Looks like Bitcoin is dying, again. A rhetoric that has come up many times in the past 10 years. Currently, a price drop coupled with mining capitulation has naysayers again making weak hands quit their HODL positions. Moreover, now the number of transactions on the blockchain is also witnessing a drop.
It has dropped from over 350k transactions daily, to about 230k transactions. Nic Carter, leading on-chain analyst and founder of Coinmetrics, tweeted,
BTC transaction count just printed a low not seen since March 2019. Bitcoin dying? Let’s investigate
According to his analysis in the Twitter thread, the drop is not due to the reduction in the number of normal Bitcoin transactions, but due to other on-chain factors.
First, is the reduction in the OMNI and Veriblock transactions. As reported earlier on CoinGape, the percentage of transactions dominated by Veriblock was becoming an alarming issue for Bitcoin.
These protocols use the “arbitrary data function (specifically OP_RETURN)” on Bitcoin to verify and store third party data on the blockchain. This does not involve moving BTC around. Nevertheless, this is changing fast. Carter notes,
Here’s txn count with OP_RETURN stripped out. The bulk of the non Omni OP_RETURN transactions are Veriblock. You can see where the VB testnet was turned off in early 2019. Recently its activity has subsided too. Regular BTC transactions are quite steady.
Second, is the batching of transactions on Coinbase. Recently, Coinbase announced ‘batching’ of Bitcoin transactions, a process by which the Coinbase’s load on Bitcoin blockchain could be reduced by 50%. According to their CEO, Brian Armstrong,
Coinbase generates a lot of on-chain Bitcoin transactions, and I’m glad we’re making them more efficient now.
Batching techniques have already been adopted by many other crypto exchanges. It enables user transactions to be coupled into a single multi-output set. The sudden shift on the blockchain after the implementation by Coinbase does confirm Armstrong’s claim on-chain dominance.
Moreover, Carter also confirms that the drop in the number of transactions is being partly reciprocated by the amount of Bitcoin’s moved. He added,
Another way to confirm this – transactions are getting bigger on average (in terms of bytes). A hallmark of batching. To soon to call this a definite trend but something to watch
Last but not the least, if the decrease points to a death, we are likely to witness a spike in the number of transactions first as the more traders would look to sell. The strength of the network and the trends in volume can be accurately analysed in the medium to long term, and not by sudden spikes.