17 min read

Bitcoin 2020 Annual Review

Comprehensive coverage of metrics across a number of different verticals in the Bitcoin ecosystem to gauge performance in 2020.
Bitcoin 2020 Annual Review

I’ve always been fascinated with the raw numbers relating to the operational status and growth of Bitcoin, especially as we ride the rollercoaster of the adoption life cycle. This interest spurred me to create Statoshi.info in 2014 to track bitcoin metrics from the perspective of a full node.

To that same end, I’ve compiled statistical measurements of Bitcoin’s growth in 2020 from a variety of sources. It is difficult to see all of the moving pieces since the data is so distributed, but the picture becomes clearer when you bring them all together.

The one theme that I've taken away from all of these metrics is that 2020 was a growth year for Bitcoin. 2019 was a quiet year of building; 2020 is when we saw perseverance pay off once again.

Bitcoin is at the forefront of an increasingly complex ecosystem that continues to grow in a variety of ways. And for the 12th straight year, it stubbornly refused to die!

General Interest

Relative search interest remains high in developing countries.

General interest in educational resources remained low. This leads me to believe that recent growth in the exchange rate is spurred by a smaller number of high value investors rather than a flood of retail FOMO.

Source: Google Analytics

Twitter chatter was similarly modest in terms of volume.

The bitcoin subreddit saw pretty decent growth, though it's hard to tell how real or active these accounts are. The volume of comments and posts per day on reddit remained pretty much on par with the volume seen in 2020 until we surpassed the all-time high in December. So this could be an influx of lurkers or a bunch of bots.

Source: https://subredditstats.com/r/bitcoin

I myself abandoned BitcoinTalk many years ago because I felt it was hard to find signal through the noise. It looks like user growth on that site continues to decelerate.

Source: https://bitcointalk.org/index.php?action=stats

Academic Interest

Academic interest continued to increase, which is great for the long-term prospects of this industry as we continue to gain a greater understanding of what we’re building.

Source: https://scholar.google.com/scholar?q=bitcoin&hl=en&as_sdt=1%2C34&as_vis=1&as_ylo=2020&as_yhi=2020
Source: https://eprint.iacr.org/search.html

Funding and Forking

Venture capital funding is back on the rise as the companies that survived the bear market have proven and fine tuned their business models.

Source: Pitchbook & The Block 2020 Annual Report

The red hot ICO market crashed by another 97% after crashing 85% in 2019 as many overfunded overhyped projects failed to deliver on their promises. An uptick in SEC action against ICO companies certainly didn't help.

Source: https://icobench.com/stats#stats-raised

Although bitcoin's exchange rate quadrupled over the course of the year, volatility was fairly low with the exception of Black Thursday.

I saw quite a few calls for "alt season" to kick off throughout 2020, but it simply hasn't happened. My primary explanation for this is that "alt season" happens when there is retail FOMO and a lot of those newcomers feel like they missed the boat to buy bitcoin and thus they need to find "the next Bitcoin." That hasn't played out in 2020, as it appears much of the growth is driven by institutional investors and high net worth individuals who are seeking safety in sound money rather than riskier new tokens.

Source: https://coinmarketcap.com/charts/#dominance-percentage

The "fast, cheap payments" narrative has not played out well for BCH and BSV. This is a highly competitive arena in which dozens if not hundreds of altcoins can claim to be "the best." And of course, Bitcoin itself continues to compete in this space via Lightning Network.

On-Chain Transactions

While development of Lightning Network made more progress in 2020, which I’ll cover later on, due to its stronger privacy features we’ll always have more accurate statistics of on-chain activity.

A more controversial aspect of the changing nature of bitcoin is the transaction fees. Rising fees caused significant frustration for users trying to transact in smaller amounts of value during late 2017 and early 2018, but fees were nearly 0 for the following 2 years due to a variety of factors. Lower transaction demand, improved fee estimation algorithms, adoption of segregated witness, transaction batching, and lightning network resulted in more efficient use of block space and less contention for this scarce resource. In 2020 we saw demand increase and fees followed suit.

Address reuse likely had a floor set on it due to the security mechanisms at exchange. Some estimates have put nearly half of all bitcoin transactions as being exchange-related, and the deposit/withdrawal mechanisms of exchanges tend to encourage not generating new addresses.

The rising on-chain fees will hopefully encourage further adoption of SegWit. Binance finally added support for it at the end of 2020, though they don't appear to have made it the default. The largest transaction creator that I'm aware of that still has not added support is blockchain.com - don't use them as a wallet unless you like paying higher transaction fees!

Source: https://transactionfee.info/charts/payments-spending-segwit/

UTXO set growth continued its growth trend from 2019. This is hopefully another indication of individual users taking ownership of their private keys.

Source: https://statoshi.info/dashboard/db/unspent-transaction-output-set?panelId=6&fullscreen

Bitcoin Data Anchoring

While you may think of bitcoin as being a cryptocurrency, some users think of it as a trust anchor. By embedding data into Bitcoin’s blockchain, other systems can gain new properties such as tamper evidence and immutability.

The amount of outputs that embedded data into the blockchain increased at an unprecedented rate in 2019, mostly due to Veriblock's "proof of proof" mining coming online. However, 2020 seems to have shown that this model was not sustainable during periods of higher demand for block space that cause transaction fees to rise significantly. OP_RETURN creation dropped by 72% year over year.

Source: https://txstats.com/dashboard/db/op_return-statistics
Source: https://transactionfee.info/charts/output-opreturn/

But OP_RETURN isn’t the only way to anchor other systems onto Bitcoin’s blockchain. Sidechains use pegging mechanisms to cryptographically lock BTC on the main chain and then allow users to unlock a proportional amount of tokens on a sidechain. This allows for experimentation with other features that are unlikely to be added to the Bitcoin protocol. At time of writing the only two production sidechains are RSK and Liquid. Work continues to progress on drivechains, though it's hard to say if and when we'll see drivechains in production use.

Lightning Network

The observable network grew modestly in 2020. It's also becoming more difficult to know how accurate the metrics are for Lightning Network as more channels are being created privately.

Source: https://bitcoinvisuals.com/


2020 was a big year for folks building financial infrastructure on Ethereum and Bitcoin wasn't left out. While many like to point out that there is "more bitcoin on Ethereum than Lightning Network" these figures are hardly comparable because the security models are completely different.

Source: https://defipulse.com/btc

Network Security and Health

The number of Bitcoin nodes held steady during the bear market — my suspicion is that people who run reachable nodes are highly dedicated to Bitcoin and/or using them for economic purposes, thus they are unlikely to turn off the node due to exchange rate volatility.

The number of unreachable nodes (behind routers without port forwarding) was also fairly steady. This is probably evidence of a node floor of dedicated Bitcoiners who have persevered through the bear market. I fully expect this number to be an indicator of retail FOMO and that it will shoot up if a bunch of newbies enter the space.

A variety of improvements in block propagation have been implemented by Bitcoin Core over the past several years; network propagation performance leveled off in 2019. It looks like latency ticked up a bit and there was about 1 orphaned block per month on the network, which is still incredibly low in historical terms.

Given that the exchange rate quadrupled, it's not surprising to see the hashrate increasing. Continued improvements in hardware efficiency also serve to lower the electricity required to achieve a given hashrate. However, I believe that we're currently seeing a lag in hashrate increase due to a supply shortage of ASICs. I expect 2021 will see a major uptick in hashrate as more machines come online.

Use of AsicBoost also serves to increase miners' electrical efficiency.

The proof-of-work equivalent days is an interesting metric though it should not be construed as a reasonable attack that we should be worried about. Theoretically an attacker could have 1,000% of the total network hashrate or more and perform various block reorganization and double spending attacks. Practically, of course, there are physical limitations to acquiring that level of hardware and electricity.

This is actually the first year since I've started tracking annual network hashrate growth that the acceleration has slowed down. We are still accelerating of course, and I expect that 2021 will accelerate growth even faster as ASIC production ramps up.

To calculate: (Dec 31 hashrate — Jan 1 hashrate)/31536000

In terms of general ecosystem security, 2020 was an amazing year! Major hacks cause loss in confidence in the system and can serve as major setbacks even though they have nothing to do with the protocol or network security.

Cost of Node Operation

Anyone who has been following the Bitcoin space for long is likely aware of the scaling debate that resulted in a variety of both software forks and blockchain forks. The good news for node operators is that it appears the resources required to fully validate the entire history of the blockchain are decelerating, meaning that node operators should be able to take advantage of the deflationary nature of technology.

I ran performance tests of every Bitcoin client and sync time actually decreased or remained steady (linearly increasing along with the total blockchain size) for all but one client.

In terms of total storage required, the annual blockchain growth rate is now down to 25%, which ought to be easily addressed by increasing hard drive density. And of course you can always run a pruned node (though it will still have to download all of the data during the initial sync) that only needs 10 GB or so.

Bitcoin Economics

As usual, many of Bitcoin's economic metrics were correlated to the exchange rate, which was fairly flat until the 4th quarter of the year.

Transaction volume in terms of BTC remained rather flat during 2020. This can also be seen in blockchain.com’s chart.

In terms of M1 Money Supply, Bitcoin made impressive gains.

Source: https://www.lopp.net/m1/rank.html

From a relative historical standpoint, the overall change in exchange rate was strong.

To calculate the above, use the formula:

Jan 1 exchange rate * (x³⁶⁵)=Dec 31 exchange rate

Another way of showing that the bitcoin exchange rate is at an all-time high:

Bitcoin Trading

P2P trading was fairly flat volume-wise.

Source: https://coinatmradar.com/charts/growth/

BitMEX uses an insurance fund to avoid Auto-Deleveraging in traders’ positions. The fund is used to aggress unfilled liquidation orders before they are taken over by the auto-deleveraging system. The insurance fund grows from liquidations that were able to be executed in the market at a price better than the bankruptcy price of that particular position. This slowdown is probably a result of the exodus of traders from BitMEX in 2020 after the SEC took legal action against them.

Technical Development

At a protocol level, there was a great deal of work done in 2020. If you want a deep dive into low level developments I recommend reading Bitcoin Optech's year-in-review and Aaron van Wirdum's Bitcoin 2020 in Tech.

The Bitcoin Core repository continues to maintain its dominance as the most active.

Source: calculated from the default development git branch of each repo.

git shortlog --after 2020-01-01 --summary --numbered --no-merges


Most people are only familiar with the exchange rate of Bitcoin, if that. But exchange rate is just one of many metrics we can use to observe the evolution of this ecosystem. While any given metric can be gamed or may be taken from sources that aren’t 100% reliable, by using a diversity of metrics and sources we can get a rough idea of the trends in this space.

2020 was the year of the first wave of big institutional players dipping their toes into Bitcoin after observing it for some time. Those of us who are dedicated to this system shall continue to BUIDL and add value; we have no control over the market but I expect that this is only the beginning of the next wave of adoption.

“Every day that goes by and Bitcoin hasn’t collapsed due to legal or technical problems, that brings new information to the market. It increases the chances of Bitcoin’s eventual success and justifies a higher price.” - Hal Finney