Bitcoin's popularity with developers shrunk last year while ethereum's flourished. Here's what that means for investors
Crypto prices suffered badly in 2022, but developer activity for the year paints a more optimistic picture for investors. New data published Tuesday by Electric Capital shows ethereum had the largest number of full-time developers in 2022 at 1,873, as of Dec. 15. That puts developer growth at 9% for the year, the report showed, even as the price of ether dropped 67%, according to Coin Metrics. Ethereum rivals such as polkadot and solana followed closely behind, showing growth of 9% and 36%, respectively. For solana, that growth came despite the network facing a make-or-break moment in the wake of the FTX scandal. Its price collapsed 50% last year, but the strength of its developer community gave investors hope it would pull through. Meanwhile, bitcoin's developer population shrunk 4%, though it's still the fifth-largest in the market at 300 full-time builders. "Crypto is much more than Bitcoin from a developer perspective," said Avichal Garg, co-founder of Electric Capital, which invests in early stage crypto and fintech companies. "Bitcoin is like a digital commodity; it wasn't really, as a platform, designed for ease, extensibility and to build on." He added that although bitcoin may be the most decentralized network in crypto, 90% of developers are building on other blockchains. The stacks ecosystem, which is dedicated to building a smart contracts layer for DeFi, NFTs and other decentralized apps on bitcoin, saw a 20% decline in full-time developers. Why it matters for investors Developer activity is an indicator of a network's utility and potential for end users. The more developers there are — not just building the blockchain itself but, more importantly, the user applications on top of it — the more likely the blockchain is to grow and sustain a user base. Nick Hotz, vice president of research at Arca, said he sees developer activity as a leading indicator of price for that reason. Garg compared it to the early days of Apple, Google and other mega-cap tech firms we know today. "They spent so much time courting developers, because they understood that if they could get all the developers and they would have all the apps, and the apps are really the moat around the phone and the operating system," Garg said. "It's a tried-and-true thing in computing platforms — you've got to get all the developers." This is especially important as the industry is still dusting itself off from the FTX collapse, with many hoping for a new era of crypto innovation and investment driven by utility and real-world use cases rather than price speculation. For comparison, Amazon had about 36,000 developers employed at this time last year, and Goldman Sachs had 9,000. Electric Capital didn't include comparison numbers in this year's report, and Garg noted that many large companies are cutting jobs by, in some cases, the same amount that some of these crypto networks are growing their developer bases. Bitcoin in perspective In 2022, the price of bitcoin fell about 64% and in recent years some investors have become critical of cryptocurrency as nothing more than an asset to buy and watch through its price fluctuations. It would be easy to conclude that those things pushed developers away from bitcoin. Both Garg and Hotz implied that the 4% drop in developers over the past year could look like a blip in the near future. "These are really strong numbers," Hotz said. "Single-digit losses or single-digit gains, relative to a large percent drop over the course of the year in price shows that people are sticking around." Garg similarly said of the developer decline that, more than a year into the current bear market, flat performance numbers are "pretty amazing." He also expects to see that growth go "vertical again" in the next upcycle, noting a similar flat trend in the previous crypto winter in 2018. "These numbers are not as sensitive as price on the downside. When the price moves up, a bunch of new developers come in" and often end up being retained, he said. "It's easy to unwind a trade. ... Unwinding a career decision is really hard."