in 2014.  For the month of August 2015, the average daily volume of Bitcoin transactions was 115 thousand transactions per day, a 69% increase over the number in August 2014.  Bitcoin is growing at a steady pace.

This is interesting because transaction numbers are a direct indicator of usage. Bitcoin usage is rising, and has been since around mid-2012, as can be seen from the transaction chart on blockchain.info (the data source I have used for this blog). In my experience with payment systems, it is reasonably easy to forecast future volumes based on current rates of change, for example I have observed this to be the case for the growth of SEPA credit transfer volumes, the decline in UK cheques and the growth in contactless card transactions in the UK and Europe.

At the beginning of this year, I forecast that bitcoin transactions would be somewhere between 130 – 170 thousand transactions per day by the end of 2015. Based on growth so far this year, I expect the outcome at year-end to be towards the upper end of this forecast.

The total transaction value is less easy to interpret as it is driven by both usage and type of use (micropayments, high value payments, low value payments, asset-linked transactions etc). However, the value of transactions in bitcoins is rising strongly, up 162% for the month of August 2015 compared to August 2014, but the value in USD is up only 22%, due to the decline in value of btc. Over the past 12 months, the average transaction value has been in the range 1.5 – 2.4 btc per transaction, and $380 - $812 per transaction.

It is evident that the longer bitcoin endures, the stronger it becomes – it is a self-reinforcing, self-sustaining phenomenon, but it is still too early to tell whether bitcoin will be a long term success. However, sustained transaction growth is a positive factor, and one to watch closely.

An immediate obstacle Bitcoin has to overcome is the current capacity limitation of around 300 thousand transactions per day, which is getting closer (and with peaks already occurring at over 200 thousand transactions per day, this limit could be hit this year). This issue is generating heated debate on how to increase its capacity, but no doubt, consensus will prevail.

Hundreds of millions of dollars are being pumped into blockchain and crypto-technology businesses, but so far there have been no major success stories or widely adopted uses of distributed ledger technology – except that is, for Bitcoin itself, where transaction volumes continue to tick steadily upwards.

 

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Comments: (6)

David Birch
David Birch - Tomorrow's Transactions - London 07 September, 2015, 15:58Be the first to give this comment the thumbs up 0 likes

I'll eat my Vince Cable-style hat if I'm wrong about this Jeremy, but those increasing transaction volume do not, in my opinion, relate to "real world" commerce.

A Finextra member
A Finextra member 07 September, 2015, 18:47Be the first to give this comment the thumbs up 0 likes

David - I believe you're partially correct.  Any Bitcoin transaction includes a transaction "fee", paid to miners who secure the network. More transactions means more fees.  This seems to imply, at least to me, that these transactions are legitimate, in the sense that the utility of the transaction was equal to or greater than the transaction fee.  No one is incentived to make transactions and get milked in fees all day long.

 

It's interesting as well to see other statistics.  There appears to be a rise in transaction volume on exchanges in Brazil, Argentina, etc.  It's not significant, but it's clearly growing.  Something interesting to keep an eye on.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 08 September, 2015, 12:47Be the first to give this comment the thumbs up 0 likes

Over the last couple of years, we've been hearing that BTC is being accepted at overstock.com, some higher education institution (don't recall the name but it's apparently a portfolio company of Andreessen Horowitz VC firm), and so on. Any idea what percentage of BTC volumes and growth come from these "real world" businesses? 

David Birch
David Birch - Tomorrow's Transactions - London 08 September, 2015, 13:25Be the first to give this comment the thumbs up 0 likes

statisically indistinguishable from zero would be my guess

Jeremy Light
Jeremy Light - A Payments Fintech - London 08 September, 2015, 13:51Be the first to give this comment the thumbs up 0 likes

I have taken only a numeric view in this blog, and haven't considered the nature of the underlying transactions - whatever people are using bitcoin for, their use for it is growing.

However, check out this infographic - it claims bed sheets are the most popular item purchased with bitcoins!

http://www.coupofy.com/blog/bitcoin-is-switching-from-investment-commodity-to-everyday-use 

 

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 08 September, 2015, 14:13Be the first to give this comment the thumbs up 0 likes

TY @JeremyLight, the infographic does list several areas of use of BTC in real world commerce. Leave it to you to decide when to ask for the said Vince Cable style hat to be eaten:)