Bitcoin—Update I


TL;DR. Ecology:8 (8). Technology:9 (9). Decentralization:8 (8). Valuation:9 (8). Rating:9/10 (8/10)

Six months have passed since the initial BD Ratings article on Bitcoin was published. Here is how that prediction has turned out so far.

2018-04-29: USD 9 338.00, Satoshis -.

2018-10-29: USD 6 390.45, Satoshis -.

The price has dropped considerably, causing the initial positive rating to currently be a miss. All ratings are given with a multi-year horizon in mind so the final verdict on the success of the prediction is still far away.

On June 15th 2018, Bitcoin Core 0.16.1 was released, introducing some new features and bug fixes. A little bit more than a month later, on 29th of July 2018, 0.16.2 was released, focusing this time on various bug fixes and updated translations. On the 18th of September the very important 0.16.3 version was released. It patched a Denial of Service component and a critical inflation vulnerability (named CVE-2018-17144) that had been exploitable by miners in all Bitcoin Core versions from 0.15.0 to 0.16.2. This vulnerability was found and disclosed by awemany, a Bitcoin Cash developer. The 0.14 and 0.15 branches quickly had new minor version releases as well, correcting for the bug that only partially affected 0.14.X. All patches were rolled out to large miners under the guise of correcting for the DoS vulnerability only in order not to reveal the full implications to possible adversaries. On the 3rd of October 0.17.0 was released with a huge number of fixes and optimizations.

As for the different Lightning Network implementations, activity have been plentiful as well over the last six months. The MIT DCI implementation has had no new version releases, but constant GitHub activity. Higher commit activity can be observed for the lnd implementation. The 0.4.2-beta was released on the 30th of May, and the 0.5-beta was released on 18th of September. The c-lightning implementation by rustyrussel is also being actively developed. The 0.6 version was released on the 25th of June, and 0.6.1 was released on 13th of September.


On-chain activity remains high, and we now consistently see between 200 000 and 250 000 BTC transactions per day. This can be compared to the December 2017 - January 2018 peak, where the congested network processed up to 500 000 transactions per day. Most other cryptocurrencies currently have a transaction throughput that is ridiculously low when compared to market valuation levels. In some instances just a dozen or so transactions are sent throughout a whole day. Having the last review date in mind, Bitcoin still holds it's ground in terms of economic activity.

The continuous progress of various LN clients is obviously something positive as well, preparing the network for future on-chain congestion. Critical infrastructure additions like for example watchtowers are currently being integrated on mainnet. Successful expansion of LN usability and nodes would help to increase the 'protocolness' of Bitcoin.

There has been some buzz about Bakkt, a digital assets trading platform launched by ICE, the parent company of NYSE. More Bitcoin futures trading is somewhat positive for the Ecology rating as it socially helps solidify the network as a protocol (for value). It is however not essential for long term survival of the Bitcoin network, and what really counts for this section in the end is a broad and high economic activity on-chain as well as through LN.

Finally, the market share of Bitcoin Cash has remained still and the project poses little or no threat to the stability of future collective convergence on what blockchain of the two is Bitcoin (BTC). Had the two projects been similar in size and scope by now, a rating for BTC would have had to be remarkably lower as value can not then with certainty be stored on a protocol that keeps it's 'protocolness' to the detriment of the other fork. The winner-takes-it-all effect that to a considerable degree seems to be true for cryptocurrencies would have implied much higher financial danger in such a scenario due to the possibility of betting on the 'wrong' chain. Bitcoin is in other words still setup to be the uncontested winner in the race to capture most of the value that in the future possibly seek shelter in decentralized cryptocurrencies.

Grade: 8

Reasons: Still high on-chain activity when compared to other cryptocurrencies.


Work on Bitcoin Core, the most used Bitcoin client software, has progressed. One crude proxy, the commit activity, is at a constant and high pace. lopp, one well-known Bitcoin engineer, did a complete synchronization of the full Bitcoin blockchain and concluded that the process was much faster with 0.17 than with 0.15.1.

When analyzing the impact of the DoS/Inflation bug mentioned earlier, BD Ratings concludes that it was extremely serious, yet it will not affect the total Technology rating. There will always be bugs in this kind of complicated software, and only if further serious bugs are found within a certain time frame would the rating decrease. As the saying goes: "Bitcoin Core is a process". Should this process change for the worse or be exposed as lacking in quality, then that would affect the rating, not a single bug in and of itself.

As mentioned earlier, development occurs on at least three different Lightning Network implementations, including on the Bitcoin mainnet. This helps the base protocol in the sense that it alleviates pressure on core developers to scale the network by changing the base protocol itself. Such changes would very well open up for larger attack surfaces such as an increased difficulty of running full nodes, or social attacks in the form of new Bitcoin forks.

BD Ratings is of the firm opinion that Lightning Network is a sound way forward for scaling Bitcoin. There are a multitude of conspiracy theories out there, including an allegation that LN is a Trojan horse conjured by parts of the banking industry to try to control and/or restrict the Bitcoin network. This is of course extremely unlikely given the number of Bitcoin developers and engineers that support this push for scaling through a 2-layer, and also the number of LN implementations developed right now.

Additionally, those who do not see a conspiracy in LN but still strongly disapprove of following that road, overestimate the importance of non-full blocks and underestimate the 'protocolness' of Bitcoin. The fear has always been that the Bitcoin network would slowly fade away in a Netscape-like manner should other networks capture more economic activity due to having a high on-chain throughput. This theory was partly tested in December 2017 when the Bitcoin price exploded despite extreme congestion. The market really cares about underlying decentralization and security fundamentals rather than just throughput capacity. Pushing for a simplistic block size/weight increase is most of the time cryptocurrency populism - it obviously work in moderation but is, firstly, touching on the centralization/efficiency trade-off, and secondly, increasing the risk of chain splits as different factions are disagreeing on what block size/weight is optimal.

Grade: 9

Reasons: Many good developers. Solid peer-review process.


When trying to get an overview for the multi-faceted centralization spectrum for the Bitcoin network, not much seems to have changed. The network is still more decentralized than any other cryptocurrency rated by BD Ratings. There is a deep rooted culture that strives for minimization of attack surfaces in the form of central points of failure that over time always are exploited. This minimization tactic combined with low and predictable inflation and careful code review is a great recipe for a protocol that attracts value.

There has been no sign as of late that certain mining pools or mining companies are reaching dominance levels above the levels of where BTC holders remain comfortable. Power to a considerable degree still remains at the economic nodes that are the BTC holders, and BD Ratings do still not see much merit to the argument that only hash rate counts. That theory fails to explain the NO2X victory over parts of the ecosystem that pushed for an increased block size. It also fails to address the fact that hash rate seems to follow price and not the reverse.

Grade: 8

Reasons: No considerable changes. Still no-one in charge.


The total marketcap of all Bitcoin in circulation has dropped to USD ~110B. Bitcoin is still the cryptocurrency network with highest chance of capturing the majority of the value that seek storage in the form of digital tokens on a secure and decentralized blockchain. The current main competitor for this role, Ethereum, has shown incredible developer activity but still is in a stage where it changes much as a core protocol. The Ethereum consensus mechanism transition to Proof of Stake and the consensus process of setting a clear multi decade-long inflation schedule are needed to create more legitimacy for its value storage capabilities (saying nothing about it's great capabilities of doing useful stuff in general). In other words, Bitcoin has currently little hindrance in capturing parts of the huge pool of value currently stored as various liquid money supply components or as noble metals. As BD Ratings laid out in the first ratings article on Bitcoin, it is not unlikely that the cryptocurrency market as a whole will capture 3-5% of M3 (and parts of gold) considering how diverse the governance quality of national currencies are around the globe. This would indicate a valuation of between USD 3000-5000B.

Bitcoin is still the hardest cryptocurrency to inflate due to the decentralization and culture of conviction that 21M is the maximum number of Bitcoin that should ever exist. The decrease in price of BTC is enough to set a higher Valuation rating.

Grade: 9

Reasons: Better fundamentals while price has decreased.