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Efficiency of bitcoin

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Avatar for lmecir
Written by   1
4 weeks ago (Last updated: 2 weeks ago)

Introduction

Throughout this article, we understand efficiency as a value that can be defined, calculated and used for comparisons.

Payment processing percentage

We try to define efficiency as a numerical value that indicates how expensive it is to perform payments.

We start with a more established Visa credit card network. In the Visa credit card network, the processing fees are characterized as a percentage of the payment. The values that can be found on the Internet are in the range of 1.43% to 2.4%.

The processing expenses in the bitcoin network are not defined as a percentage of the payment. Nevertheless, similarly as we can calculate the average speed of a motion knowing the total time of the motion and the total displacement caused by the motion, we can also calculate the average payment processing percentage knowing the total processing rewards and total payments. The formula we use is:

payment_processing_percentage = total_rewards / total_payments

Trend

When calculating the payment processing percentage, we are more interested in trend than in seasonal fluctuations. That is why, instead of using the daily total rewards and daily total payments, we use a running four-year geometric mean of the daily total rewards and a running four-year geometric mean of daily total payments. That gives us a picture of a steady decrease, except for 2020.

Four-year mean payment processing percentage of BTC

Conclusion

For BTC, the 31 August 2021 value of running four-year mean payment processing percentage is 0.115%. Therefore, the efficiency of BTC is better than the efficiency of the Visa credit card network.

Moreover, we use the total rewards for our BTC calculations. These include, as its main constituent, also the supply increase of BTC. In contrast to that, the Visa payment processing percentage does not include the supply increase of US dollars. That would shift the balance in favour of BTC even further.

When compared to BCH (see Selected Bitcoin Cash statistics), which has got the 31 August 2021 running four-year mean payment processing percentage of 0.081%, we see that there are more efficient commodity book entry coins than BTC.

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Written by   1
4 weeks ago (Last updated: 2 weeks ago)
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Comments

No doubt efficiency of BTC is better than Visa card. But Can you calculate the efficiency of BCH in comparison of BTC. BCH I think has better version as I calculated from your formula.

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4 weeks ago

Yes, the efficiency of BCH is better, the calculated mean processing percentage as of 31 August 2021 is 0.081%. I will create a plot soon, if that is what you want.

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4 weeks ago