NBER study: Bitcoin’s still concentrated in a few hands

    28 Oct 2021
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    According to a study by the National Bureau of Economic Research (NBER), the top 10,000 individual investors in Bitcoin control about one-third of the cryptocurrency in circulation. Despite the growing popularity of Bitcoin, its ownership is still concentrated in just a few hands, the Time reported.

    Usually, it is difficult to determine the concentration of ownership, as many of the largest wallets don’t often represent individuals but exchanges and other entities that hold Bitcoin on behalf of other investors.

    Nevertheless, by using a data collection method that differentiated between addresses belonging to intermediaries and individuals, NBER researchers have found the first controlled about 5.5 million Bitcoin at the end of 2020, while the second controlled about 8.5 million. In addition, the top 1,000 individual investors controlled about 3 million, while the concentration could be even greater.

    “This measurement of concentration most likely is an understatement,” wrote researchers Antoinette Schoar and Igor Makarov. “Since we cannot rule out that some of the largest addresses are controlled by the same entity.”

    For example, the data did not assign the ownership of early Bitcoins held in about 20,000 addresses to one individual (Satoshi Nakamoto) and considered them as belonging to 20,000 different users.

    NBER data show that the concentration of miners is even more solid. Researchers found that the top 10% of miners control 90% of the Bitcoin mining capacity, while just 0.1% (about 50 miners) control 50% of the mining capacity. It could make the Bitcoin network vulnerable to a ‘51% attack’, where a colluding set of miners or one miner is able to take control of a majority of the network.

    Also, NBER found the concentration decreases following sharp increases in the Bitcoin price, meaning the probability the network is vulnerable to a ‘51% attack’ is higher when Bitcoin’s price drops steeply.

    “Our results suggest that despite the significant attention that Bitcoin has received over the last few years, the Bitcoin ecosystem is still dominated by large and concentrated players, be it large miners, Bitcoin holders or exchanges,” the researchers concluded. “This inherent concentration makes Bitcoin susceptible to systemic risk and also implies that the majority of the gains from further adoption are likely to fall disproportionately to a small set of participants.”

    As reported before, Twitter and Square CEO Jack Dorsey wants to build a single system that can improve accessibility to Bitcoin mining and further decentralize the BTC network. By his words, this new Bitcoin mining system would be ‘more decentralized’ and accessible to individuals and businesses around the world.

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