Analysis of the Bitcoin blockchain: Socio-economic factors behind the adoption

TL;DR

This paper investigates the socio-economic factors influencing Bitcoin adoption across countries by analyzing software downloads, IP relay data, and search trends, and models international Bitcoin flows using an augmented gravity model.

Contribution

It introduces a multi-faceted approach combining proxy indicators and network analysis to understand Bitcoin adoption and international transaction flows by country.

Findings

Bitcoin adoption correlates with GDP per capita, trade freedom, and Internet penetration.

A network of cross-country Bitcoin transactions reveals socio-economic drivers.

The augmented gravity model explains patterns of Bitcoin flows between nations.

Abstract

As the first decentralized digital currency introduced in 2009 together with the blockchain, Bitcoin offers new opportunities both for developed and developing countries. Bitcoin peer-to-peer transactions are independent of the banking system, thus facilitating foreign exchanges with low transaction fees such as remittances, with a high degree of anonymity. These opportunities together with other key factors led the Bitcoin to become extremely popular and made its price skyrocket during 2017. However, while the Bitcoin blockchain attracts a lot of attention, it remains difficult to investigate where this attention comes from, due to the pseudo-anonymity of the system, and consequently to appreciate its social impact. Here we make an attempt to characterize the adoption of the bitcoin blockchain by country. In the first part of the work we show that information about the number of Bitcoin software client downloads, the IP addresses that act as relays for the transactions, and the Internet searches about Bitcoin provide together a coherent picture of the system evolution in different countries. Using these quantities as a proxy for user adoption, we identified several socio-economic indexes such as the GDP per capita, freedom of trade and the Internet penetration as key variables correlated with the degree of user adoption. In the second part of the work, we build a network of Bitcoin transactions between countries using the IP addresses of nodes relaying transactions and we develop an augmented version of the gravity model of trade in order to identify socio-economic factors linked to the flow of bitcoins between countries. In a nutshell our study provides a new insight on the bitcoin adoption by country and on the potential socio-economic drivers of the international bitcoin flow.