In analyzing the state of the Bitcoin network as a payment system, people often point to transactions per day. Yet, since Bitcoin is a one-to-many payments solution, meaning one transaction can have multiple recipients, to truly know the state of the payment network, one must dig a bit deeper.
Increasingly, people are catching onto the fact that outputs per day, as illustrated at Outputs.Today, which is a feature used by exchanges and senders of considerable bitcoin transactions to minimize the fees they must pay to miners.
Critics of Bitcoin as a payment network point towards high transaction fees, which have at various points through the lifecycle of bitcoin, such as in mid-2017, been a main critique of the network.
Exchanges have faced pressure to batch transactions, and thereby make better use of this scarce block space. Bitcoin’s scaling issues during periods of increased transactions meant that transactions took longer and cost more.
Exchanges, mixers, payment processors, and mining pools employ ‘batching’. A sender can do this by combining transactions into one input. This means the transaction input has multiple outputs (addresses to send bitcoin or recipient).
The Bitcoin mempool is a pool of bitcoin transactions that have as yet been confirmed. Sometimes this becomes congested and transactions slowed. By combining, say, 10 payments into one transaction, block space might be freed up. Transactions can have unlimited outputs. Batched transactions might have three or more outputs.
Outputs Per Day
Outputs.Today tracks ‘outputs per day’. The top of the website reads, “better indicator of overall economic activity on the bitcoin blockchain than transactions per day.”
The website claims the number of total outputs is a more accurate indicator than the number of transactions. “Large players in the Bitcoin space use batching – the process of including multiple outputs in a given transaction – to reduce their overall transaction fees,” the site says. “Therefore, looking at only transactions misses an important part of the picture.”
As seen in the chart above, the Average Outputs to Transaction Ratio declined throughout 2018. The ‘Average Outputs Per Block’ in 2018 approximately mirrored ‘Average Transactions Per Block’.
On January 4, 2018 we saw the average output per block reach a high of 7,420. The peak for Transactions Per Block came much earlier when there were 2,532 transactions per block on January 4.
Throughout 2018, the Average Outputs to Transaction Ratio has declined. So far in 2019, the use of transaction batching has been on a steady rise, and just recently, accompanying the price rise, it spiked.
This could be indicative of one particular important price indicator: buying demand.