Transaction frequency is a potential indicator of Bitcoin holding. Since Bitcoin’s network strength has become increasingly accepted one might imagine that it’s being used in transactions more frequently than ever, however, this isn’t true.

It’s well documented that 2017 was the strongest year for Bitcoin as the price greatly increased over that period as well as the overall number of Bitcoin blockchain transactions. However, the end of 2017 marked a decrease and subsequent flatline in transaction count that has continued through 2018 so far. Bitcoin is generally being held by investors right now but this can certainly change at a moment’s notice.

A contributor to the spike of Bitcoin transactions during 2017 and the boost in overall traded value (USD) is partly because numerous exchanges were attempting to capture as much of the crypto trade market as possible. Exchanges were developing and there was a fervor to obtain enough of the flagship cryptocurrency to meet high demand in the market. A few things which greatly boosted demand for cryptocurrencies in 2017 was increased public trust and knowledge of digital currencies, belief that there is true value in them, and an increase of Bitcoin-focused news coverage.

Blockchain bloat has slowed down TPS (transactions per second) for the Bitcoin network and block verification can take hours, and these factors could account for the decreased transaction count we are observing. The PoW protocol that Bitcoin uses has driven electricity costs skyward and the average cost of transactions in the Bitcoin network rose to over $50 USD in parts of 2017, potentially discouraging spending and trading. So far in 2018, the average transaction cost has fluctuated between about $.50 and $26 which is extremely high among cryptocurrencies, and block confirmation times continue to be large.

Segregated Witness, or SegWit, is a new Bitcoin protocol that uses an off-chain network to help alleviate TPS issues with the original Bitcoin blockchain. The creation of Segwit was motivated by the high fees and low speed associated with Bitcoin transactions. and it actually separates signature data from transaction data within each block. By doing this the capacity of each block has effectively been increased, resulting in lower fees and faster transaction processing. The market was slow to adopt SegWit at first since using the protocol is voluntary, however, it’s estimated that 40% of all Bitcoin transactions are now using Segwit. If this pattern continues it’s likely that Bitcoin transaction count will rise.

Something that may skew figures of Bitcoin transaction count in the future is the development of off-chain payment channels through networks like the Lightning Network (LN). LN, like SegWit, was created to alleviate low TPS and high fees. This is done by using LN’s separate off-chain decentralized network which allows Bitcoin to change hands without always needing to communicate with the original Bitcoin network.

Since LN is a separate network the cost of transactions stays low until funds are sent back to an exchange account or external wallet, which then requires action from the Bitcoin blockchain. One million+ TPS for Bitcoin can be done with LN, and the Bitcoin network would be far less tasked as many of these transactions can occur off-network. If LN is greatly utilized in the market, measures of transaction count, numerically accurate ones, would appear low while Bitcoin transactions would actually be happening more frequently than ever before.