Analyzing blockchain transactions and deriving definitive conclusions is a notoriously challenging task, considering both the general noise of the data and the nuances of determining which transactions are output change (i.e., UTXO blockchains) and the effect of exchanges on the transaction metrics.
However, over the last couple of years, several on-chain analytics metrics, blockchain data analysis tools, and rankings site have emerged that provide a clearer — albeit still inconclusive — picture of transaction patterns in various blockchains. By integrating transaction metrics with narratives of specific cryptocurrencies, as well as their technical capabilities and user adoption, we can begin to better understand which are top cryptocurrencies used for payments.
Scaling solutions and narratives of individual cryptocurrencies play an important role here. Many cryptocurrencies are designed to be payments networks but are faltering with inadequate adoption numbers. Others are high-value settlement mediums or smart contracts platforms that require analyzing their nuances for context.
Metrics for Analysis
Coinmetrics provides one of the best transaction metrics, adjusted transaction volume (ATV) that takes into account different methodologies for both account-based models (Ethereum) and UTXO models like Bitcoin. Moreover, their metric isolates meaningful transactions for the sake of economic analysis while balancing accuracy and false positives. The Coinmetrics ATV is also used by OnChainFX, and we will use it here.
Additionally, we will incorporate average fee (USD), average transaction value (USD), payment count, median transaction value (USD), and median fee (USD).
Grouping Cryptocurrencies Based on Characteristics and Narratives
For clarity and context, we can basically group cryptocurrency networks into 4 broad narratives based on on-chain throughput capacity:
- High-Value and Secure Settlement Layer (Bitcoin)
- P2P Digital Cash (Bitcoin Cash, DASH, Litecoin)
- Smart Contracts Platforms (Ethereum and EOS)
- Privacy-Oriented Cryptocurrencies (Monero and ZCash)
We will focus on the 8 above well-known and fully live cryptocurrencies with sufficient adjusted transaction volumes to even be considered. Metrics quoted are from CoinMetrics charts using a logarithmic 30-day average snapshot on 11/27. Metrics not from this source will be specified otherwise. Note that many of the metrics for Monero and ZCash are not available due to their anonymity features.
High-Value and Secure Settlement Layer
A high-value settlement layer requires exceptional security, censorship-resistance, decentralization, and rapid finality is a bonus. Bitcoin has all of those properties in spades. It doesn’t seem fitting to compare other cryptocurrencies to Bitcoin in this regard, especially considering the notion of Bitcoin’s censorship-resistant gold and high-value settlement layer becoming the dominant narrative for the legacy cryptocurrency.
Nic Carter provides an excellent analogy for Bitcoin on-chain transactions as “container ships not parcels.” Bitcoin on-chain transactions require a high-level of assurance in both security and censorship, with rapid settlement an advantage that it retains over legacy settlement systems. Further, measuring Bitcoin as a payments network for its on-chain capacity is becoming increasingly irrelevant due to the proliferation of the layer two Lightning Network (LN).
Bitcoin’s network metrics demonstrate its dominance as a high-value settlement layer more than a payment network. Bitcoin has the highest adjusted transaction volume of any cryptocurrency, currently at $2.15 billion. Notably, Bitcoin’s average transaction value is roughly $13.5K, making it the highest value of the above cryptocurrencies, outside of ZCash, whose has spiked since the Sapling network upgrade. Bitcoin’s average transaction value has been declining consistently all year, however.
Bitcoin also retains the highest payment count — outside of EOS (more on this later) — at roughly 365K. Payment count takes into transaction batching and is a more useful metric than pure transaction count when evaluating a network’s economic transactions. Bitcoin’s metrics demonstrate a clear dominance as the cryptocurrency of choice, but its use for payments is typically restricted to higher value on-chain transactions.
As a note, the LN is an essential qualifier for analyzing payment networks. LN may very well become Bitcoin’s scalable off-chain payment system, but its nascent stage and unclear transaction volumes preclude it from this discussion.
P2P Digital Cash
A myriad of cryptocurrencies emerged in the late 2017 ICO frenzy that claimed the title of a superior on-chain throughput capacity to Bitcoin and were destined to become the next ubiquitous payment network. It didn’t turn out that way, and many of those ICOs ended up failing. However, several altcoins have remained standing, while others are forks of Bitcoin that were around before the ICO craze.
Bitcoin Cash (BCH) hard forked from Bitcoin following a contentious debate over block size. Larger blocks in BCH allow for lower average transaction fees due to more transactions per block. BCH’s lowest fee among the 8 evaluated at approximately $0.011 demonstrates this appropriately. Despite this, BCH also has a low payment count at 39.4K which has remained relatively consistent throughout the year outside of a couple of spikes. Similarly, its average transaction value is $12.1K, closely behind Bitcoin. Its adjusted transaction volume is roughly $230 million, however. Bitcoin Cash’s network metrics suggest it is one of the most used cryptocurrencies, but that it is not often used for payments and retains a high average transaction value. Bitcoin Cash more resembles a settlement layer than a payments system in this regard. The recent hard fork muddles evaluating BCH too.
Litecoin is often considered the silver to Bitcoin’s gold. This is reflected in its network metrics such as a lower average transaction value at $2.3K and an adjusted transaction volume of only 32 million. Litecoin retains a high payment count at 53.8K, which is more than BCH. Litecoin’s payments seem to be stabilizing, but its adjusted transaction volume continues to decline, signaling its use potentially more for lower value transactions, a property of a payment network.
DASH is a fork of Bitcoin and stands for “Digital Cash.” It remains one of the more popular and established cryptocurrencies in the broader market and has a narrative of a digital cash medium. DASH has the lowest adjusted transaction volume of all 8 networks and also the lowest number of payments. A silver lining is that the payment count has been increasing slowly and methodically over the years. DASH also has the second lowest average transaction value, at approximately $1.74K. DASH’s low adjusted transaction volume precludes it from being a popular payment network, although its characteristic low fees and transaction values would indicate that is its primary function.
Smart Contracts Platforms
Smart contract platforms have several nuances that need to be taken into account on the front-end. Notably, smart contract platforms like EOS and Ethereum have low (EOS) or near-zero (Ethereum) median transaction values due to a majority of on-chain transactions having a value of zero for functions such as interactions between contracts and dapps.
The narrative for Ethereum is one of a decentralized world computer for building smart contracts and applications that are uncensorable. Ethereum has struggled to gain sustainable levels of dapp users due to scalability concerns, while EOS has focused on scaling for dapps at the cost of decentralization and trust. Neither network is designed explicitly to be a payment network, but they are nonetheless often used for exchanging value. Ethereum and EOS have the second and fourth adjusted transaction volumes, respectively.
Interestingly, EOS payments have skyrocketed to first over the last four-plus months to 1.7 million, dwarfing Bitcoin second at 365K and Ethereum third at 244K. The reason for this is unclear, but may be due to increasing traction of EOS dapps among users coupled with by far the lowest average transaction value at $29.43. For comparison, Ethereum’s average transaction value is $811.76 — the second lowest — and has been declining steadily. EOS’ viability as a payment network is reduced by its mutability and blacklisting of addresses. Such characteristics are not improvements over legacy systems nor what the principles underlying blockchains confer.
The overall takeaway is that smart contracts platform are not designed as payment networks, but their application ecosystems draw users to the platform who interact with each other as well as with smart contracts and dapps. Accurately deriving the percentage of transactions that are purely economic P2P payments is nearly impossible.
Privacy-oriented cryptocurrencies such as Monero and ZCash are an intriguing proposition for payment networks. Their future potential is unbounded, considering privacy as a fundamental value that many people seek and their ability to obfuscate transaction details as paramount to securing that privacy.
Adjusted transaction volume metrics are not available for Monero and come with a vital caveat for ZCash. ZCash’s adjusted transaction volume of $16.8 million only takes into account non-shielded (transparent transactions that do not use zk-SNARKs). The shielded volume of transactions is equivalent to 13.419 percent of the overall transactions on the ZCash blockchain, according to their own network metrics. ZCash’s average transaction value is actually first, ahead of Bitcoin at $16.91K. This is bizarre since only transparent transactions are measured, despite the surge over the last month coinciding with the Sapling upgrade for improved shielded transactions. According to ZCash’s network metrics, shielded transactions contain a disproportionate share of value compared to the shielded volume, indicating shielded transactions typically contain a higher value on average than transparent transactions.
The only useful metric we can really compare between Monero and ZCash is the average transaction fee. Both networks’ fees have plummeted since the integration of their respective protocol efficiency enhancements, Bulletproofs for Monero and Sapling for ZCash. These network integrations are crucial to understanding their potential as payment networks, however. The dramatically lower fees from their upgrades make them viable payment networks. Traditionally, privacy-preserving transactions that included zk-SNARKs or RingCTs were much more cumbersome (in both size and fee) than typical cryptographic signatures. Cheaper and smaller transactions will help pull more users to the networks who emphasize privacy.
Although measuring overall adoption of either ZCash or Monero based on transaction metrics is exceedingly challenging, it is clear they have emerged as the two leading privacy-focused communities and networks. Further efficiency improvements may prove a powerful dynamic in fostering their adoption as anonymous payment mediums.
The primary conclusion that we can draw is that cryptocurrencies pegged as popular P2P digital cash still have a long ways to go concerning adoption. Bitcoin, with by far the highest adjusted transaction volume, reaches $2.15 billion and it is more representative of a high-value settlement layer than P2P digital cash. However, this does not account for the Lightning Network, which has the potential to scale Bitcoin’s second layer as a payment network.
The next highest networks in adjusted transaction volumes are either smart contracts platforms — that come with heavy qualifiers — or are Bitcoin Cash. Litecoin presents an interesting case trending towards a payment network, and has also integrated the Lightning Network but will likely remain in Bitcoin’s shadow. Other networks simply have too low of adjusted transaction volumes to be considered popular payment networks when compared with more prevalent cryptocurrencies or legacy payment systems.
However, with Mastercard’s recent Q3 financial report revealing that they process — on average — roughly $12 billion per day, Bitcoin will likely catch and surpass individual payment processors in the coming years in total adjusted transaction volume. When juxtaposed with the LN functioning as its scalable layer two payments network, Bitcoin is seemingly positioned best for operating (at the second layer) as a legitimate payment cryptocurrency in the coming years.
An interesting trend to watch is how anonymity coins like Monero and ZCash scale. They have made privacy the utmost priority, but have already improved on-chain efficiency and have layer two solutions on their horizons. With intrusions of privacy rampant on the Internet, an increased privacy emphasis by the public will help these networks proliferate.