How many people use bitcoin?

While researching another Bitcoin article recently, I did a couple of lazy Google searches on this very question hoping to find a generally accepted and reasonably accurate answer. However, I was quickly disappointed.

Fortunately, it was not a key part of that article, but I made a mental note to come back and try and make sense of all the conflicting data that exists on the internet to get the best answer idea of what that number might be as at August 2020.

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It turned into an addictive side project involving transaction levels, wallets, users, research data, a detailed examination of the blockchain itself, and, in the end, the conclusions were as fascinating as they were unexpected.

So, if, like me, you’ve ever wondered how far we’ve come in the eleven years since Bitcoin was created, this may satisfy your curiosity.

Even if you don’t necessarily like the answer.

What does ‘using’ actually mean?

I decided to go for the broadest definition first of all and work backwards. In other words, anyone who currently holds Bitcoin, whether actively spending it or not, would be counted initially and we’d qualify the data afterwards.

This means long terms HODLers would also be included in the first pass. A HODLer, incidentally, is the name given to people who hoard their coins rather than spend them and was derived from the famous drunken ramblings of an early adopter who consistently misspelt the word ‘HOLD’ on a public forum late one evening. The typo became an instant meme in the world of crypto and has stuck ever since.

From there, it should be possible to come up with an estimate of how many people are actively using it on a day to day basis, which would include actually buying and selling of goods and services as well as trading.

But if that’s the case, then why is this exercise apparently so difficult? After all, one of the advantages of Bitcoin (or, arguably, disadvantages if you're using it for nefarious purposes) is that the blockchain is visible to anyone at any time. Transactions and wallets, though entirely anonymous, can be viewed, analysed and counted with some precision.

Why, then, can we not get a precise figure at any moment in time?

The Blockchain only gives us so much

It’s true that using a block explorer to examine what’s happening on the Bitcoin network does provide lots of lovely juicy data both in real-time and historically.

You can see how many wallets exist, how many transactions are happening and even the amounts and fees of those transactions as they occur. It’s actually quite hypnotic and I will admit to going down the rabbit hole for a while.

However, some aspects of the data aren’t visible by design and others need to be qualified. For example, it would seem, on the face of it, that simply taking the number of wallets created (a number, in simple terms, that comes from new unique addresses with private keys generated) would provide us with the answer we’re looking for.

Alas, that is not the case.

As at midnight on 24th February 2020, we know — categorically — that 46,144,447 Bitcoin wallets had been created. We can start, at least, with an absolute number.

However, we also know that many of these are abandoned, inactive or are now forever inaccessible, but there is no way of knowing this number without finding each owner of each wallet — surely an impossible task in itself — and asking them. The wallet, and any associated coins, remain forever visible whether you can access them or not.

In addition, many users have more than one wallet. I myself have five addresses for different wallets set up for different reasons. Again, since the addresses are unique and anonymous, there’s no way of knowing how many belong to the same person.

All this tells us is that as of yesterday, the absolute maximum number of Bitcoin users can only be 46,144,447.

Well, technically, 46,144,443 allowing for the four extra address we know I have.

And therein lies the problem. We’re going to need some help.

A clue from the analysts

The organisation that carries the most weight in the cryptocurrency industry is, of course, Chainalysis. Over the years, they have produced many reports examining various aspects of the industry and consistently provide good data, some of which is in the public domain.

In one of those reports, the company concluded that active Bitcoin users make up roughly one-third of all Bitcoin owners. This conclusion appears to have been reached by combining a number of factors and is now gaining acceptance as a useful rule of thumb. For the time being, anyway.

If that’s really the case, then all we would need to do is work out how many Bitcoin owners there actually are. My next thought was that this could perhaps be done by looking at the total number of wallets with Bitcoin in them since it’s possible to get this data in real-time and directly from the blockchain.