Bitcoin On-Chain Transactions Hit New Highs, What’s Driving the Wave?

by James · May 4, 2023

The number of daily Bitcoin (BTC) transactions on the blockchain has risen, reaching a record high of 682,000 on May 1. Rafael Schultze-Kraft, one of the founders of Glassnode, has proposed that this increase in transaction volume is probably due to a combination of factors.

Bitcoin transactions are skyrocketing

Rafael claims that a key driver is the growing use of Bitcoin by institutional investors and large corporations. As more companies begin to keep Bitcoin on their balance sheets and offer it as a payment option, the demand for Bitcoin transactions has more potential to increase.

Another factor contributing to the increase in Bitcoin transactions is the growing popularity of decentralized finance (DeFi) applications. These applications, built on top of blockchains such as Ethereum and Bitcoin, allow users to borrow, lend and trade cryptocurrencies in a decentralized manner.

Furthermore, Schultze-Kraft notes that the recent increase in Bitcoin transactions may be a sign of increased interest and activity in the cryptocurrency space more broadly. As more people become aware of Bitcoin and other cryptocurrencies.

BTC daily transactions. Source: Rafael Schultze-Kraft on Twitter.

Additionally, according to Schultze-Kraft, the current increase in the number of transactions is notable because it is more than double the baseline established in 2022, which had been relatively stable at around 250,000 transactions per day, as shown in the chart above.

A notable increase in the use of Taproot transactions has followed the latest surge. According to data from Glassnode, Taproot transactions accounted for 37.5% of used outputs on April 30, and on May 1, a record 60% of all Bitcoin transactions used Taproot.

BTC Taproot Adoption. Source: Rafael Schultze-Kraft on Twitter.

So, what is Taproot and why is its use increasing? Taproot is a proposed upgrade to the Bitcoin network designed to improve privacy and efficiency. It achieves this by combining multiple BTC script paths into a single output that can be used using a single signature. This makes transactions smaller and cheaper, which can help reduce online congestion and lower fees.

Taproot was first proposed in 2018, but it has taken some time for the Bitcoin community to reach a consensus on its implementation. But with the recent activation of Taproot looking increasingly likely, more users and businesses are starting to adopt the technology.

Furthermore, the recent increase in Taproot transactions in the Bitcoin network can be attributed to the sharp increase in text inscriptions, according to Rafael Schultze-Kraft. More than 50% of all transactions on the Bitcoin network have been associated with text inscriptions.

When you separate transactions related to text inscriptions from all other Bitcoin transactions, it becomes clear that they are the sole driver of the recent surge in BTC activity, briefly outstripping the total number of all other transactions.

BTC’s type of inscriptions. Source: Rafael Schultze-Kraft on Twitter.

The data from Glassnode shows that text inscriptions are far more popular than others on the Bitcoin network, including images, videos and audio. Although there are some uses for these other types of inscriptions, such as embedding a digital signature or proof of ownership, textual inscriptions seem the most versatile and widely used.

As the Bitcoin network continues to evolve and adapt to changing user needs, there will likely be more innovations and upgrades that will further improve its functionality and ease of use. Whether through textual inscriptions or other technologies, it is clear that BTC will become more than just a financial instrument, but also a powerful tool for communication and expression.