Another Research On Bitcoin Concentration Omits Important Details
Bitcoin (BTC) is still concentrated in just "a few hands," with the top 10,000 individual holders controlling one-third of the circulating coins, a widely reported research paper claims. However, members of the Bitcoin community stress that the research is misleading.
According to the paper, written by two researchers at the National Bureau of Economic Research (NBER), an American private nonprofit research organization, the Bitcoin ecosystem is “still dominated by large and concentrated players, be it large miners, bitcoin holders or exchanges.”
“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,” NBER’s paper said.
The research was also reported on by Bloomberg, which on Twitter said that “The top 1,000 individual investors control about 3 million bitcoins, and the concentration could be even greater.”
Responding to these claims, Nic Carter, co-founder of Coin Metrics and founding partner of Castle Island Ventures, moved to debunk the notion that BTC holdings are as concentrated today as they were in Bitcoin’s infancy.
“Look at the growing number of addresses with x amount of bitcoin and [its] undeniable supply is getting more dispersed,” Carter said, noting that “the distribution of supply by address size” shows that smaller addresses are gaining a larger share of the overall coin supply.
After Carter added his debunking of the article, Bloomberg’s original tweet was deleted, before it was later posted again without the comments from Carter and many other arguments, showing that the research is misleading.
Still, other members of the community did point out the same, with one user saying “Biased article. Failed to mention the trend of redistribution.” On the same note, another user said the “FUD machine is starting the engines again.”
Meanwhile, Carter’s view also echoed research from on-chain analytics firm Glassnode from earlier this year which said that rather than claims that “2% of accounts” own 95% of all the BTC in circulation, the number was actually closer to 71%.
Back then, the finding led Glassnode’s co-founder and Chief Technology Officer Rafael Schultze-Kraft to claim that “BTC ownership is much less concentrated than often reported,” adding that the report also proved that it has in fact “dispersed over time.”
Moreover, the claims that the vast majority of bitcoins are concentrated in just a few hands should not be surprising to the world of traditional finance.
For instance, CNBC reported just last week that the wealthiest 10% of people in the US own 89% of all US-listed stocks held by households, while noting that the number “highlights the stock market’s role in increasing wealth inequality.”
“The top 1% own a lot of stock, the rest of us own a little,” Steven Rosenthal, senior fellow at the Urban-Brookings Tax Policy Center, told CNBC at the time.
Meanwhile, the research by the NBER also noted that the concentration of miners is even more profound, and that the top 10% of miners control 90% of the Bitcoin mining capacity, and just 0.1% (about 50 miners) control 50% of mining capacity.
The researchers claim that the concentration of miners makes Bitcoin being “susceptible to a 51% attack.”
Data provided by Bitcoin mining pool BTC.com shows that, in the past 3 days, eight pools (with more than 5% of the hashrate each) controlled 91% of the Bitcoin hashrate, or the computational power of the network. And while some of them are controlled by the same owners, miners compete with each other.
Bitcoin mining pool distribution in the past 3 days:
Moreover, after China cracked down on local BTC miners earlier this year, the global hashrate is now better distributed across the world.
And while, in theory, BTC miners could coordinate a 51% attack, it would be extremely difficult and costly. For example, per crypto51.app's theoretical calculations, one hour of such an attack on the Bitcoin network would cost almost USD 2.7m. Moreover, while this type of attack might undermine confidence in the network, hurting the miners themselves, it basically just allows double-spending, but it doesn't allow the attacker to steal everyone's coins.
Watch Bitcoin educator Andreas Antonopoulos discussing a possibility of a 51% attack: