2023 Bitcoin Report: Key Trends and Developments

Introduction

2023 is one of the most important years in the history of Bitcoin. Bitcoin inscriptions have pioneered a new concept and sub-market. Layer 2 networks, sidechains, and scaling solutions have regained market attention. Traditional finance has begun to view BTC as a formal asset, with multiple spot ETF applications approved. Most importantly, BTC is recovering from a severe bear market, having withstood the tests of collapses like Luna and FTX, demonstrating greater resilience.

This report focuses on several key trends and areas of Bitcoin in 2023. It is not an exhaustive list, as too many developments cannot be enumerated. Whether it's the Lightning Network for small payments, the inscription market, or sidechain development, Bitcoin's innovation in 2023 has reached a fever pitch. The relatively stagnant Bitcoin of the past two years seems to be history.

Network Status

As the world's largest decentralized currency network, it is crucial to closely monitor the health of the Bitcoin network. In 2023, almost all indicators of the Bitcoin network began to improve.

The computing power continues to reach new highs, having doubled by the beginning of 2022. This represents an increase in network security and reflects miners' confidence in the network.

The number of active addresses shows a growing trend in 2023, but it seems to stagnate around 1 million at the beginning of 2024.

Fee income has improved. The inscription brings new hope to address the long-standing challenge of insufficient fees. At the beginning of 2023, fees surged significantly, then calmed down but still remained notably higher than previous levels.

The average block size has nearly doubled due to the demand for inscriptions. The congestion in the memory pool has led to a decrease in small transactions, bringing the transaction volume down to its lowest level since 2020.

The fee rate multiplier ( FRM ) has significantly decreased, from 80 times to between 12 and 40 times, closer to the levels of 2020-2021. This is more beneficial for the long-term development of Bitcoin.

Overall, the network data presents a positive picture. Inscriptions bring new fees and user sources to the chain, making the network busier and more secure. Nevertheless, FRM remains relatively high, and Bitcoin still faces challenges in its security model after the block rewards disappear.

Important Entities

exchange

The exchange's BTC balance continues to decline, reaching its lowest level since 2018, just above 2 million. This may be related to the decline in user confidence after the FTX incident, as well as the surge in inscriptions.

miner

In 2023, miners generally held more BTC than they sold. There was a large sell-off during the FTX collapse, but they started accumulating again (, although they are still selling ) in the fourth quarter of 2023 and the first quarter of 2024.

Miner income mainly comes from block rewards, while fee income accounts for a very small proportion. The halving will cut miner income in half unless the BTC price rises significantly or fees increase substantially. Therefore, the new source of fees brought by inscriptions is more important for miners.

Institutions and ETFs

The acceptance of Bitcoin by traditional institutions in 2023 is an important development. Several well-known companies have applied for spot BTC ETFs and are expected to be approved in early 2024. This opens the door for a large influx of new funds, pushing Bitcoin into the mainstream.

The Evolution of Bitcoin

Inscription and BRC20

The inscription technology developed by Casey Rodarmor is one of the most interesting developments in Bitcoin in 2023. It allows for the storage of arbitrary data on the Bitcoin network.

BRC20 is a simple token standard based on inscriptions, creating a billion-dollar sub-industry. ORDI is the most popular BRC20 token, with its price skyrocketing after being listed on CEX.

Inscriptions and BRC20 have brought new sources of fees, but have also sparked controversy. Some Bitcoin believers think they are harmful and deviate from the original intent. However, due to their decentralized nature, it is nearly impossible to shut down these features.

DeFi and Scaling

The Lightning Network stagnated in development in 2023. However, as inscriptions drive up mainchain fees, it may find new use cases in small BTC transactions.

The Bitcoin Rollup solution, such as Citrea, has drawn attention. The Drivechain proposal has resurfaced, aiming to achieve sidechain functionality.

2024 Outlook

Inscriptions have reshaped the Bitcoin ecosystem, but they have also sparked controversy, and this debate may continue until 2025.

The approval of institutional ETFs brings new channels for capital inflow into Bitcoin.

Overall, 2023 is an important year for Bitcoin, and 2024 is expected to continue these positive trends. We look forward to seeing its further development.