The proposed framework offers a comprehensive analysis of the Bitcoin economy using a simple, efficient, and effective metric. This metric measures the time during which Bitcoin has been held while transacting, giving greater weight to holder’s transactions.
ARK Invest and Glassnode White Papers
ARK Invest and Glassnode have published white papers that describe a new framework for analyzing Bitcoin using an on-chain metric. The new method, called Cointime Economics, introduces a fresh metric known as the coinblock.
This metric represents the condition of the Bitcoin network and can be used to express its economic state in place of the pending supply. By using this new system, valuation metrics can be refined, and a new analysis tool can be provided to gauge Bitcoin activity.
According to David Puell from ARK Invest and James Check from Glassnode, the significance of a bitcoin should depend on when it was last moved. For instance, if it had not been moved for 10 years, its informational worth would be higher than one that was only inactive for one week.
The reasoning behind this statement is that the longer a bitcoin remains inactive, the more valuable it becomes. Coins held for a long time indicate ownership by the market group with the longest investment horizon and the most profitable cost base. This reveals the behavior of the most capitalized and historically savvy market participants in Bitcoin’s history.
As a result, when Bitcoins that have been inactive for a long time are transferred, it is likely executed by holders and whales, making it more significant than newly mined stocks of Bitcoin. Lost Bitcoins are not included in this calculation.
Coinblocks the Calculation Unit
The coinblock is the basic unit of calculation, determined by multiplying the number of Bitcoin by the number of blocks produced during mining while Bitcoin aren’t moving. Since the Bitcoin network produces one block every 10 minutes on average, one coin generates around 144 coinblocks daily. The authors state that 6 blocks are produced every hour, which adds up to 24 blocks in a day.
Coinblocks are “destroyed” based on how long the Bitcoin is held. This means that bitcoins that have been held for a longer time result in a higher number of destroyed coinblocks, indicating increased activity on the part of hodlers.
For instance, if two bitcoins have not been moved in seven blocks and are then transacted, 14 coinblocks would be destroyed. This means that bitcoins that have been held for a longer time result in a higher number of destroyed coinblocks, indicating increased activity on the part of hodlers. Coinblocks destroyed is a different version of coindays destroyed, which Glassnode already uses as a metric.
On the other hand, the conventional Unspent Transaction Output (UTXO) model, which is crucial for many settlement systems, assigns equal weight to all Bitcoin. Under UTXO, inactive bitcoins are those that miners have not spent. Cointime Economics refers to them as the “vaulted supply,” calculated as the total number of coinblocks created divided by the total number not destroyed or “stored.”
The white paper cites three use cases to exhibit the practicality of Cointime Economics. Glassnode also has a more in-depth paper for blockchain experts, paired with a group of Cointime Economics measurements.
By Leonardo Pérez
