How many bitcoin users are there? How should we define bitcoin users? Analyze to categorize and track user growth compared to other estimates.
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Note: This article does not include all data and analysis. All pieces can be found here.
Bitcoin user adoption
One of the strongest cases for bitcoin is its massive network effect. For bitcoin to continue to grow in the future, it needs adoption and demand. The demand comes from the growth of more capital flowing into the network and/or the growth of the number of users.
However, defining the people who use the Bitcoin network or the bitcoin users of these assets is very difficult and can have many definitions depending on who you ask. This piece aims to collect and analyze various definitions and estimates for bitcoin users, determine their preferred view of bitcoin adoption and make their own estimates for current bitcoin users.
How do you define Bitcoin users?
There is no “right” answer to define a bitcoin user but we consider the following questions when coming up with our definition:
- Are people who store bitcoins on an exchange considered users or should they only count their own custodians?
- What are the nuances between calculating an on-chain address with an account or entity?
- Is there a bitcoin ownership threshold we should consider for adoption? Is the threshold denominated in bitcoin, fiat currency or as a fraction of net wealth?
- Are users defined as people who only hold bitcoins or do they have to actively transact on-chain or in Lightning?
- Are merchants who use the Lightning Network payment rail due to lower fees but choose to immediately convert their funds to fiat currency become users?
- Should the user open the node?
It’s best to think of bitcoin user adoption in stages or as distinct buckets. Some rough categories to consider for different types of users:
- Interested: Users who own any amount of bitcoins or bitcoin related products. This could be someone with $5 in their old wallet, a portion of GBTC or someone trying to buy a small amount of bitcoins on Coinbase.
- Allocator/Investor: A user who buys bitcoins or bitcoin-related products on a recurring basis. They are primarily interested in making financial gains on bitcoin’s potential price appreciation. It may or may not be self-contained or use a custodial solution. It is possible to have an allocation of 1-5% of the net worth in bitcoin / bitcoin products.
- Heavy Users: Users who keep a significant portion of their net worth in bitcoin through their own custody and/or actively participate in on-chain or Lightning transactions. People are especially interested in using separate forms of money and monetary networks. It is possible to have more than 5% net worth allocation in bitcoin.
Many of the adoption numbers you can find today tend to track these categories together. Maybe that’s the right approach for a high-level view of potential adoption and first touch points, but it doesn’t tell you much about the number of users who use bitcoin for its primary purpose: decentralized peer-to-peer cash where users can save. and transaction value in a separate monetary network. Ideally, we want to track heavy user growth to reflect meaningful bitcoin adoption.
The table below compiles some of the key bitcoin user estimates that have been published over the past six years to give you an idea of how different the estimates are. Looking for interested users, the number from 2022 ranges from 200 to 800 million users. This is a count of sample surveys, data from on-chain analytics and includes exchange users. All these studies have different definitions and methodologies for calculating adoption, showing how difficult it is to compare current estimates.
Technology Adoption S-Curve: Internet Versus Bitcoin
New technologies typically go through an S-curve cycle as they gain market share. Adoption by the population falls on a typical statistical bell curve. The S curve simply represents the typical adoption path for an innovative technology over time.
Many classic projections for S-curve adoption use a higher-level view of interested users to track the growth of bitcoin compared to internet adoption. Basically, this estimate tracks interested users of all types: those who have a touch point with bitcoin from buying a little on the exchange, having a wallet with bitcoins worth $5 to bitcoin users who save more than 50% of their net worth. in his own custody.
Casually tracking interested users will give one a ballpark estimate of the internet’s equivalent adoption curve. However, if we are really interested in tracking meaningful and lasting bitcoin adoption, then we would argue that tracking heavy user numbers is a better measure of current bitcoin adoption and emphasizes how early our Bitcoin life cycle is. When looking at a comparison of the more popular analyzes that have previously been distributed (including below), they paint a picture that the adoption of bitcoin is much more than we calculate.
In 2020, Croesus write a thread analyzing bitcoin adoption in a similar way to what we will do in this piece. Their conclusion shows the same view as ours: Significant bitcoin adoption is lower than the estimated penetration of 10-15% or about 500 million users that is generally dismissed today. In fact, he suggests that bitcoin adoption by what we would consider “heavy users” is at a penetration of 0.01% of the global population.
Address
The easiest place to start guessing the user is the on-chain address. Addresses do not translate to the number of users, but can act as a rough proxy for overall growth. Unique addresses with the number of bitcoins can grow as new users acquire bitcoins or as current bitcoin holders use many unique addresses to distribute their holdings – a common privacy practice.
We have seen an explosion in address growth since 2012 from just under 1 million to nearly 42 million unique addresses today. Let’s use the assumption that the average address of each person is 10 – which is only a rough estimate – then the ceiling of bitcoin users who have their own addresses is about 4.2 million.
From a USD perspective, there are only 5.3 million addresses holding at least $1,000 worth of bitcoins. Using our rough assumption of 10 addresses per person again then we are under 1 million users with $1,000 worth of bitcoins. With the global average wealth per adult of $8,360, a $1,000 bitcoin allocation would make a significant portion of almost 12%. A relatively small allocation for some, but considering that bitcoin is global and has a higher adoption rate in less wealthy countries, the benchmark seems appropriate.
Using the definition of “heavy users” to calculate, if we use addresses with a certain BTC or USD threshold and make some rough assumptions about each person’s address and do not count exchange users or addresses that hold bitcoins for other parties, then this approach estimates only 593,000 bitcoin users.
We go into more detail about other ways to analyze bitcoin users in our article on Substack. No matter how you slice the data, there isn’t a large amount of the world’s population that would be considered a heavy user that holds itself to be a significant bitcoin threshold.
Conclusion
The analysis in this article is intended to highlight how difficult it is to reliably determine and track the growth of bitcoin users.
We are highlighting the lower penetration of adoption not to dissuade viewers from the growth of the bitcoin network effect so far, but rather to highlight the substantial opportunity of potential growth in the future.
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