ARK Invest and Coinbase released research estimating that 10 million people worldwide hold a material amount of bitcoin. The calculation stems from Coinbase user activity, with the findings then extra
ARK Invest and Coinbase released research estimating that 10 million people worldwide hold a material amount of bitcoin. The calculation stems from Coinbase user activity, with the findings then extrapolated to the broader bitcoin community.
Adam White, vice president of business development at Coinbase, and Chris Burniske, who leads blockchain products for ARK Invest, co-authored the report. Beyond the headline figure about user count, the work examines how these holders use bitcoin—whether as an investment vehicle or as currency for actual transactions.
Most Coinbase users treat bitcoin as a long-term holding, a way to store value. Yet 2016 showed movement in a different direction. More users started moving bitcoin for purchases and payments, based on activity Coinbase tracked. White provided MiningPool with details on how the researchers arrived at their conclusions.
Getting an accurate count of global bitcoin users presents a fundamental challenge. The blockchain itself offers limited help. You can count addresses, but addresses don't correspond neatly to individual people.
White explained the problem: "It's notoriously difficult to determine how many bitcoin users there are by looking at the number of public addresses on [the] blockchain. For example, all addresses (with or without a bitcoin balance) aren't a good proxy since addresses can be programmatically created with services like blockchain.info. Attempting to use only addresses that have a bitcoin balance isn't a good proxy either since one address with a large sum of bitcoin may actually represent tens of thousands of users (e.g. Coinbase's cold storage wallet addresses)."
Rather than rely on blockchain analysis, White and Burniske worked from Coinbase's own user records. They calculated the average amount of bitcoin held by Coinbase customers, then used that figure to extrapolate a global user count. Specifically, they divided bitcoin's total market cap by the average balance per user.
First, though, they set a minimum threshold. Users holding only tiny fractions of bitcoin were excluded from the average calculation.
White walked through this: "We created the subjective definition that a user must hold a material amount of bitcoin to count a user in the average balance calculation. That prevents Coinbase users only holding a few satoshis in their account from pulling down the average balance figure for all other users. Once we calculated the average bitcoin balance of a Coinbase user, we divided the market cap of bitcoin with that figure to extrapolate how many bitcoin users worldwide there may be."
The researchers acknowledged the rough nature of their estimate. White noted: "This is a rough estimate as we recognize there are a number of assumptions and subjective decisions made in this methodology."
Data from Coinbase shows that the majority of users have employed bitcoin as an investment or store of value since 2013. But interpreting how users send their bitcoin poses its own complications. When someone transfers bitcoin out of a Coinbase wallet, the exchange can't see the reason. It might be a customer moving coins to a personal wallet they control. It might be something else.
White explained: "When a Coinbase user sends bitcoin from a Coinbase account to a bitcoin address, we do not have insight to the reason behind that send. In fact, many times it may be a customer sending bitcoin they purchased from Coinbase to their own user controlled wallet (arguably still an 'investment' type of user). Since we can't determine the reason behind the send we consider all sends 'transactional usage' since it does employ value transfer via the Bitcoin network."
The measurement works in multiple directions. Some people who hold bitcoin as a pure store of value never send it anywhere, so they don't show up in transaction metrics. Users who rely on bitcoin for untraceable payments—like purchases on the darknet—take a different path, shunning services like Coinbase that require Know Your Customer documentation.
In 2016, the pattern changed. Users shifted toward transactional use. The report states: "From 2012 to 2015, users on Coinbase's wallet and retail conversion service were increasingly using bitcoin strictly as an investment, or long-term store of value. In 2016, that trend softened, perhaps because new use cases and decreasing volatility have increased the utility of bitcoin as a means of exchange."
Merchant payment processing offers one concrete way to measure this trend. Coinbase operates payment processing for around 43,000 merchants. White described what they found: "Since Coinbase does bitcoin payment processing for around 43,000 merchants, we looked to see if merchant processing activity is up or down since it is one example of a transactional application. We were pleased to find that merchant processing figures were [more than two times the numbers] from the same time one year ago – both in dollar terms of processing volume as well as event terms of orders processed. I think this is a good sign that the Bitcoin network is continuing to grow and find actual real word use."
The growth ran across both categories. Investor numbers climbed in 2016. Transactor numbers climbed too. But transactors grew at a faster rate as a percentage of their base.
White summarized: "In short, both gross number of investors and transactors increased in 2016, but by percentage terms, transactors grew at a faster rate than investors."
The blockchain record backs this up. Bitcoin confirmed an all-time high of 346,405 transactions in a single day on January 5th.
