Despite Bitcoin’s popularity, a third of the cryptocurrency in circulation is controlled by just 10,000 individual investors. This data was revealed in a study by the National Bureau of Economic Research (NBER).
However, it is difficult to determine which people is in the hands of this large concentration of assets. That’s because the biggest addresses do not represent individuals, but exchanges and institutions that hold digital currency on behalf of other investors.
Part of Bitcoin addresses may belong to the same investor group.Source: Aleksi Raisa/Unsplash/Reproduction
Using a data collection method that differentiated between intermediary and individual addresses, the NBER found a group that controlled 5.5 million Bitcoin in 2020. This year, the number was updated to about 8.5 million cryptocurrencies.
What’s more, the top 1,000 individual investors control around 3 million Bitcoin. According to the study, the concentration of digital currency may be even greater.
“This measure of accumulation is probably an understatement, as we cannot rule out that some of the largest addresses are controlled by the same institution,” the researchers reveal to Bloomberg.
Variation in the price of cryptocurrency raises the possibility of an attack on the Bitcoin network.Source: Executium/Unsplash/Playback
The Dangers of Bitcoin Concentration
The centralization of Bitcoin mining runs even deeper. According to the NBER, the top 10% of miners control 90% of the mining capacity, and only 0.1% (about 50 miners) control 50% of the total capacity.
Thus, the high accumulation of assets makes the network vulnerable to a 51% chance of attacks. For example, a single user could take control of most cryptocurrency mining operations.
“This ecosystem is still dominated by major players, be they miners, cryptocurrency owners or exchanges. This makes the currency susceptible to systemic risk and implies that most gains from future adoption will fall disproportionately for a small set of participants,” the researchers explain.