The State of Bitcoin in 2023

2023 has seen crypto and traditional markets transition from stagnant to bullish after a long winter. Through it all, Bitcoin continued to prove its fundamental value while expanding its utility. Over the past twelve months, builders have expanded the functionality and efficiency of the network through numerous innovations and developments. A non-exhaustive list of new developments: improvements in scaling networks such as Lightning, Ordinals and BRC-20s, Taproot Assets, and growth in Bitcoin DeFi. This activity represents a wave of growth expanding Bitcoin’s capabilities while staying true to its decentralized ethos.

Bitcoin is becoming more versatile and user-friendly too. River Financial and other services reimagine Bitcoin as an intuitive financial instrument while emphasizing security and self-custody. Gaming platforms like Zebedee pioneer new monetization models rewarding players, while mainstream apps like Lolli and Fold offer cashback rewards to normalize everyday usage. And, of course, the approval of Bitcoin ETFs stands to unleash a flood of investment in the near future.

Thesis, a Web3 Venture Studio investing in and building at the forefront of Bitcoin infrastructure and consumer applications, has compiled The State of Bitcoin 2023, to synthesize this year’s events for investors and users. 

The report is a deep dive into the innovations accelerating the network’s growth, backed by unique stats and analysis. Below is a summary of the report that outlines some of the ways Bitcoin is poised to grow as a store of value, a means of exchange, and a powerful tool.

A year of improving market fundamentals

The first thing most people look to when diagnosing the health of Bitcoin is the market. While 2023 was a volatile time overall, the year ended with strong fundamentals. BTC’s current rally has seen prices topping $40,000 and climbing. 

The rise in small account balances demonstrates broad participation from mainstream retail investors (0.1 BTC-0.01 BTC). Long-term holders have taken advantage of dips in the market to expand their positions. All told, this reflects renewed confidence on the part of long-time believers, at the same time as many are acquiring BTC for the first time.

Scaling BTC

A major challenge for the Bitcoin network has been its slow transaction speeds. 2023 saw positive movement in this area with the growth of layer-2 (L2) networks. L2s have been popular on other chains to process transactions more quickly. Their growth on Bitcoin promises to expand the network’s ability to handle large amounts of transactions, accelerating progress toward enhanced user experience and broader adoption.

This year has seen more than 5,400 BTC, worth more than $230 million, flow through LN payment channels. Capacity surged from August 2018’s 1 BTC to today’s robust liquidity pools. Supporting this growth are over 70 LN-enabled wallets offered by leading providers like BlueWallet, Muun, and Phoenix. Adoption ranged from citizens of inflation-ravaged countries to global corporations.

In addition to Lightning, 2023 has seen great advances in rollups, which come in a few forms with unique attributes. UTXO Model Rollups mirror Bitcoin’s existing state architecture but add more data per transaction. Shielded Rollups enhance privacy by encrypting transaction details, displaying only ciphertext on-chain. The security model for rollups on Bitcoin is critical – they must leverage the network’s innate cryptography and consensus without regressing to multi-signature schemes.

Integrating with mainstream networks and use cases

Bitcoin’s expansion in capabilities was matched in 2023 by an acceleration of mainstream businesses and use cases on the network. Major retailers expedited LN's consumer reach in 2023. Payment leader Stripe unlocked Lightning for corporations via its "Pay With Bitcoin" checkout button. A Twitter integration lets users seamlessly reward quality content. In gaming, Zebedee brought fast Bitcoin transactions into multiplayer worlds like Minecraft and Fortnite.

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