Why did Bitcoin transaction volumes just drop so sharply?
There are two potential explanations, and reasons to consider both.
Bitcoin transaction volumes took a sharp plunge recently.
There are at least two explanations, and the drop may be a combination of both.
Firstly there was a recent power outage in Venezuela, which is well-known as a Bitcoin-enthusiastic country, in part for lack of better options. As people point out, the blackout coincided with the drop in transaction volumes.
Others suggest that the decline was instead due to the wrapping up of the VeriBlock testnet on 4 March. According to its own stats, the testnet was accounting for about 25% of Bitcoin transactions.
On 4 March Bitcoin had about 300,000 transactions per day, and that's when the drop started. Now it's showing a bit more than 200,000 transactions per day, so that matches VeriBlock's numbers quite well.
The reason VeriBlock was accounting for so many Bitcoin transactions was because it was testing a unique "proof of proof" consensus mechanism, which involves a lot of Bitcoin transactions. It basically works by using the arbitrary data space on Bitcoin transactions to publish the details of its own separate blockchain transactions. So VeriBlock transactions also involve Bitcoin transactions.
Meanwhile, the blackout in Venezuela arrived several days after 4 March, and doesn't seem to have had too much of an impact on Bitcoin's daily transaction volumes.
It looks like the wrapping up of the VeriBlock testnet is the reason for the drop, while Venezuela's blackout had minimal impacts on Bitcoin volumes. The VeriBlock mainnet goes live on 15 March, and if people actually use it to the same extent they did the testnet, volumes will likely start returning then.
Even if the impact of Venezuela's blackout on Bitcoin transactions was limited, it's still worth considering this downside of purely digital currency. Some kind of physical means of exchange and storing value is still useful precisely because of these kinds of situations.
Although as AP reports, residents are much more concerned with being unable to withdraw money from the bank during the blackout than not being able to use Bitcoin. The need for electricity and a very heavy reliance on digital systems is not unique to cryptocurrency.
Overall it's a solid reminder of the importance of decentralising critical infrastructure systems, especially as Venezuela's president Maduro has blamed the blackouts on sabotage from the opposition party and the United States. Venezuela's information minister went into more detail, describing it as a cyberattack on a critical hydroelectric dam's operating system.
Despite a lack of evidence, it's not an entirely unreasonable assumption as the world starts really entering the unfortunately quite exciting era of national cyberattacks. True decentralisation through public distributed ledgers is probably an important direction to be looking.
Disclosure: The author holds ETH and XLM at the time of writing.
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