Counting the number of people who have adopted cryptocurrency

Learning about bitcoin (BTC) usually occurs in stages, and Learn Crypto follows this pattern in organizing our curriculum around the fundamentals of cryptocurrency.

By now, you should have a good understanding of what cryptocurrency is and what it does, in addition to diverse theories about how and where it will develop, along with its limitations.

The macro phase, which follows the function and evolution of cryptocurrencies, looks at ways to assess how well it is at reaching its goals.

When your mindset shifts from micro to macro, you'll be able to ask more critical questions about whether bitcoin (BTC ) is having a considerable influence, based on hard data rather than excitement.

Understanding how to assess the health of a cryptocurrency project may persuade you to devote more time, money, or even your career to it, or, conversely, that it is merely an idea with no significant user base.

Fundamental Analysis is a way of thinking that investors use to evaluate long-term potential. In our section on how to trade bitcoin, we go through its special link to speculation in further detail.

Metrics for Bitcoin's Health

We'll look at gauging Bitcoin's health because it's the most important cryptocurrency and has been around the longest. You can then apply the same strategy to other cryptocurrencies, tweaking the KPIs to fit their goals and designs. Don't forget that Bitcoin is a new type of internet money, whilst other cryptocurrencies are trying to tackle different problems including decentralized value and data transfer.

The health indicators for Bitcoin may be divided down into three main categories, each containing a set of measurements that can be used to assess them.

· Creating Scarcity - Measuring the Monetary Supply's Integrity

· Security is a metric that indicates how protected a network is.

· Measuring how many persons are truly using Bitcoin is called usage.

Is Bitcoin Moving Towards Scarcity？

We explained in the first lesson on the fundamentals of cryptocurrency that Bitcoin marks a new step in the evolution of sound money by achieving digital scarcity.

If the concept is still not clear, go back and review it, because scarcity is critical to the success of every store of value or medium of exchange.

Because of its crucial importance, you can't just imagine Bitcoin has that property; you have to look at objective metrics.

When we talk about scarcity, we're basically asking

· how well Bitcoin is sticking to its overarching objective of a set cap on new coins.

· What is Bitcoin's effectiveness and predictability in terms of adding new coins to the system？

The protocol (rules) of Bitcoin declare that there will only ever be 21 million bitcoins in existence; this is the commitment to scarcity. So, how do we assess this？

Because the Bitcoin network is open source, companies like Blockchain.com can analyze the amount of Bitcoins mined and determine the current circulating supply.

This allows anyone to objectively assess not only the current supply, but also the rate at which it has changed since Bitcoin's introduction, and whether or not this indicates that it is on track to attain highest supply.

This may be proved by comparing it to the claims made by Bitcoin's originator - in the 2008 Whitepaper - which, over time, have proven to be true.

We can forecast that the highest supply of 21 million bitcoins will be reached in the year 2140, based on the predictable development in supply.

A chart of the entire amount of bitcoin is sometimes displayed alongside a measure of inflation, indicating the pace at which the supply grows each year.

In order for Bitcoin to be a useful store of wealth, inflation must fall over time, or it must be disinflationary. To reach its maximum cap, it must inflate - expand its supply - but it has been constructed in such a manner that the pace at which it does so diminishes in a predictable way over time. This issuance strategy may also be measured effectively.

Bitcoin Issuance Measuring Bitcoin Issuance

Different players' roles have been discussed in the last articles on Learn Crypto. Miners are one of the main performers, as they generate new bitcoin, also called issuance, which is critical to the issue of scarcity.

It's critical that issuance is smooth and predictable, and statistics can demonstrate that this is happening as intended, giving users and investors confidence that Bitcoin is performing as stated.

Notice the four-year stages in the graph above; these are known as halvings. A miner's payout for mining a new block is divided in half every 210,000 blocks. It started with 50 BTC and has since been reset to 6.25 BTC after four successful havlings, the most recent on May 22nd, 2020.

If the issue goes according to plan, the maximum total supply will be reached, and Bitcoin will achieve digital scarcity.

At that point, miners will only receive rewards from transaction fees, as there will be no fresh blocks to mine.

However, there are other considerations to consider when determining scarcity:

Coins that have been misplaced

How many coins have been misplaced and are hence unusable？ Although it's impossible to say for sure, estimates place the proportion at roughly 20% of supplies. This suggests that the genuine measure of Bitcoin scarcity, i.e. spendable coins, is likely only about 80% of the total number of coins known to have been created.

Satoshi's Coins are a type of cryptocurrency created by Satoshi Nakamoto

You may also argue that the 1,000,000 bitcoin Satoshi is thought to have mined are unspendable and therefore be excluded from supply calculations. However, just because those coins haven't moved in the past doesn't mean they won't in the future.

Fungibility

Certain bitcoin addresses have previously been blocked in the past. The office of foreign Asset Control of the United States treasury department has listed specific locations linked to criminal prosecutions, thus prohibiting them from being used. Theyre linked to North Korean, Iranian, and Chinese cyber-attacks or frauds, but they could be a portent of things to come. If this strategy is expanded, those addresses, as well as any monies held, will only be used at severe risk.

Hashrate and Security

There's no purpose in having scarce money if it's not safe. Miners are responsible for more than just 'issuing' new bitcoin; they also protect the network, and this security can be assessed objectively, which is critical - it's called Hash Rate.

The projected computer power dedicated to mining over a 24-hour period is known as the hash rate.

Because Bitcoin is based on incentives, a miner's energy expenditure must be less than or equal to the reward for the work/energy given - translated at the current fiat market rate - otherwise they will not participate.

We can also agree that you'd need to possess at least 51 percent of the mining power to disrupt bitcoin and add wrong transactions into blocks.

As a result, the greater the Hash Rate, the more difficult it is to damage Bitcoin and hence the more safe it is. The growth in Rate over time may be seen on Blockchain.com. Hash Rate has been demonstrated to be closely connected with price, demonstrating the relevance of security to Bitcoin's health.

Measuring Usage

Is a term that is used to describe the process of

We can effectively analyze Bitcoin's effectiveness as sound money once we have the means to demonstrate its scarcity and security. However, none of this information is useful until we know who is actually using it. We can acquire a lot of helpful usage metrics thanks to its open source nature:

The total number of blockchain addresses

This is a rough estimate of how many distinct reference points on the Bitcoin blockchain can be used to send and receive payments. It's important not to mistake it with genuine users because addresses can be created for free and a single user can have several addresses.

Every day, the number of transactions reaches a new high.

This is more useful because it gauges real activity without specifying what that activity is about.

Daily Transaction Value Average

If the average transaction value rises, it indicates that the network is more trustworthy.

The total number of UTXOs

A UTXO is an unspent transaction output, or what's left after a bitcoin transaction is sent or received. This provides a more refined value than total addresses, which may or may not contain any information.

These figures just scrape the surface of determining whether or not the Bitcoin network is in use, and whether or not it is growing.

If you believe that hodling is a good indicator of confidence, you can look at the number of UTXOs that haven't changed in a certain amount of time.

Flows from exchanges to and from hard wallets could indicate saving or selling preparations; or perhaps size matters, and whale account activity - buying/selling/moving - is deemed more revealing.

Using Metrics in a More Extensive Way

These are the most widely used examples of metrics. Anyone with the knowledge to harvest them from Bitcoin's blockchain, or any other open blockchain for that matter, can do it for free.

However, they are only the tip of the iceberg in terms of possible indicators of Bitcoin's health.

For those who want to go deeper into data exploration, you can run a node and tap into the source of data, slicing and dicing it as needed, subscribe to services that do the heavy lifting for you, or take advantage of the wealth of information available on Twitter, Reddit, Telegram, and other internet sources.

The key takeaway is that the true test of cryptocurrency is objective measures of its ability to solve a real-world problem - in Bitcoin's case, a scarce and secure digital currency - and users who are actually putting it to the test, not how cool or clever a website, app, or ICO looks, the level of fanaticism among its supporters, or celebrity status of infuncers promoting it.