Where are bitcoin transaction volumes heading?

For the year-to-date at the end of August 2015, the total number of bitcoin transactions has increased by 70% over the same eight-month period in 2014.  For the month of August 2015, the average daily volume of Bitcoin transactions was 115 thousand transactions per day, a 69% increase over the number in August 2014.  Bitcoin is growing at a steady pace.

This is interesting because transaction numbers are a direct indicator of usage. Bitcoin usage is rising, and has been since around mid-2012, as can be seen from the transaction chart on blockchain.info (the data source I have used for this blog). In my experience with payment systems, it is reasonably easy to forecast future volumes based on current rates of change, for example I have observed this to be the case for the growth of SEPA credit transfer volumes, the decline in UK cheques and the growth in contactless card transactions in the UK and Europe.

At the beginning of this year, I forecast that bitcoin transactions would be somewhere between 130 – 170 thousand transactions per day by the end of 2015. Based on growth so far this year, I expect the outcome at year-end to be towards the upper end of this forecast.

The total transaction value is less easy to interpret as it is driven by both usage and type of use (micropayments, high value payments, low value payments, asset-linked transactions etc). However, the value of transactions in bitcoins is rising strongly, up 162% for the month of August 2015 compared to August 2014, but the value in USD is up only 22%, due to the decline in value of btc. Over the past 12 months, the average transaction value has been in the range 1.5 – 2.4 btc per transaction, and $380 - $812 per transaction.

It is evident that the longer bitcoin endures, the stronger it becomes – it is a self-reinforcing, self-sustaining phenomenon, but it is still too early to tell whether bitcoin will be a long term success. However, sustained transaction growth is a positive factor, and one to watch closely.

An immediate obstacle Bitcoin has to overcome is the current capacity limitation of around 300 thousand transactions per day, which is getting closer (and with peaks already occurring at over 200 thousand transactions per day, this limit could be hit this year). This issue is generating heated debate on how to increase its capacity, but no doubt, consensus will prevail.

Hundreds of millions of dollars are being pumped into blockchain and crypto-technology businesses, but so far there have been no major success stories or widely adopted uses of distributed ledger technology – except that is, for Bitcoin itself, where transaction volumes continue to tick steadily upwards.