The price of Bitcoin breaks $11,000, but a major resistance level at $11,500 has emerged.

The price of Bitcoin has stalled under $11,000 after rallying to as high as $11,488 across major exchanges. According to cryptocurrency trader and on-chain analyst Nik Yaremchuk, BTC faces strong resistance that dates back to 2018.

Since February 2018, the $11,500 level has acted as a crucial resistance level for Bitcoin.

When BTC first rejected $11,500 two years ago, the price of Bitcoin dropped below $7,000 in the following month.

In August 2019, BTC rejected the same level. The price of Bitcoin declined to $7,800 in the month that followed.

The weekly price chart of Bitcoin with $11.5k marked as resistance.

Historical Data Suggests a Big Resistance Level is Ahead: Arguments For Sellers

Whether the price of Bitcoin will struggle to break above $11,500 in the near term remains an uncertainty.

Historical data indicates it is a large area of resistance for Bitcoin. But that can be comprehended as a price point of significance.

If BTC surges past a level it failed to reclaim for years, it could indicate the formation of a potential bull run.

Traders also consider a critical resistance level as an area with large selling pressure. Once that level breaks, it could trigger an uptrend.

Some investors and technical analysts expect the upward momentum of Bitcoin to continue in the near-term. A large part of the expectation is the optimism for a breakout above $11,500.

For sellers, there are three strong arguments to support a bearish scenario.

First, the Bitcoin market is currently heavily skewed to buyers. The overwhelming majority of the market are longing Bitcoin and other top cryptocurrencies.

Second, the funding rates of perpetual swaps are nearing levels that are not sustainable over a prolonged period.

Perpetual swaps are a type of futures contract that does not have an expiration date. It is also the most popular form of Bitcoin futures contract.

Funding rates of perpetual swaps across exchanges are surging because the number of long contracts is rising.

Third, the multi-year resistance at $11,500 could serve as an area for sellers to defend.

One Highly Optimistic Metric Suggests A Difficult Battle Between Bulls And Bears

While sellers have several viable reasons to be bearish, the exchange inflows of Bitcoin are not increasing.

The term exchange inflow refers to Bitcoin received by exchanges. Investors typically send BTC to trading platforms to sell and as such, exchange inflows often hint at heightened selling pressure.

Data from on-chain market analysis firm Glassnode spotted no large-scale deposits of BTC into exchanges. That could indicate that whales are not selling BTC yet.

Bitcoin balance on exchanges.

Glassnode researchers explained:

Despite BTC's recent price surge, we haven't seen large-scale deposits of funds into exchanges. So far, the Bitcoin balance on exchanges remains stable at around 14.5% of the circulating BTC supply.

A key resistance level at $11,500 and high funding rates could raise chances of a market cool-off. But investors are seemingly optimistic in the medium-term, and expect BTC to overcome it.

Continued here:
Bitcoins Rally Toward $12,000 Abruptly StallsAnd Theres A Catch - Forbes

Another key metric points to the recovery of the Bitcoin (BTC) market the current price has recently doubled the assets realized price.

Bitcoin price versus realized price. Source: Glassnode.

The realized price of Bitcoin is calculated by dividing the realized market capitalization by the supply. The realized market capitalization is computed by multiplying each Unspent Transaction Output or UTXO by the prevailing price when it was last moved. This metric should convey the cost of acquisition of the asset. Traditionally, the realized cap and price have ranged below the actuals; however, around Black Thursday (March 19), it flipped.

Bitcoin net unrealized profit. Source: Glassnode.

In the months that followed, the relationship has returned to the normal range. As of July 27, the actual price was almost double that of the realized price. Although a return to normality is always welcomed, the downside is that the most of the supply is currently in profit. Holders may therefore be tempted to realize some of the paper gains they have accumulated.

According to Glassnode's classification, the current phase could either be classified as Optimism heading towards Belief, or Anxiety willing to yield to Fear. A recent report by Bloomberg suggested that the former is more likely as it is expecting BItcoin to rise above $12,000.

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Bitcoins Realized Price Action Shows Full Recovery From Black Thursday Crash - Cointelegraph

As the U.S. dollars value slides, prices aresuddenly rising for just about everything priced in dollars.

That includes bitcoin, which shot up some 13% on Monday for its biggest gain in almost three months. Prices soared past levels reached in February, prior to the pandemic-induced sell-off, reaching a new 2020 high of $11,180.

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Joe DiPasquale, CEO of the cryptocurrency hedge fund BitBull Capital, told First Mover in an email that the latest move up appeared in sync with golds climb in recent days to a new record. Bitcoin is seen by many digital-asset analysts as a hedge against inflation and currency debasement, similar to the way investors in traditional markets have historically used gold.

Bitcoin sprung into action, DiPasquale said.

Its a remarkable development in the bitcoin market, where investors, as recently as last week, were despairing that the oldest and largest cryptocurrency had been stuck in a range between $9,000 and $10,000 for the past two months.

So for bitcoin bulls, the jolt out of the doldrums was welcome, especially when the pricewent up, not down. The days gain came on strong trading volume, with levels not seen since early June.

The trend is clear and we are headed higher, saidJack Tan, of Taiwan-based quantitative trading firm Kronos Research.

Bitcoin is now up 57% year to date, more than double the 28% gain this year for gold, which climbed in recent days to a record. The Standard & Poors 500 Index of large U.S. stocks, meanwhile, is roughly flat for the year.

Given gold has just set a new all-time high, and with bitcoins correlation to stocks breaking down while being replaced by a strong correlation to gold, we envisage further tests to the upside this coming week, the cryptocurrency-trading firmDiginexwrote in a daily market report.

The U.S. Dollar Currency Index, a gauge of the greenbacks value versus other major currencies like the euro and yen, has fallen for seven straight sessions; the Wall Street firm Goldman Sachs predicts the dollar could lose another 5% over the next 12 months.

The U.S. dollar is eroding quickly, and people are starting to notice, wrote Mati Greenspan, founder of the cryptocurrency and foreign-exchange research firm Quantum Economics, in his daily email. Its plain to see that people are ditching the buck as fast as they can.

Thats good for bitcoin and gold:As the Wall Street Journal put it Monday, a weakening dollar mechanically pushes up the prices of the commodities invoiced in greenbacks.

Investors appear worried the global economic recovery is faltering, with cases on the rise and a death toll globally thatjust passed 650,000. In the U.S. Congress, Senate Republicans proposed a $1 trillion relief package following negotiations with President Donald Trump, but that amount falls far short of a Democrat-ledplan for $3.5 trillion in stimulus.

Jim Reid, strategist for the German lender Deutsche Bank, wrote in a report that the Federal Reserve, which has already expanded its balance sheet this year by about $3 trillion to about $7 trillion, might need to pump another $12 trillion over the next few years.

The Federal Reserve is scheduled to meet this week in closed-door discussions, with a statement due late Wednesday. With interest rates already close to zero, no major policy changes are expected, but the cryptocurrency investment fund Arca noted Monday that a sell-off in the U.S. stock market might provoke the U.S. central bank to respond.

A report on Thursday is expected to show that U.S. gross domestic product declined during the second quarter by a staggering 35% on an annualized basis.

With so much fragility in the economy, and things not improving quickly, the moral hazard is now so high that the stock market barely even has to blink, Arca wrote.

For bitcoin, according to Arca, the breakout was just a matter of time.

Tweet of the day

Bitcoin watch

BTC: Price: $10,773(BPI) | 24-Hr High: $11,395 | 24-Hr Low: $10,215

Trend:Bitcoin is witnessing a low-volume technical pullback on Tuesday.

The largest cryptocurrency by market value is currently trading near $10,850 down over 4% from the 11-month high of $11,394 reached on Monday.

The drop in price suggests bitcoin may be overvalued.The 14-day relative strength index jumped to 82 as prices surged 11% on Monday. An above-70 reading indicates overbought conditions meaning excessive demand has pushed prices unjustifiably high.

The pullback may be extended further, as the 14-day RSI is still hovering above 70. In addition, the RSI on the hourly chart has dropped into bearish territory below 50. That said, the bullish bias might be invalidated if prices finish below $10,500 (the February high) at the UTC market close.

That looks unlikely, as the decline from multi-month highs observed so far today is accompanied by a slide in trading volumes (above right). A low-volume pullback is often short-lived.

Besides, some analysts are convinced that Mondays bullish move has put bitcoin on the path toward record highs. [Mondays] daily close is amazing and could very well resemble April 2019s $1k candle that ended the bear market and fueled a rally to $13,000. Only this time, the rally should lead to new all-time-high for BTC, popular analystJosh Rager tweetedearly Tuesday.

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First Mover: The Dollar Drop May Have Helped Push Bitcoin Past $11K - CoinDesk - CoinDesk

In brief

Anyone looking to conduct any shady business on peer-to-peer Bitcoin exchange LocalBitcoins will now have a more difficult time doing so.

The exchange today announced that it has teamed up with Elliptica crypto tracing firm that provides asset risk management solutions. LocalBitcoins plans to use Elliptic's transaction monitoring software to prevent the illegal use of the Bitcoin exchanges services.

LocalBitcoins has long been criticized for being one of the top destinations for dirty Bitcoins around the world. According to a report from blockchain analytics firm CipherTrace, the Finnish platform ended 2019 by earning the dubious distinction of having received the most illicit crypto assets throughout the year. Its been a recurrent pattern since 2017, according to the firm.

The report claimed that Finnish exchanges received 12.01% of all crypto funds associated with criminal activity, and LocalBitcoins alone accounted for more than 99% of all such funds.

LocalBitcoins partnering with Elliptic appears to be an attempt to confront this problem head on.

"We are pleased to be partnering with the global leader in blockchain monitoring," said Sebastian Sonntag, CEO of LocalBitcoins, in a statement. "Elliptic will enable us to achieve the highest levels of compliance while increasing operational efficiency and reducing costs. We will continue to invest heavily in AML and KYC to maintain a secure and trusted platform for our valued customers.

But in solving one problem, the exchange may be creating a new one for its business.

The recent KYC and anti-money laundering (AML) policies implemented by the LocalBitcoins team have caused some privacy-loving purists to jump ship, including traders who may be operating in countries that are sanctioned by the United States.

This may be one of reasons that LocalBitcoins has lost market share to its competitors, such as Hodl Hodl, which have taken the opportunity to grab users in regions like Latin America and Africa, offering the privacy, diversity of services, and ease of use that LocalBitcoins can no longer provide.

For LocalBitcoins, though, that tradeoff appears to be worth it.

More:
LocalBitcoins aims to root out illicit use of its Bitcoin exchange - Decrypt

Bitcoin has rocketed higher over the last few days, breaking months of inaction and sparking excitement among bitcoin investors.

The bitcoin price, still about half its all-time high set in late 2017, rallied almost 20% in less than a weekpeaking at just over $11,400 per bitcoin on Monday evening before falling back.

Now, former hedge fund billionaire-turned crypto investor, Michael Novogratz, has said he expects the bitcoin price to hit $20,000 by the end of the yearfueled by a global "liquidity pump" and an influx of retail investors.

Michael Novogratz, a Wall Street veteran, has become one of bitcoin and cryptocurrency's richest ... [+] investors in recent years, making a name for himself as a bitcoin bull.

"The liquidity story isn't going to go away. We're going to get a big stimulus," Novogratz, the founder and chief executive of bitcoin and crypto merchant bank Galaxy Digital, told CNBC, adding, "it doesn't look like the Federal Reserve is going to raise rates."

U.S. Republican lawmakers unveiled plans for a $1 trillion stimulus package on Monday that includes another round of $1,200 payments and additional funds for small-business loans. However, U.S. investors sent stocks lower as markets braced for a prolonged period of negotiation between Democrats and Republicans.

Meanwhile, the gold price, which Novogratz also sees climbing in coming months, lost momentum after coming within touching distance of $2,000 for the first time.

"Yesterday, you saw a lot of money shift back over to gold and bitcoin," Novogratz said, pointing to "a lot of retail interest in [bitcoin]."

Retail traders switching from stocks to bitcoin amid fresh government stimulus could send the bitcoin price to $14,000 within the next three months and as high as $20,000 by the end of the year, according to Novogratz.

Novogratz also said he's beginning to see institutional investors move into bitcoin but warned Wall Street investors may face a learning curve compared to gold.

"Gold has been around for 3,000 years. It's pretty easy to buy," he said. "There's an adoption game in bitcoin that you don't have in gold."

The bitcoin price broke months of stagnation over the last few days, soaring above $11,000 per ... [+] bitcoin for the first time this year.

Novogratz's prediction is somewhat supported by reports coming out of bitcoin and cryptocurrency exchanges.

"As bitcoin and other digital currencies are easier to access than ever before, were seeing a surge in bitcoin interest as the market anticipates that second stimulus bill," Catherine Coley, CEO of BinanceUS, said via email.

BinanceUS saw bitcoin trading volumes hit an all-time high on its platform as the price surged on Monday, according to Coley.

However, despite the latest bitcoin price surge, the bitcoin options market is signalling just an 8.5% probability of bitcoin at over $20,000 at the end of the year, data from crypto derivatives analytics firm Skew showed, up from 7% on Monday morning.

Read this article:
Former Hedge Fund Billionaire Makes The Case For $20,000 Bitcoin Price By The End Of 2020 - Forbes

Bitcoin is on a surge . . . and no one knows why. The digital currency is up over 17% since July 20, the same period during which the Dow Jones Industrial Average dropped nearly 2% and reported cases of COVID-19 topped 4.3 million in the United States. As of this afternoon, the price was nearly $11,000.

The spike comes on the heels of a decision by the Office of the Comptroller of Currency last week allowing banks to hold cryptocurrencies. Up to now, banks and funds had avoided bitcoin and other cryptocurrencies due to regulatory concernsthough banks likely have not yet had time to react, and bitcoins current upswing started before that decision.

The rally could be related to the overwhelming uncertainty of the stock market, leaving people looking for a safe-haven alternative to cash and stocks. Gold prices have also been on the rise, and some suggest that perhaps bitcoin is the gold of the tech age. But pandemic uncertainty has ruled over the stock market for months now, and cryptocurrencies are often more volatile than other markets and prone to unpredictable rallies.

Two prominent Wall Street veterans are predicting that this is just the beginning of an even bigger rise that will see bitcoin more than double. Stay tuned.

Read this article:
Bitcoin price today: Why does it keep going up? - Fast Company

Bitcoin saw a dramatic price rise on July 27, shooting from below $10,000, all the way up to ... [+] $11,400, all in a 24-hour span.

Bitcoin (BTC) has had a wild year. The asset dropped from $10,500 to $3,860, before flying up past $11,000, all since February. Given the overall mainstream U.S. market environment, as well as the price action seen in the crypto space, one trader sees all-time high ranges by 2021.

With gold nearing a new all-time high, and equity asset prices getting more expensive, I believe the market is anticipating inflation and a weaker dollar, cryptopodcaster and traderBrian Krogsgard, also known as Ledger Status on Twitter, told me in a July 22 message. I struggle to see the downside for bitcoin in such an environment, he added.

I don't know how far the market could go, but I anticipate bitcoin will challenge prior highs in 2021.

Since Krogsgards comment, Gold broke its all-time high near $1,830, according to Trading Economics, sitting a press time price of $1,942. U.S. stock markets have also seen booming prices, all amid contrasting high unemployment numbers after months of Covid-19 prevention measures.

[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]

Bitcoin Breaks Long-Time Resistance

Over the past ten months or so, bitcoin has struggled to break past a price level near $10,540, as per TradingView.com data. Since October 2019, the asset travelled up to price zones between $10,430 and $10,540 on three separate occasions each months apart. Each time bitcoin gathered enough momentum to make an attempt at breaking that price zone, the asset faced selling pressure, unable to rally past the level. Falling prices followed each effort.

Bitcoin finally rocketed past $10,540 on July 27, however, rising from $9,940, all the way up to $11,400, all in a 24-hour span. The asset now sits at $11,032 at press time. According to Krogsgard, $10,200 held as a significant level in the assets journey. We blasted through an important level at $10,200 a previous weekly high, he told me in a message on July 27.

Breaching several areas of clear resistance forced stop market buys and forced sellers out, causing rapid expansion all the way to the next key weekly around $11,400, he added, referring to market dynamics spurring the move.

Mental Level Broken As Mainstream Hype Stirs

Crypto trader and Brave New Coin (BNC) analyst Josh Olszewicz, known as CarpeNoctom onTwitter, also weighed in on the BTC scene, noting $10,000 as a notable price point. Five digits (10k) was a big psychological resistance barrier for price, so once that was crossed, much easier to go higher, Olszewicz told me in a July 27 message.

We also had some legacy people excited about the BTC price chart, Olszewicz said, noting mainstream entities interacting with the action. CNBC pitted the digital asset against gold as a store of value a concept the crypto industry has boasted for years now.

Olszewicz pointed toward a bevy of economic factors around bitcoins price movement, including mass money printing activities across the world, golds position in unexplored price territory past its all-time high and the U.S. dollars decreasing value against other world currencies, with BTC catching up.

The trader also mentioned other impactful events, including European Union Covid-19 spending and crypto-based decentralized finance (DeFi) hype.

Some parties still refuse bitcoin as a valid asset, however. Gold bug and financial commentator Peter Schiff has made a number of comments against the asset over the years, including a July 26 interview with Morgan Creek Digital cofounder Anthony Pompliano, in which Schiff said bitcoin has no commodity properties, as opposed to gold.

Disclaimer: I actively trade cryptocurrencies, as well as hold a small amount of BTC, ETH, LTC, XMR, NEO, ZEC, BEAM, BCH, DASH, LINK, XTZ andvarious insignificant other altcoin positions.

Continue reading here:
Bitcoin Could Hit All-Time High Levels By 2021, Trader Says - Forbes

Gold and digital gold are rallying side by side.

Prices of gold hit another record high Tuesday, touching $1,974 earlier in the day and adding to an 8% rally this month. Cryptocurrency bitcoin, meanwhile, held above $10,900 and is up nearly 20% so far in July.

Ari Wald, head of technical analysis at Oppenheimer, said gold still looks good after its run-up.

"We've been recommending gold as a way to play the expansion of the [Federal Reserve's] balance sheet. It's actually the high momentum commodity, it ranks highest above all commodities out there in terms of momentum," Wald said Monday on CNBC's "Trading Nation."

However, he adds, "We do recommend sticking with it but I think it's worthwhile to highlight bitcoin instead which isn't as extended."

Wald notes that its recent breakout is setting up more gains ahead.

"Bitcoin is reversing its downtrend dating back to its 2017 peak. If you are a long-term holder, this is the type of action you'd like to see," he said.

Bitcoin remains well below its December 2017 peak of nearly $20,000.

Michael Binger, president of Gradient Investments, is still in the gold over bitcoin camp.

"Between the two I would really lean on the gold side here. When you think about it, it is really a Goldilocks environment for gold investors right now. I mean, you have a weak U.S. dollar, you have negative real interest rates. All of this is based on the prospect of rising inflation," Binger said during the same segment.

Binger agrees with Wald that bitcoin is a momentum play, but adds that it is not a "valid currency yet."

Both are up on the year. Bitcoin has rallied 53% in 2020 and gold has added 28%.

Disclaimer

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This is the 'type of action' bitcoin bulls like to see, Oppenheimer says - CNBC

The price of Bitcoin passed $11,000 on Monday, the highest it has reached in almost a year, and according to experts, there are more gains to come.

Reaching $1,268.19, a one-day rise of 12.73%, the Bitcoin price has now dropped slightly to $11,041.50 at the time of writing.

It follows the much anticipated Bitcoin halving event it May, where the amount generated from mining work was cut by half. However, the halving is unlikely to be the sole cause.

Bitcoin has followed a similar cycle for many years, [and] many believe this is the start of the next multi-year bull market, says Richard Simpson, chief business development officer at tap Global.

The halving event in May reduced the daily new supply by half. A more short-term general rotation away from Alt coins and into BTC provided the fuel for the short-term spike.

For many experts, this surge has been long expected.

The break-out has been long coming, after months of bumbling along in mid $9,000s, for Bitcoin investors, has been akin to watching paint dry, explains Katharine Wooller, managing director, Dacxi, UK and Eire.

In particular, cryptocurrency has seen greater institutional support than ever before, which has undoubtedly helped the rising price.

It has been a phenomenal year so far for crypto, building upwards pressure from unrelentingly good news; for example; Paypals announcement they will provide crypto services to their 325 million users, solid progress on Eth 2.0, and in the US the Office of the Comptroller of the Currency softening their position on crypto, says Wooller.

However, despite the surging Bitcoin price, there is reason for caution.

Bitcoinhas been a beneficiary of increased adoption and more acceptance on the regulatory side, particularly out of the US. At the same time, while recent gains have been impressive, withBitcoinpushing back above $10k, its important to recognise where were at technically and fundamentally, says Joel Kruger, currency strategist at LMAX Group.

Bitcoinis now overextended against the US Dollar, into a critical resistance zone ahead of its 2019 high. This comes at a time when the global outlook is increasingly uncertain and the prospect for another big downturn in stocks, much like was seen back in March, is very real.

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For some, the economic uncertainty is set to spark further growth in Bitcoin, as investors increasingly look to the cryptoasset as a safe haven from more exposed investments.

Bitcoin is currently realising its reputation as a form of digital gold. Up to now, gold has been known as the ultimate safe-haven asset, but Bitcoin which shares its key characteristics of being a store of value and scarcity could potentially knock gold from its long-held position in the future as the world becomes ever-more tech-driven, says Nigel Green, CEO of deVere Group.

Geopolitical issues, such as the US-China spat, will prompt many savvy investors to increase exposure to decentralised, non-sovereign, secure digital currencies, including Bitcoin, to shield them from the turbulence taking place in traditional markets.

This is a view echoed by Dacxis Wooller, who also sees comparisons to the 2017 Bitcoin market, shortly before its all-time-high surge.

As we get a real sense of just how bad the post-coronavirus economic reality looks, I expect to see retail and institutional investor alike jumping ship from traditional assets to reputable crypto, she says.

Certainly, recent announcements from the likes of JPMorgan and Standard Chartered suggest institutional interest in crypto is no passing fad.

But while many see the economic situation potentially buoying Bitcoin, others believe it could pose a risk to the cryptocurrencys price.

Our view is that we still believe the markets are pulled on the one hand by the inflation hedge story driving Bitcoin higher while at the same time the global economy is suffering a massive demand shock with the potential to drive Bitcoin lower, says Gavin Smith, CEO of Panxora.

However, the general sense is that there is a change in the wind, with a bull market rising to dominate over the coming months and potentially years.

Short term, we could continue pushing higher quickly, or just as easily pull back to recent support, either scenario can be bullish. But really its anyones guess, says tap Globals Simpson.

Medium term, many well-regarded models point to this being the start of a multi-year bull run, possibly concluding in around 18 months. Long term Bitcoin has and probably will continue to outperform every other asset class.

The surge has now led some to predict Bitcoin could climb as high at $20,000 by the end of the year, although not all agree with this sentiment.

Simpson, for example believes that while we certainly could see it hitting these giddy heights in 2020, we could easily not.

I would probably guess at highs this year below $20k, but with something much higher at some point next year, he says.

This perception is echoed by Panxoras Smith, who sees 2020 has still having high volatility with a year-end of around $7,000, with a drive higher to new highs in 2021.

We also believe that the inflation story will drive the longer-term dynamic for Bitcoin, so wouldnt short this market, even while we believe there will be a short-term washout this year before the true rally takes hold, he adds.

However, while LMAX Groups Kruger also sees volatility being present, he sees a higher 2020 peak than Smith.

We dont believe Bitcoin is ready just yet to be fully appreciated as a store of value asset, which means that in the short term, Bitcoin will still be exposed to periods of risk off in traditional markets, he says.

At the same time, we believe any setbacks will continue to be very well supported on dips, with medium and longer-term players happy to step in and build exposure in anticipation of Bitcoin realising its potential as a store of value asset.

This could set the stage for another healthy pullback over the coming months, before Bitcoin is bid back up and looks to close out the year on a strong note with a push towards $20k.

For Wooller and many others meanwhile, all metaphorical bets are off.

Personally, I am cautiously optimistic. 2020 has been a wrecking ball to economic theory we have no precedent for a global pandemic in modern times and are thus are in unchartered territory, says Wooller.

At a very basic level, Bitcoin has never been harder to extract, and the total addressable market is ever growing. Nothing is impossible in crypto it adapts and advances at breakneck speed the industry sometimes feels like has its own time zone; and a bit like converting dog years, that a month in crypto is a like a year in any other.

I have a sneaking suspicion that 2020 will be year that Bitcoin, as a concept, is validated.

Read more: Bitcoin can protect investors against inflation

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Bitcoin price hits $11000, raising possibility of multi-year bull run - Verdict

The infrastructure propping up Bitcoin might become easier for anyone to spin up and run.

Lightning creator Tadge Dryja has been working on a new design for a lighter weight Bitcoin full node, about which he first wrote a paper in 2019. Last week, he and a team of coders released a first version of the Utreexo software as a part of MIT Digital Currency Initiative (DCI), putting the idea of lighter nodes into working code.

Full Bitcoin nodes act like financial security systems, validating Bitcoin blockchain transactions and protecting users from being tricked into thinking they received money that they didnt. But they take up a lot of computing space and are quickly growing in size.

Since these nodes are the most trustless way of using Bitcoin, developers have long been trying to make them easier to use. Its one of Bitcoins nerdy holy grails.

Utreexo specifically tackles the size of the state of a full node, which shows up-to-date information about who owns how much bitcoin. Utreexo slashes this state size from roughly four gigabytes to less than a kilobyte. In that regard, it could be a big breakthrough.

Utreexo is a new scalability technology for Bitcoin, which can make Bitcoin nodes smaller and faster while keeping the same security and privacy as full nodes, Dryja wrote in the blog post announcing the release.

But it hasnt been implemented fully yet, which is why it is a big deal to see Dryja releasing a first version of it. The project still has a long journey to go before users can begin using the nodes to plant a flag of financial self-sovereignty. But its a crucial first step.

A 'super-pruned node'

Bitcoin full nodes hold every transaction ever made, clocking in at about 200 GB today.

Pruned full nodes are able to reduce the size of the transaction history to as low as a half a gigabyte, about the size required to store an episode of a TV show.

But this doesnt tackle the storage of Bitcoins Unspent Transaction Outputs (UTXOs), which tallies up how much bitcoin is linked to each bitcoin address. This batch of data takes up a little less than 4 GB of data.

This UTXO state has grown rapidly over time and it is likely to continue growing, making it harder to run full nodes.

Thats where Utreexo comes in. With the help of fancy, new cryptography, its possible to replace this bulk of state with one tiny cryptographic proof that takes up much less storage.

Utreexo is a novel hash based dynamic accumulator, which allows the millions of unspent outputs to be represented in under a kilobyte small enough to be written on a sheet of paper, Dryja explains on the MIT DCI website.

Because it does what a pruned node does, plus more, one bitcoiner called it a super-pruned node, Dryja told CoinDesk.

Challenging SPV

Trying to shave down these hefty Bitcoin full nodes is far from a new pursuit. Simplified Payment Verification (SPV) is probably the most popular version of a lightweight node, used by Electrum and other wallets.

Utreexo is similar to SPV in that it doesnt require nearly as much computer storage space as a full node. But SPV nodes dont preserve user privacy as well and are more susceptible to attacks than Utreexo nodes are.

Since Utreexo offers these security benefits, Dryja hopes it might chip away at SPVs dominance in the space (as long as writing the Utreexo software goes as well as planned). I think it would be great if it replaced SPV to some extent, allowing an Electrum-like user experience but with Bitcoin Core security, he told CoinDesk.

But in the end, he doesnt think itll replace SPV completely, as SPV is still easier to run.

I think it will be a bit in between. [Utreexo nodes are] heavier than SPV but lighter than current full nodes, so some SPV users may switch to Utreexo, and some current full node users will switch as well, he said.

He also imagines that since Utreexo nodes are so much easier to run, theyll be much more common than normal full nodes.

Longer term, I can definitely see almost all full nodes using a Utreexo-like design, and nodes which store the entire state and history would be more like current blockchain explorer websites or Electrum servers there will still be some, but no normal users will run their own, Dryja said.

Careful next steps

Utreexo developers now put forward a proof of concept, showing that the idea can be turned into a real working product. But they still have a lot of work to do, including ironing out bugs to make the mini node suitable for real money.

The software also operates on testnet, the Bitcoin testing network, and is not recommended for use with real money. There are still plenty of known bugs and inefficiencies in the code, but were improving it at a rapid pace, Dryja writes.

Theyll eventually have to make the Utreexo node compatible with the nodes already running on the Bitcoin network. To do this, developers will eventually need to modify Bitcoin Core, the most popular Bitcoin node software.

But this could be dangerous. Utreexo is a significant re-thinking of how Bitcoin works, changing consensus-critical code, Dryja writes.

It is thus likely to be difficult to get Utreexo code into Bitcoin Core, and with good reason. We want to be very sure to not introduce problems into a system handling so many peoples money, Dryja said.

Thats why theyve decided to see if they can try to add Utreexos magical powers to alternative Bitcoin node software Btcd first, because its not used by nearly as many people to secure their money, and in the process learn more about how it affects full node operation, Dryja said. The next step will be eventually applying what they learned to Bitcoin Core.

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