Digital Asset Research has released a comprehensive 54-page analysis of the Bitcoin network, including economic activity and valuation measures, insight into the block size debate, an explanation of how transactions and the network work, as well as potential technical and regulatory risks. In summary:
- Although, bitcoin has grown in popularity and price recently, its technology is still in the infancy stage. We believe bitcoin will create lasting value if it enhances current modes of behavior or more likely, enables new modes of behavior previously unavailable.
- It appears that bitcoin is the initial purchase for newcomers in the digital token space, who then branch off into Ethereum, Litecoin, and other digital assets.
- Although Bitcoin has gone through technological growing pains, recent upgrades, such as SegWit and the upcoming SegWit2x can increase transaction throughput. To seriously challenge centralized systems, technologies like the proposed Lightning Network need to be implemented.
- Although bitcoin holders are beginning to appreciate network forks as a form of digital dividend and positive price catalyst, the upcoming SegWit2x is something to eye with caution as investors, miners, and developers are not on the same page.
- For valuation, our Total Network Value / Transaction Value calculation shows that BTC is currently trading well over its historical average.
Bitcoin was created in 2009 by a programmer, or a team of programmers, under the name Satoshi Nakamoto. It was built upon a number of technologies put forth in the 1990s, namely Reusable Proof-of-Wo rk and BitGold, and the first digital token to effectively implement a distributed ledger that economically incentivizes participation. The value of Bitcoin is based on the principal of Digital Scarcity, as the underlying technology caps the maximum supply of tokens at 21M. Until that cap is reached, Bitcoin’s supply is inflationary as the network’s maintainers, also known as miners, are rewarded for validating and confirming transactions with newly minted bitcoins. One bitcoin can be divided into one million fractions, or Satoshis, and the effects of supply deflation can be eased by the token’s high divisibility.
Bitcoin is the largest digital token by market capitalization and its user base has grown significantly over the past two years. Although it was initially intended for peer-to-peer transactions, its purpose has changed. As Bitcoin’s popularity increased, so did transaction fees and confirmation times. For this reason, other digital tokens are preferred for P2P transactions and bitcoin now serves as a store of value or, as some refer to, digital gold. It also serves as a gateway to the digital token economy and the overwhelming majority of digital tokens can be exchanged for bitcoin. Many other popular digital currencies were forked from the Bitcoin protocol, such as Litecoin, Dash, Bitcoin Classic, Bitcoin Dark, and, more recently, Bitcoin Cash.
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