Bitcoin 2023 Review: Key Trends and Areas Shine

Introduction

2023 is one of the most important years in the history of Bitcoin. Bitcoin inscriptions have opened up new concepts and sub-markets. The Bitcoin layer two networks, sidechains, and scaling solutions have regained attention. Traditional financial markets are starting to view BTC as a serious asset class, with multiple spot ETF applications expected to be approved in early 2024. Most importantly, BTC seems to be recovering from the most severe bear market it has experienced in the crypto market and is becoming stronger.

This report focuses on several key trends and areas where Bitcoin has performed outstandingly in 2023. This is not an exhaustive list of all Bitcoin developments in 2023, as there are too many things to cover completely. Thousands of people are working towards their own Bitcoin visions. Whether it's through the Lightning Network, inscription markets, small payments via Bitcoin sidechains, or bringing BTC to other chains, the level of Bitcoin development in 2023 has reached a frenzy. The rigidity of Bitcoin that we saw in 2021 and 2022 seems to be a thing of the past.

Network

First, pay attention to the operation of the Bitcoin network. Bitcoin is the largest decentralized currency network in the world, so it is very important to closely monitor the health of the network. In 2023, almost all indicators of the Bitcoin network began to improve.

The performance of hash rate in 2023 is surprising. Although BTC performed relatively poorly in 2022, the hash rate has been reaching new highs before 2023. Since the beginning of 2022, Bitcoin's hash rate has doubled, and its hash rate is worth noting:

1. It represents the security level of Bitcoin. Generally speaking, the higher the hash rate, the safer Bitcoin is.
2. A higher hash rate indicates that miners have confidence in the network.

The number of active BTC addresses significantly decreased from a peak of 1.15 million in 2021. In 2023, the number of active addresses showed an upward trend, but it seems to have stabilized at around 1 million in early 2024.

In 2023, the transaction fee income of Bitcoin improved. The demand for inscriptions and new block space has had a significant impact on Bitcoin. At the beginning of the year, fees soared sharply and then stabilized, but remained significantly higher than previous levels.

Inscriptions have led to an explosive increase in the demand for block space. The average block size nearly doubled in 2023. The mempool became congested with a large number of transactions starting from the first quarter of 2023.

The popularity of inscriptions has led to a sharp decrease in small BTC transfers, which may be the reason for the decline in trading volume after the popularity of inscriptions. Bitcoin trading volume has fallen to its lowest level since 2020, and the downward trend may continue.

The increase in demand for inscriptions and transaction fees has led to the Bitcoin FRM( fee multiplier being at its lowest level in a while. The FRM has plummeted from 80x to between 12-40x, closer to the levels of 2020-2021. The lower FRM levels are more promising, but still quite high.

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Bitcoin network statistics indicate that it is surpassing mere HODL and entering broader usage scenarios. Inscriptions have created new fee and user sources for the chain. The network is now as busy and secure as ever. Inscriptions are undoubtedly a boon for the entire Bitcoin network.

Bitcoin Entity

) Exchange

The BTC balance of exchanges is at its lowest level since 2018, slightly above 2 million. After the FTX incident, BTC may continue to flow out of exchanges as holders become increasingly unwilling to trust centralized entities. The surge in inscriptions may also drive this trend.

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) miner

In 2023, miners typically hold more BTC than they sell, although not by much. During the collapse of FTX, miners sold a large amount of BTC, but started hoarding ### again at the beginning of 2023, despite selling ( throughout the fourth quarter of 2023 and the first quarter of 2024.

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The income of BTC miners comes from block rewards and transaction fees. The fees generated by inscriptions bring some hope to miners, but whether it can fundamentally solve the Bitcoin transaction fee problem remains to be seen.

The halving will reduce miners' income by half. Inscriptions have become increasingly important for the long-term success of Bitcoin. Since their rise in February 2023, inscriptions have become a significant component of Bitcoin transaction fees, accounting for an average of about 13%.

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) institutions and ETFs

In 2023, a new Bitcoin entity worth paying attention to has emerged: traditional institutions. Respected companies are bringing BTC into the traditional market for the first time in its history. "Serious" investors are considering BTC as a legitimate asset for the first time.

The trading of spot BTC ETFs on traditional securities exchanges may have a significant impact on Bitcoin:

1. This is a strong signal for BTC to become an important asset class.
2. Opened the door for large amounts of capital. Almost everyone can buy BTC through ETFs.

Spot ETFs may have a significant impact on BTC prices, similar to gold ETFs. After the first gold ETF was listed, the price of gold rose from $650/ounce to $2000/ounce, an increase of over 3 times.

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The Evolution of Bitcoin

) Inscription

In 2023, Casey Rodarmor developed and released the inscription technology on the Bitcoin network. Inscription allows users to store any data on the Bitcoin network and bind the data to specific Sats. The market quickly embraced inscriptions, and by the time the report was published, there were over 59 million inscriptions on the Bitcoin network.

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The early inscription market gradually faded after reaching several key psychological numbers. Some early collectibles like Bitcoin Punks were highly sought after, but their popularity has been replaced by BRC20. The New York Sotheby's auction house recently completed the auction of Bitcoin Shroom, which sold for 3-5 times its estimated price.

) BRC20

When the anonymous developer Domo launched the simple token standard BRC20 using Bitcoin inscriptions, there was an explosion of inscriptions. BRC20 created a sub-industry with a market value of 1 billion USD, becoming the absolute main battleground for inscriptions.

BRC20 is a simple JSON text file embedded in Sats, used to describe the three token functions of deploy, mint, and transfer. These simple functions have now created an industry worth billions of dollars.

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The number of BRC20 transactions far exceeds that of other types of inscription transactions, and at one point even surpassed regular BTC transactions. However, by the end of 2023, due to a robot pre-running all BRC20 deployment transactions and setting the total supply to 1, the BRC20 market experienced a brief stagnation. Eventually, the robot exhausted the BTC transaction fees, and the market returned to normal.

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$ORDI is the first BRC20 token listed on a centralized exchange, setting a historical high of $82, although it seems to have no practical use. The performance of $ORDI is a strong endorsement from the market for BRC20.

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) Inscription Market

OKX dominates the trading volume and scale in the BRC20 market, but Binance's recent entry may change the landscape. OKX has performed outstandingly in attracting new users.

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DEX still has room for development in the BRC20 market, awaiting ambitious projects to emerge.

) Cultural Controversy

BRC20 and inscriptions are not without controversy. Many Bitcoin believers consider them to be junk, harmful and unhelpful, deviating from Bitcoin's original intention. However, due to Bitcoin's permissionless nature, shutting down inscriptions is nearly impossible. Miners may support this technology because the halving is approaching, and they need new sources of transaction fees.

Inscriptions have reignited the debate about the direction of Bitcoin's development, involving its core premises. This debate may continue until 2025.

DeFi and Scalability

Lightning Network

The Lightning Network stagnated in 2023 as the narrative of Bitcoin as a neutral payment rail failed to materialize. Due to Ordinals driving up transaction fees, the Lightning Network may find its place in basic BTC transactions.

In 2023, the Lightning Network capacity remains stable, and the number of nodes is beginning to rebound, which are positive signs.

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) Rollup and others

Bitcoin Rollup has recently attracted a lot of attention and capital inflow. Projects like Citrea have already launched.

The Bitcoin Drivechain proposal has resurfaced, allowing users to lock BTC on the main chain and release it to sidechains. Some experimental Drivechain projects such as Zside and ETHside are currently underway.

Outlook for 2024

The inscription has shaken the core of Bitcoin, sparking controversy within the community. This debate may continue until 2024 or even 2025.

The ETF application submitted by the institution has been approved, opening the door for a large influx of new funds and participants. This is significant for an asset that started on a small cryptocurrency forum.

2023 is an important year for Bitcoin, and 2024 is expected to continue these positive trends.