A BIS study reveals that Bitcoin transfer estimates can vary by up to six times based on calculation methods, highlighting measurement challenges.
A recent study by the Bank for International Settlements (BIS) has revealed significant variations in estimates of Bitcoin transfer volumes, with discrepancies reaching up to sixfold depending on the calculation methods employed.
Focusing on on-chain transfers rather than exchange trading volumes, the study highlights how the characteristics of blockchain technology and definitions of what constitutes a transfer can lead to differing results. Researchers analyzed about 100 billion records from Bitcoin, Ethereum, and TRON networks, identifying three key challenges in measurement:
- Calculating transfers in blockchains using the UTXO model;
- Classifying activities related to smart contracts;
- Comparing identical assets across various blockchains.
Impact of Change Returns on Transfer Volumes
In the Bitcoin network, balances consist of unspent transaction outputs (UTXOs). When a transfer occurs, the full output is consumed, and any leftover amount is returned to the sender as change. For example, if a user transfers 1.5 BTC from a UTXO worth 4 BTC, they receive 2.5 BTC back. This can lead to inflated transfer volume estimates if not accurately accounted for.
Different counting methods were analyzed, including one that disregards transfers to the sender's address and another that conservatively estimates change. Depending on the method, transfer volume figures can vary significantly, sometimes by a factor of six.
“Metrics such as transaction volume, market capitalization, and total value locked often create an impression of precision that is not supported by the underlying data,” the authors noted.
The methodology used also affects Bitcoin's capitalization estimates. The traditional method calculates capitalization by multiplying total supply by current price, while alternative estimates might exclude presumed lost coins or apply different valuations to UTXOs. During price surges, standard capitalization could be up to four times higher than realized capitalization, illustrating the impact of assessment methods.
Challenges in Smart Contract Classification
In examining Ethereum, the study found that of 67.5 million active smart contracts, over 54 million could not be classified into specific technical categories. Approximately 11.8 million were identified as proxy contracts, while 1.4 million were ERC-20 interchangeable token contracts. The ambiguity in naming conventions adds complexity, as any developer can use the same ticker for different tokens.
This inconsistency was evident in the use of USDT across blockchains. In Ethereum, over 20% of stablecoins were held in smart contract addresses in 2022, compared to around 1% in TRON, which suggests different economic activities between the two networks.
Visa's Approach to Transaction Data
Visa Onchain Analytics addresses similar issues by providing both total and adjusted volumes for stablecoin transactions. Their methodology, developed with Allium Labs, aims to exclude activities that could distort on-chain volumes, such as high-frequency trading and internal exchange transfers.
“Some on-chain transactions do not resemble settlements in the traditional sense,” Visa noted.
The BIS researchers concluded that a nuanced approach is essential for analyzing the cryptocurrency market, recommending the use of diverse estimates, clear disclosures of assumptions, and data segmentation based on blockchain architecture. In a previous statement, BIS head Pablo Hernández de Cos indicated that stablecoins currently lack the reliability necessary for broader economic use, advocating for tokenized bank deposits as a foundation for the digital financial system.
