Bitcoin 2022 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 2022 from a variety of sources. It can be 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 2022 was typically painful Bitcoin bear market; we have once again persevered through some significant setbacks.
Bitcoin is at the forefront of an increasingly complex ecosystem that continues to grow in a variety of ways. And for the 14th straight year, it stubbornly refused to die!
Switzerland jumped from 6th to 3rd place for relative search interest in Bitcoin, probably due to the Plan B initiative in Lugano.
General interest in educational resources remained low. This makes sense, as we tend not to see many new entrants to markets when sentiment is bearish.
Twitter chatter was fairly flat, up 3% over 2021 though still up 350% over 2020.
The bitcoin subreddit saw steady growth.
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 decelerated significantly in 2022.
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.
Funding and Forking
Venture capital funding has exploded as the companies that survived previous cycles are now orders of magnitude larger and raising huge late stage rounds of funding. It's worth noting that VC investment in Q4 fell off a cliff as the bear market and credit crises hit full stride. I expect 2023 will see a much smaller level of investment as VCs get excited by advancements in other tech areas such as artificial intelligence.
2022 saw the collapse of several highly ranked crypto tokens, which offset the decrease in BTC's exchange rate in terms of total market cap.
On the other hand, the "fast, cheap payments" narrative has not played out well for BCH. 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, which we'll cover later.
While development of Lightning Network made more progress in 2022, 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 2022 we saw both demand and fees remain near floor levels due to market sentiment, though there were still record levels of value being transferred!
Despite the bear market both for the exchange rate and block space, Bitcoin miners appear to be doing quite well.
Address reuse likely has a floor set on it due to the security mechanisms at exchanges. 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. This metric has barely changed in recent years.
SegWit adoption has reached saturation; I expect it will take many years for us to asymptotically approach 100% adoption.
UTXO set growth continued its growth trend from 2021, though you can see several major consolidations such as the 2 week long Binance consolidation they performed in November to help restore more confidence in their reserves.
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, since then we seem to be making a return to normal based upon what uses cases are economically justifiable. OP_RETURN creation dropped by another 34% in 2022.
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.
A few interesting points to note here: I suspect the drop was due to the increase in hashrate by other pools that don't merge mine RSK, rather than miners stopping their merge mining. Also, apparently the peg-out from the RSK sidechain has been inoperable during Q4 of 2022 due to some issues with the "standardness" of the peg-out bitcoin transactions it uses.
Blockstream's Liquid sidechain also saw negligible growth in 2022.
The observable network remained fairly flat in 2022.
Since we can't actually observe payments on the Lightning Network, we have to settle for anecdotal reports by major node operators about the volumes they're seeing.
2022 saw a major unwind of lending activities and wrapped bitcoin bore the brunt of the fallout. 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.
The vast majority of wrapped bitcoin are in fact custodied by BitGo for their WBTC token, so I think of this metric as more akin to a "balances on exchanges" metric.
Network Security and Health
The number of Bitcoin nodes remained steady in 2022; I'd say this is a pretty strong floor of dedicated operators (such as myself!) who will continue running nodes for our own benefit regardless of the exchange rate.
The number of unreachable nodes (behind routers without port forwarding) was also fairly steady around 50,000. This is more evidence of a 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 has been fairly consistent since 2019.
While the global hashrate only went up 10% in 2021, mainly due to the major setback with China completely banning mining, 2022 has resumed the upward trajectory to all-time highs.
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.
The growth in global hashrate has been not merely increasing, but has been accelerating since genesis. My prediction in last year's review that 2022 would accelerate growth even faster due to major investments in infrastructure appears to have come true.
However, from recent reports we can see that a lot of the newer industrial mining operations are now in distress due to overleveraging their operations. I'd expect that 2023 will see a delayed fallout and thus slower network growth as some of these larger operations go out of business and are acquired by the survivors.
In terms of general ecosystem security, 2022 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. Of course, the flip side is that 2022 saw a multitude of losses due to fraud and poor risk management by trusted third parties... which ought to make folks more bullish on self custody!
Physical attacks tend to be correlated with the exchange rate; the bear market has reduced the risk of attack (for now.)
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 performance improved for all the software projects that are being actively maintained.
In terms of total storage required, the annual blockchain growth rate is now down to 17%, 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.
As usual, many of Bitcoin's economic metrics were correlated to the exchange rate, which ground downward throughout the entire year.
From a relative historical standpoint, the overall drawdown in exchange rate was typical for a bear market year.
To calculate the above, use the formula:
Jan 1 exchange rate * (x³⁶⁵)=Dec 31 exchange rate
Some institutional interest in Bitcoin has certainly waned, but most of the corporate treasuries seem to be HODLing.
ATM growth continues to grow but slowed from an exponential to linear acceleration. This makes sense, as last year I questioned whether ATM usage is following suit given that on-chain metrics don't indicate the same level of retail usage.
While it was a terrible year for users of centralized custodians, it was a great year for proponents of self custody!
Willy Woo made an excellent point regarding the following chart - while futures interest declined in fiat terms, it's still up in bitcoin denominated terms.
At a protocol level, there was a great deal of work done in 2022. If you want a deep dive into low level developments I recommend reading Bitcoin Optech's year-in-review.
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 2022-01-01 --summary --numbered --no-merges
Here you can visualize the year's activity in the Bitcoin Core code repository:
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.
2022 was a unique cycle of cascading credit crises and outright fraud by major players. The resulting loss of confidence and interest in the space is something we've seen occur several times during previous cycles. 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 sentiment will rebound and we'll see another wave of adoption by the masses who need it most.
“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