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Bitcoin Analysis: Value, Technology & Behavior

11 Jan 2015, 00:00, ,

With 25.3 million new transactions and 35.2 million new public keys, 2014 was an active year for Bitcoin. Recent data reveals surprising statistics about Bitcoin's growth, user behavior and dispels a few common myths along the way.

Many enthusiasts follow its progress by visiting a Block Explorer to view address history, daily transactions, or the daily price movements but few dig deeper to interpret the flow of information that the Blockchain provides. By analyzing the activity, we can learn about trends in the Bitcoin ecosystem outside of the usual hype and conjecture.

Looking under the Blockchain’s hood requires complex analysis. John Ratcliff, who is an accomplished programmer, has recently brought attention to the space by posting an in-depth piece analyzing data from the blockchain in 2014.  For his research, Ratcliff created a script that can analyze blockchain data and create actionable insights from it. By looking at these insights, several conclusions can be drawn about many ways Bitcoin has been used since it’s creation, with highlight on 2014 as adoption increased and usage matured.

In 2014, there were 42,145 multi-signature transactions recorded on the blockchain out of the 3.5 million total transactions. Multi-signature addresses have unique functionality that can be used for escrow, joint accounts and personal security but have still alluded mainstream adoption in terms of Bitcoin volume and number of accounts. Mult-signature functionality is just one incantation of P2SH addresses.

Multi-signature adds a step that many casual users may not be interested in. Requiring individual users to manage private keys and is a large barrier when most users want the ease of use they get with a simple mobile or web wallet and two-factor-authentication. However, since we’ve seen a rise in adoption over 2014, in terms of the volume of Bitcoins with P2SH and multi-signature technology it shows positive indicators to the security of moving money through the blockchain:

Number of Multi-Sig Keys (wallets) in the Blockchain over time:

Multi Sig Keys on Blockchain over time chartBitcoin Value Distribution of Pay-To-Script Hahes over time:

Bitcoin Value Distribution of Pay to Script Hashes over time chartNumber of Pay-To-Script Hash Keys (wallets) in the Blockchain over time:

Number of Pay to Script Hash Keys in the Blockchain over time chartStealth Addresses:

Stealth transactions allow a user to send Bitcoins with an output that is recoverable by another user’s public key with heightened difficulty of being tracked. While the security benefits are there, only about 1,000 transactions have taken place in 2014. This is likely because it is not widely adopted in wallets and is not understood by users. However, anonymity features like coin-join, ring signatures, and stealth addresses have gotten a lot of media attention. It may be a few more years before privacy features become widely adopted and easy enough for the average user to use, but stealth transactions appear to only be used by a handful of developers and security enthusiasts.

Total number of Stealth Addresses in the Blockchain over time:

Total Number of Stealth Addresses in the Blockchain over timeTransaction malleability has been regarded as a widely exploited issue plaguing Bitcoin. During the period of the Mt. Gox scandal and other exchange hacks, it was repeatedly claimed that transaction malleability led to the issues they faced and the theft that followed. However, Ratcliff’s Blockchain analysis showed that the use of this exploit, or edge-case, was virtually non-existent, and the claim that exchanges lost funds do to this reason was likely false and used as a mask for the other issues that were affecting their systems.

Of the 35.2 million transactions in 2014, roughly 750,000 were dust transactions, or transactions of miniscule amounts. These transactions were likely due to gaming, tipping, and microtransactions. In addition, it has become increasingly more standard to generate new public keys for each transaction, a trend that continued to increase through 2014.

Number of Dust Addresses in the Blockchain over time:

Number of Dust Addresses in the Blockchain over time2014 Daily Value change (new keys vs old keys):

Daily Bitcoin Value change New Keys Versus Old Keys for 2014With Bitcoin in existence for over six years now, we’ve seen stagnant accounts (also called zombie addresses) still holding value. These account have held huge amounts of Bitcoins, and yet remain unmoved. In 2014, 78,000 coins arose from 3 years silence or more and were at least moved from one address to another. While we don’t have direct evidence of the destination of these coins, one wonders if it could be the mysterious bear whale or someone investing in a project like Ethereum. Regardless, it appears some early adopters are moving their coins. In the overall distribution, the most coins are held in the two-year-old account period, meaning they remained unmoved even during the Bitcoin price rise in early 2014. One could infer they were generally unconcerned about the short-term monetary gains of their holdings and some are possibly due to lost private keys.

Bitcoin Value Distribution % by Age of Last Send TransX:

Bitcoin value distribution percentages by age of last send transactionBitcoin’s Rising from the Dead in 2014:

Bitcoin Zombie Events for 2014

Conclusions:

In the end, from this great data that Ratcliff has provided, we’ve learned a number of things. Primarily, the large consolidation of coins moved via P2SH and multi-signature shows that these new features are becoming trusted and proven reliable, which may give investors more confidence in holding and moving large funds in 2015. We’ve seen a growth in Bitcoin addresses and transactions, but it’s difficult to correlate that to user adoption since most wallets generate fresh addresses; it could just be the existing users becoming more active users. We also can still tell that a large number of coins are consolidated in old accounts, some possibly lost or abandoned, or dormant and held by users not swayed by monetary fluctuations or other market factors. Finally, for a fun read, Ratcliff has collected all ASCII information submitted in transactions to the blockchain including Satoshi Nakamoto’s original quote: here.

Analysis Discoveries:

Behavior:

  • Transaction malleability was over-hyped and virtually non-existent
  • Multi-signature & stealth addresses have been rare
  • P2sh has been more widely used, for bulk bitcoin amounts
  • Bitcoin mining has become increasingly centralized; users should use p2ppool
  • Increasingly value is transferred through new keys not old-reused

Usage:

Per day:

  • 70,000 new zero-balance addresses per day about equal to daily transactions. This is an address that is created, contains some bitcoin and is empty by the end of the day. It supports our findings that the Bitcoin Community is following the ‘new address for each transaction’ practices often quoted by security and privacy experts in the community like Andreas Antonopoulos.

Changes in one year (2014):

  • 25.3 million transactions, from 30.2 million total transactions to 55.5 million.
  • 35.2 million new public keys, from 24.7 million public keys in use to 58.9 million.
  • 750,000 new dust addresses, from 1.15 million dust addresses to 1.9 million.
  • Dust transactions could be moved to side chain, useful for (gambling, games, tipping, micro-transactions)

Address distribution:

  • 351,812 addresses which contain 1 Bitcoin or more
  • 104,208 > 10
  • 13,889 > 100
  • 1,449 > 1000
  • 90 > 10,000
  • 3 > 100,000
  • 3.6 million addresses have less than 1 bitcoin – 1.9 million are dust
  • 1% of the value on network accounts for 90% of non-zero public keys – Meaning the common argument that the ‘number of keys’ is directly correlated to the ‘number of wallets’ is false.

All ASCII Text messages in blockchain

Multi-Signature:

  • Used 42,145 in 2014 by 37,138 addresses (launched January 29, 2012)

P2SH:

  • 800,000 Bitcoins transferred 6% of all in existence
  • Comparatively P2SH has been successful multi-sig really hasn’t caught on
  • Largest Bitcoin balances are now held in P2S

Stealth Addresses:

  • Only around 1000 total appear in the blockchain

Unspendable Outputs

  • It is possible to format a transaction with an output that does is unspendable appears about 2,600 of these exist. Counterparty addresses are close example.
  • Example Address

Zombie Events:

  • Bitcoins that rose from the dead from over 3 years silence, 78,000 (remember bear whale??)
  • 2013 the number was 62,000
  • On two days in 2014, October 14th and 18th, someone who mined bitcoins as early as January 29, 2009 (satoshi?, hal finney?), finally decided it was time to move their stash. Here is a link to one of the transactions, you can find the rest in the spreadsheet provided above. Key: 1KiLuqDytoMHu1KRzjh71TRbYraZHSP2xC link

Total Distribution By Age:

Best summarized in the chart above ‘Bitcoin Value Distribution % by Age‘ Pie-Chart & this chart here:

Bitcoin Value Distirbution over time by age of last send transaction all timeVelocity of Bitcoin:

Bitcoin Velocity 2014This above chart shows that 25% of all bitcoins change hands every few months, indicating a healthy level of liquidity and velocity of money. It is important to note that traditional stocks, bonds & commoditiesdo not changes hands this often!

Thanks again to John Ratcliff for doing the data mining to bring us this Intel.

The data is rich and we are sure there are many more findings: What does the community think of this data? Let us know in the comments below.


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