The Early Days Of Crypto Assets Adoption
Francesco Dell'Agata, March 11th, 2019
Despite the market downturn in 2018, people screaming "Bitcoin is dead" and prices of cryptoassets plummeting, Bitcoin is proving people wrong yet again. The leading cryptocurrency might be touching lows not seen since 2017, however the cryptocurrency ecosystem adoption, industry growth, jobs growth and the digital wallets numbers are increasing despite the bear market.
A number of metrics can be used to determine growth of the whole digital assets market. Bitcoin is being used across the world as a currency and the use cases are increasing as we see a variety of situations unfold. A strong and rising stock market and countries with hyperinflation, are showing to be great use cases for Bitcoin to tap into those markets. Countries in Latin America such as Venezuela and Argentina or Zimbabwe in Africa, have been experiencing financial turmoil and economic mismanagement that has left these countries in despair.
A trend to take into account is the one shown in the above illustration provided by Statista – a trend that does not appear to be slowing down despite the 2018 market downturn. The number of blockchain digital wallets across the entire cryptocurrency ecosystem has been steadily increasing, this proves continuous usage and adoption of cryptocurrencies. In the third quarter of 2018, there are just under 29,000,000 addresses in existence. It is not possible to accurately track the number of Bitcoin wallets in existence, this is due to users being able to generate a new wallet each time they wish to send or receive Bitcoin. Moreover, it is encouraged to create a new wallet for each new transaction – this increases security and decreases the likelihood of theft.
An interesting recent use case that has proven that Bitcoin is being adopted is the one explored by U.S. state of Ohio. It is the first state in the United States to accept Bitcoin for tax payments, which is revealing to be extremely convenient.
Despite the bear market of 2018, cryptocurrency adoption has doubled during this year. According to a newly published study by the Cambridge Centre for Alternative Finance and the research team involved gathered data from 180 entities globally across 47 countries.
The study found a number of compelling facts that show the cryptoasset market is gaining traction. There are at least 35 million identity-verified users in the crypto space and this number grew 4x in 2017 and doubling again in the first three quarters of 2018. Only 38 per cent of all users can be considered active, although this can vary depending on the services offered by providers.
Another metric is that organisations are increasingly operating across a number of segments – we observed a cross-segment firm expansion by the end of 2018. In terms of cryptoasset service providers, there are now 57% who are operating across at least two market segments to provide integrated services for customers. This figure was only 31% in early 2017.
Multi-coin support has nearly doubled from 47% of all service providers in 2017 to 84% in 2018. This is a trend driven by the emergence of common crypto standards on some platforms (e.g. ERC-20 on Ethereum) that has resulted in a rapid increase in the supply of tokens, airdrops and forks.
Mining facilities has also been a talking point in the crypto space – it is thought that Bitcoin consumes an enormous amount of energy, as this is required for the mining to take place and issue more Bitcoins in the ecosystem. It is estimated that the top six proof-of-work cryptoassets collectively consume between 52 TWh and 111 TWh of electricity per year: the mid-point of the estimate (82 TWh) and this is miniscule if compared to the entire world. These figures constitute less than 0.01% of the world’s global energy production per year. In addition, a notable share of the energy consumed by these mining facilities is supplied by renewable energy sources in regions with excess capacity.
Mining is less concentrated than commonly perceived – this means that cryptoasset mining appears to be less concentrated geographically, in terms of hashing power ownership. Albeit this is true, Bitcoin’s mining pool concentration is primarily Chinese – accounting for 80% of all mining pools.
The rest of mining pools across the world are located in countries like Iceland, Japan and India. If the largest 4 Chinese mining pool ever decided to collude together – this could be a problem for Bitcoin. However, this is just speculation and it has not happened.
Finally, regulatory efforts are reflecting a growing industry that is maturing. There are many Industry actors are being proactive in adopting measures that comply with existing regulations. In some cases, we have seen that new regulation needs to be created to allow certain types of investment products to enter the market. This is to ensure retail and institutional investors are safeguarded – such as the much awaited approval of an ETF by the S.E.C. in the United States. There is an increasing number of self-regulatory initiatives, which combined with the emergence of sophisticated and professional services, reflect the growing maturity of the cryptoasset industry.