Crypto users double despite market crash, claims Cambridge report

The report, produced by the Cambridge Centre for Alternative Finance in collaboration with key industry players, aims to provide a snapshot of the current state of crypto evolution.

The study team sent surveys to approximately 180 crypto companies in 47 different countries around the world, quizzing them on four different segments of the crypto economy — storage, mining, payments, and exchanges — for empirical evidence to measure industry development.

But what evidence exactly can be used to measure the state of the crypto economy?

Users and Transactions

Of several "market growth indicators" surveyed, the number of users and transactions is considered paramount: during the surge of 2017, the number of identity-verified users of crypto services quadrupled, and then doubled again as prices fell during the first three quarters of 2018.

The total number of users now totals 139 million, of which around 38% are said to be active. Of these users, the vast majority are individuals, and a minority are business clients comprised mainly of crypto asset hedge funds and online merchants.

The number of crypto asset users is rapidly growing

As for transactions, the study attempts to distinguish between speculative transactions — for trading and investing, and legitimate adoption — where crypto is used for purposes like cross-border transactions, which were found to represent "approximately half of all transactions between $100 and $1,000". This suggests that cryptos most pertinent use case could be for reducing friction in fiat-denominated cross-border transfers.

Despite the "tens of thousands of merchants worldwide" that purportedly accept crypto assets for payment, merchant transaction volumes remain relatively low, suggesting that crypto assets are not acting as Satoshi had in mind when he envisaged a "peer-to-peer digital currency". Similarly, decentralized applications have very low transaction volumes, with the majority of transactions taking place off-chain via exchanges:

"Reported global exchange volumes frequently amount to US$12 billion a day, with over-the-counter (OTC) volumes estimated by some to be between two and three times larger […] the figures above significantly dwarf observed on-chain transaction volumes, further supporting the view that speculation and long-term investment currently remain the major use case for crypto assets."

Storage and Mining

As the number of transactions has risen, so has the number of employees in the crypto industry — which is considered another important proxy for total industry growth. This number rose by 164% during 2017 and 78% during the first quarter of 2018, driven by crypto exchanges and storage facilities recruiting greater numbers of staff:

"the accumulating backlog of customer onboarding and support requests, the need for compliance staff to navigate the complex landscape, engineers to make the platforms fit for drastic increase in traffic and usage, as well as salespeople to onboard new clients are potential drivers of the segment job growth."

However, the study also speculates "that the sustained nature of the market crash has resulted in layoffs that are only beginning to be realised now."

We should expect the next the publication of jobs figures in the blockchain industry to have declined in the second half of 2018 due to sustained downturn.

As the industry matures and more people get involved, regulatory compliance has risen to the top of the agenda. Although it might go unreported at the time, the surveys found that exchanges are engaging with regulatory bodies and pro-actively collaborating with policymakers and legislators. And, as a consequence of this growing compliance, more and more links are developing with legacy financial markets:

"The crypto asset ecosystem is becoming more connected to traditional finance due to the emergence and growth of gateways bridging both systems, as well as growing regulatory clarity."

The study also casts new light on mining, suggesting that although the mining industry "faces increasing challenges", concerns over concentration are overstated, as are environmental concerns — with most mining facilities running on an energy mix that contains renewables:

"Miners’ concerns about the three main types of mining concentration (control over hashpower, geographic distribution of hashpower, and the geographic distribution of hardware manufacturing) have grown in 2017 […] China remains in the top-3 countries to host mining farms; but the USA and Canada have witnessed a rapid growth of mining farm openings over the past year, often associated with the availability of cheap hydroelectric power."

Development continues unabated

Looking to the future, the report suggests that, along with technical developments like innovations in off-chain scaling and the addition of more tokens to exchanges, the driving force shaping cryptocurrency moving into 2019 will be regulation. And that, despite the addition of a few more bitcoin obituaries, development continues as normal behind the scenes:

"This report has shown that the speculation of the death of the market and ecosystem has been greatly exaggerated, and so it seems likely that the future expansion plans of industry participants will, at most, be delayed."