.01% of Bitcoin holders hold 27% of all Bitcoin
twitter.com
twitter.com
It'd be like counting JPMorgan as a single person when computing wealth inequality in the US. Analyses like these are a total joke.
Would you trust an exchange name "Uncle Vlad's Russki Crypto Exchange"? Probably not, right? Because if they take your money, and you call the Russian version of the FBI, they'll just laugh at you. So you think your money is safer in a crypto exchange where the founders would be arrested if they blatantly stole your money...
People seem to conflate "it works like physical cash but it's electronic" with "no banks no laws no regulation" when its very obvious that banks and governance are still necessary.
And additionally you might have coins that haven’t moved in 8 years that is considered lost but i just haven’t had a reason to move them. Im sure someone could come up with a decent methodology for figuring this out but this isn’t it.
Just because verbal agreements worked for thousands of years doesn't make written contracts pointless.
Similarly the banking industry technically does "online banking" but they still have to process each transaction through archaic practices that mimic physical transactions.
Crypto adoption does not need to be a binary decision, and crypto enthusiasts are not hypocrites if they still have a bank account or if they still use exchanges when it suits them.
The important thing about crypto is optionality. Crypto/web3 gives us the option (but not the obligation) of managing our own wealth. This is something that "digital natives" understand better than old timers.
Before crypto/web3 one couldn't manage one's own wealth? C'mon.
Alternatively: go apply for a mortgage if you have 80% for a down payment, a way to prove the legitimacy of the funds, but little-to-no credit history.
We're talking about taking out a loan where you don't have 100% of the amount in advance.
You could lose your job, your business could go south, you could ditch for another country and never use whatever bank account or wallet you had your downpayment in again, all those things that are basically currency-independent. Breaking a contract is a people issue, turning paperwork into "smart" code doesn't actually tie a chain around someone's ankle, and it certainly doesn't guarantee their future income.
This is not what I said. Willing to put 80% on down payment does not mean not having ways to pay things in full.
- You might have the cash, but not interested in becoming totally illiquid.
- You might be interested in getting a mortgage for the tax deductions.
- You might have only the cash the downpayment, but use another property that you already own as collateral.
- You might have only the cash for the downpayment, but you are going to buy the house to rent it.
Point is, with "traditional" finance, you can only do these things if you are negotiating the whole package with the same bank, and this is how they "get" you. If people could actually manage their own wealth, there would be no strings attached.
And let's not even get into the other kinds of issues such as bank's "rules" that seem totally reasonable but end up making the life of marginalized groups more difficult.
In the "all I've got is a million bucks in gold I stole from a vault and can't show a paper trail" case: I don't care. Not a valuable use case for me. That reason alone doesn't move the needle on crypto for me.
In other cases: seems like you're gonna have an easy time getting a loan. lending to people who don't need it is the easiest sort of loan to make.
(In most of these cases, e.g. multiple properties or non-liquid assets, I'm not sure why I want to put down more collateral anyway...)
Edit: you added something about how with traditional banks you have to do it all-or-nothing with a single bank and that's how they "get" you. I'm not sure how anyone's being "gotten," especially in recent times where rate competition has resulted in cheaper money than ever before. But it's also not true in most of the cases you outlined. If you have multiple sorts of assets that you want to borrow against instead of securing the loan with the property itself, you can take out a bunch of other loans on those other assets and pay cash for the property.
Then you bring up historically marginalized communities and such... If you could sell me on the benefits for most of the folks in the world, people who may only have 5% down compared to a traditional bank... that would be a different convo, but "additional ways for people with assets to borrow money" doesn't sound so interesting, as it is.
> What does crypto get you in most of those cases?
Speed and reduced operational costs, for one. If I wanted, I could get a collaterized loan on DeFI and have the money on my bank account faster than it would take me to fill the bank load application form.
Most importantly, it gets disintermediation: a bank might be interested in selling a loan if it has some level of profitability. In DeFI, anyone can be a bank, so the market tends to be a lot more open and competitive.
> In most of these cases, e.g. multiple properties or non-liquid assets, I'm not sure why I want to put down more collateral anyway...
Because, e.g, you've done the math and you realized that you don't want to pay more interested that is needed?
> If you could sell me on the benefits for most of the folks in the world, people who may only have 5% down compared to a traditional bank
Sure: https://trustlines.network/ TL;DR: it's a system where people can create distributed credit lines, local currencies (for use in impoverished communities that have no money but still need to have a credit rating mechanism) and so on. People could do this with community banks and credit co-ops, but it would be extremely difficult to have, e.g, such a system being capitalized by someone outside of the community. With Trustlines, you can have people in rich countries contributing for the system without middlemen like in a standard micro-credit alternative.
Re: the Trustlines thing - from a scan of the website, what does crypto bring that one of the non-crypto implementations of "help do microlending in developing countries" from 10 years ago couldn't do? When I looked at that back then, reading people's stories, what they said they wanted to do with the money, etc, was all manual and, of course.
If you secured it against artwork, for instance, that might've already been shipped to another country.
(As an aside, I would be all in favor of expanding the court system so stall tactics are less effective.)
Currently, yes. But even if we stayed only in the digital realm, isn't that already a huge improvement over the status quo? I can borrow and lend money quickly, without leaving my home. If someone has artwork to use as collateral, they can go to a pawn shop (or call it whatever fancier term there is for it), get the cash and use that to buy crypto tokens. No banks involved.
The “ease of access” of crypto loans is not really as big as you think - any lender will happily give you an instant “loan” if you front 150% of the collateral.
Its, infact, a wildly inefficient use of capital. Imagine if the rest of the lending industry worked on that premise - would you get a loan for your house if you had to first front 150% of the price of the house to your bank?
Currently, we have only "capital-for-capital" collateral, but there is nothing stopping to have some other types of products in the future. One can envision smart contracts that control future revenue (e.g, a blockchain-based subscription service) and we could put that for collateral.
The point is that for the loans that are possible to do on the blockchain, they can be done without middlemen. We can take a blockchain-based systems and work to make them more efficient. We can not take traditional finance systems and make them more open or without middlemen.
In your example of a blockchain based subscription service used as a collateral, revenues would likely accrue in some native token. Which will likely be volatile. So you have to first settle on a volatility range. Then you have to settle on a fair market multiple for the asset. Do you go with 30x MRR? And is this MRR on the token’s current price, twap?
I’ve seen so many projects try to get loans against NFTs right and even most of them struggle to do it with the “blue chip” NFTs.
At some point, you have to ask if the middlemen in the current system exist for a reason. Perhaps the system organizes itself in this fashion - repeatedly throughout history - because offers some efficiencies and safeguards that are not worth completely discarding.
Its a flawed system of course. But the crypto system is arguably even worse for 95% of assets on the planet.
> the system organizes itself (...) because it offers some efficiencies and safeguards that are not worth completely discarding.
NO SANE PERSON WANTS TO COMPLETELY DISCARD THE EXISTING SYSTEM!
When the existing system works, it is great. They offer the best balance of cost/efficiency we have. They are not perfect but they are still around for a reason. The fact that established, tried-and-true institutions exist is not the problem. The problem is when the existing systems don't work. When we are dealing with corrupt institutions, or when the system was designed to serve the 95% of the cases and leave the remaining 5% out of it.
Crypto/Web3 is about optionality. It's about creating an alternative that can work without the institutions (even if not as efficiently) because at one point or another the institutions will fail, and we will wish to have something else, even if not as efficient.
You can stay all day talking about all the alternatives that have failed already, and I'd very likely agree with you. This does not mean that the pursuit is futile. Sometimes I think it's akin to the history of flight. 150 years ago, most people would say that flying was impossible. It took decades of varied attempts and approaches until we got to something that resembled the airplane. Today flying is a mundane experience, yet, no one (reasonably) expects to substitute flying for all the other existing methods of transportation.
But after 2 years deep in the crypto hole, its very clear to me that there are some serious flaws in the current crypto system that is going to severely limit its growth.
The first is crypto's complete inability to self-regulate itself. You can launch a scam, wait a week, then launch another and people will still ape into it.
The second is the wildly unequal distribution of resources. Latecomers to any party are penalized, but in crypto's case, the penalty is too vast. People who bought Ethereum at $2 or Bitcoin at $10 are going to relentless dump on you when the market unwinds.
No knock on these people who bought early, but if you're going to try and create a newer, fairer system, you can't start with a foundation that's even more unequal than our current one. Anyone who buys into the crypto system in 2022 is already at a massive disadvantage and the system fails to take off. The collapse in prices in bear markets is good indication.
The third is speculators. Again, that's the nature of the market but speculators kill any crypto project. GameFi, for instance, doesn't work because speculators pump up token prices without actually participating in the game, putting actual players at a massive disadvantage. The initial cost for even playing the game become so high that you literally need "scholarships" to play it. And you're forced to play much more than you would just to recoup your initial costs (like with StepN currently - starting capital is like $1k just to buy digital shoes to play).
Crypto works beautifully well if all assets are on-chain. I would love a world where I can fractionalize my home and offer a yield to token holders based on the rental my home generates. But for that to happen, there will have to be some form of "trust on-ramp", and that requires a) regulation, and b) a fairer distribution of starting resources so that new participants aren't penalized that heavily.
Personally, I've also seen very little innovation and actual usage in DeFi. The biggest protocols by TVL are several years old (AAVE, MKR, CRV, COMP). And most of them offer plain vanilla overcollateralized loans. And in bear markets, usage drops drastsically
This is a very promising space but with huge, huge flaws that are killing adoption.
Seems like you don't understand my frustration at all.
I don't care about revolutions. I don't want disruptions. I want alternatives that can (at least) be viable for the current global systems. I want people to have the option to adopt something that can work for their situation without forcing them into a Procrustean Bed. I want to have more tools at the disposal of societies that can help them establish effective checks and balances.
> Personally, I've also seen very little innovation and actual usage.
You know what is funny? The same thing can be said about the Free Software movement. Detractors of FOSS love to point out that most open source projects are just copycats of the then-established projects. Plenty of people (even here very highly skilled people on Hacker News) will say that they have no interest in using Linux on the Desktop because it is not "convenient" for them.
Still, I don't care about the "lack of adoption". I don't need to convert the majority of people in order to have FOSS working for me.
Crypto “loans” are just loans against existing assets and are all collateralized heavily - 150% is the standard.
There is still absolutely no way to get a real loan with crypto so far - one where you actually borrow more than you have.
I am talking about only the first one. The problems with banks is that they are intermediaries between you and your money.
> Try to get a loan in crypto with 80% collateral and then we can talk
First: a mortgage is overcollaterized. A bank will take the whole house from you if you default, not just what is due. They are taking your downpayment and effectively keeping control over the property.
Second: that is not even the point. The point is that a bank will not give you a mortgage even if you are good for it. Why, because they don't have proper systems in place to assess risk?
Yeah, sure, undercollaterized loans require a system that both parties can agree on and that can solved in case of breach of aggreement. IOW, it is not a trustless system. So it would not happen on the blockchain.
But you know what could happen on the blockchain? I could make a loan with someone I know using the current institutions, add that to my funds to get a overcollaterized loan and then I still don't need a bank. To go back to my first comment on this thread, adoption of crypto does not imply an all-or-nothing approach.
I can be a "web3 enthusiast" and still make use of the current institutions when they suit me. It's the increased optionality that interests me.
Uh, no. They are required by law to sell the property at a balance between timeliness and recovery of owed monies. And they are required to return to the mortgagee funds in excess of what was owed.
You might be able to transfer bitcoins from valet to valet, but they will be effectively useless, if banks stop releasing cash, cash will be the most valuable commodity, not digital bits. Furthermore, during the 90's (the really crazy times) in Russia many were doing bond trading just fine without any issues and without internet, this not some story, it happens so I met a few survivors from that time.
On another hand, the only useful thing I find for bitcoin that is "legal" is contributing to sci-hub projects, nothing else, for this reason and other reasons such as drugs and money laundering, bitcoin is here to stay.
The divide is along the line of "how much of each individual's portfolio is on a CEX?". I can have 10% of my crypto holdings (for occasional trading or on/off ramping) on an exchange and the rest on my own wallet (for DeFI).
You can not do that on a bank. If you think a bank is in trouble, you can only move your funds to another bank. If one exchange starts acting up, its users will learn how to move more to their own wallet. It is not a random example: go to /r/loopringorg and see all the screenshots of the people who finally learn how to use the Loopring protocol/wallet and taking their holdings from Coinbase. Now imagine if there were rumors that an exchange would start unilaterally trying to control what users could do? They would lose their customers. They are centralized, but the balance of power is in favor of the us users because we have options.
or to land, or to gold, or to stocks, or to bonds, or to foreign assets, or to cash, or to guns, or to Pokemon cards... all sorts of "not in a bank" options are available. Banks have competition with not just other banks but the whole financial ecosystem. And if a government is after you, some of those are actually harder to trace than crypto.
Holding cash can lead a whole community to what happened in India.
Guns are not liquid.
Pokemon cards are easy to be counterfeit.
> This is obviously going to ...
> Analyses like these are a total joke.
Why is this obviously so? Watching the video, one realises that they refer to a WSJ article that is based on a 2021 NBER paper [1].
Do you think that the NBER, London School of Economics, and MIT harbour idiots that have not heard of exchanges?
On page 5 of the paper:
"Determining the concentration of ownership is more complicated than just tracking the holdings of the richest addresses, since many of the largest addresses belong to cold wallets of exchanges and online wallets, which hold Bitcoin on behalf of many investors. We develop a suite of algorithms based on graph analysis to classify addresses into those belonging to individual investors or those belonging to intermediaries. [...]
We show that the balances held at intermediaries have been steadily increasing since 2014. By the end of 2020 it is equal to 5.5 million bitcoins, roughly one-third of Bitcoin in circulation. In contrast, individual investors collectively control 8.5 million bitcoins by the end of 2020. The individual holdings are still highly concentrated: the top 1000 investors control about 3 million BTC and the top 10,000 investors own around 5 million bitcoins."
[1] https://www.nber.org/papers/w29396
[meta note: had to revise this post several times before posting to comply with HN guidelines.]
I see no support for the headline number in this paper. What it appears that the people making this video did was take "1000 individuals" (which the paper defines as clusters of wallets) and divide by 68 million wallets in existence. What you actually get here when you do this is 0.001% vs 16%, which is reasonably close to the figured cited in the video, so is likely essentialy the calculation they did.
It should be obvious how absurd this is.
EDIT: Hah, actually the exact calculation they did is 10k/68mm and 5mm/18mm. That gives you exactly 0.01% and 27%. Discrepancy resolved. This is the exact ludicrious calculation the people in this video did.
https://www.thetimes.co.uk/article/craig-wright-i-invented-b...
Also, they are a way to fund criminal activity, of which ransomware is just one example.
Cryptocurrencies are barely used for legitimate payments. They are mostly used for speculation (gambling).
It's just bad news. Not the liberation we have been waiting for.
The crux of Bitcoins is that its value is derived from people's belief in its value. Lot's of assets and to an extent fiat moneys work this way. The "magic" of bitcoin et.al. is that they are finite, have clear chain of custody, and can be traded peer to peer. Those features can and do inspire confidence, but at the end of the day these coins have limited real world utility outside of money transfers and holding wealth. Those uses are directly tied to the faith of the market for those coins.
If someone asked me if they should buy and hold these coins, I would say no. However, speculation is somewhat in the eye of the beholder and turns on the risk of losing the investment. It's nearly impossible to predict future changes in asset prices, especially when an asset has been steadily increasing in value for years, but has a limited history.
TL;DR you're misusing the phrase "Ponzi scheme" which means something else.
brave, but .. fail. The crux of BTC is that it is secure to attacks while moving assets that are represented digitally. In order to succeed in that, the integrity of the chain is required. Popularism is a "nice to have."
p > “assets that are represented digitally”
Those seem equivalent to me.
Assets whose value is derived from peoples' belief in their future value.
A perfectly secure chain moving around assets that no one values isn't very interesting.
Yes, most people (even kids!) now use cryptocurrencies for speculation. Which is just a lottery in disguise, except now it funds criminal activity and harms the climate. And the winners somehow have bragging rights which means more advertising. This is a very sad development.
Yes, incorrectly. It does nothing to clarify the topic and obscures the risks of actual Ponzi schemes.
> harms the climate
This seems dubious at best. It seems like a lot of mining is happening on hydro and solar power, and only shifts to carbon intensive electricity when the price is booming.
You're still warming the planet. And total energy use is so large that even carbon intensive part is significant.
And military engines delete emission controls.
But that is also a characteristic of crypto. You cannot buy anything for crypto without exchanging it for fiat, and for that you need a new investor to give you fiat for your cryptos. If all exchanges (incl. informal ones) close tomorrow, any crypto you hold is worthless.
Now, you could say that the same holds true for shares or real estate. But that is wrong. You can hold shares you bought ad infinitum, even if all stock exchanges close tomorrow, and would still receive your money's worth (approximately) in the form of dividends of the underlying company, or proceeds from the sale of said company, without ever selling those shares. You can live in a house or rent it out, and get your money's worth, without ever selling the house to someone else.
I don't see how you can get your money's worth with crypto without ever selling it to someone else.
Which is a characteristic it shares with fiat currency. Of course, fiat currency has people with guns making you accept it as payments for debts.
Colorado is different. https://thehill.com/changing-america/resilience/smart-cities...
Most of gold's value is because it's perceived as valuable. The industrial uses, etc, are small. Jewelry is a way to flaunt this value as ornamentation.
It is however not possible to send physical gold over the internet. Gold is also difficult to verify. You'll probably need to rely on a broker/shop and their tools to test if it's real. Bitcoin is relatively easy to verify with software anyone can download for free.
And yet here they are uncritically repeating the claims of known plagiarist and con artist Craig Wright.
While this isn’t without its downsides (though see Yanis Varoufakis on CBDCs [1]), the gains from it are socialized.
By contrast, an enormous percentage of bitcoin and all other major cryptocurrencies was mined (or worse, “premined”) in the first few years after launch. What nation of people benefits from this form of inequity? Cryptocurrency is entirely nationless.
[1]: https://the-crypto-syllabus.com/yanis-varoufakis-on-techno-f...
Sure it was. Definitely not the only selling point, but there is a ton of drivel out there about how it is supposed to liberate us from the big bad banks (banks are now replaced by Coinbase et al) How something that's supposed to be decentralized, consensus-based, not prone to manipulation by the greedy corporations, greedy individuals and governments is now actually turning out to be something else. And it even has some real equality-related use cases like wiring remittances to Argentina, or the failed El Salvador experiment. But overall trending in the opposite direction to equality.
Ultimately, I agree with your assessment of the research avenue as a straw man.
The genesis block of Bitcoin disagrees with you completely.
Wall Street is having a bonanza with crypto. It's normalized the plundering of retail investors to a level not seen in a century.
In Bitcoin (fixed supply cap) that part is very very different.
One big difference is that fiat/political money (political because political decisions decide how money is created and spent first before it inflates and arrives to the rest of the population).
Like El Salvador: they use the Dollar. But do they get some of the newly (for free) created trillions? Or do they only see the consequence of that money, meaning seeing their money inflated away… their part of the pie stays constant while the rest of the pie got inflated/bigger.
[1]: just google “cantillon effect”. It is interesting (the power is not only in the hands of the money holders but also in the political decision makers and those who have good relationships with them… a bit like it used to be with religion and the state… but now still with money and the state)
I hasten to add that BTC currently experiences money supply growth of 1.7% p.a. (though of course BTC inflation has approached 100% in the last half year).
Actually, cryptocurrency is almost two orders of magnitude more unequal. The top 1% owns 38.5% of the wealth: https://en.wikipedia.org/wiki/Wealth_inequality_in_the_Unite..., compared with the top 0.01% of bitcoin owners.
Regarding the number of holders, the paper says: "While the original database has 896 million addresses, after we remove addresses in peeling chains we end up with 640 million addresses. Theses addresses belong to 189 million clusters, of which 116 million clusters are single-address clusters."
Not sure where the number of 68 million wallets comes from. Taking 189m as the number of holders, we'd have 0.005% of BTC holders holding 27% of all BTC. But even we take that 68m "wallet" number, and assume that each holder controlled multiple wallets, say 10 on average, we'd have 6.8m holders, and then 0.15% of holders controlling about 27% of BTC. Still enormous concentration.
More from the paper: "It is also important to note that this measurement of concentration most likely is an understatement since we cannot rule out that some of the largest addresses are controlled by the same entity. In particular, in the above calculations, we do not assign the ownership of early bitcoins, which are held in about 20,000 addresses, to one person (Satoshi Nakamoto) but consider them as belonging to 20,000 different individuals."
Another interesting part of the paper: "To the best of our knowledge, we have the most complete information about crypto entities that have been used in academic research up to this point. Our data cover 1,043 different entities. These include 393 exchanges, 86 gambling sites, 39 on-line wallets, 33 payment processors, 63 mining pools, 35 scammers, 227 ransomware attackers, 151 dark net market places and illegal services."
I do have criticisms of the paper, but those are milder. They are inherent limitations of the methodology, which the authors seem to recognize. The headline in this HN post is not remotely a fair representation of anything whatsoever in the paper.
> Not sure where the number of 68 million wallets comes from. Taking 189m as the number of holders, we'd have 0.005% of BTC holders holding 27% of all BTC. But even we take that 68m "wallet" number, and assume that each holder controlled multiple wallets, say 10 on average, we'd have 6.8m holders, and then 0.15% of holders controlling about 27% of BTC. Still enormous concentration.
The 68 million number comes from here: https://www.statista.com/statistics/647374/worldwide-blockch... and when you use these figures with the ones from the paper, the results line up exactly with the headline here.
If you do the divisions I think it's pretty clear that the video divided 10k/68m and 5m/18m, which is completely illegitimate, considering the paper is discussing "clusters" of wallets.
As for your analysis, i'm not really sure what manipulation you're doing there. There is no coherent way to adjust for the number of wallets owned by an individual, because you don't know the composition of that ownership. Unless you can identify who owns which groups of wallets, you can't back out wealth inequality here under the assumption of multiple wallet ownership. That's exactly why the paper tries to do this clustering analysis that it does. Its purpose is to group wallets presumed to be owned by one person.
> More from the paper: "It is also important to note that this measurement of concentration most likely is an understatement since we cannot rule out that some of the largest addresses are controlled by the same entity. In particular, in the above calculations, we do not assign the ownership of early bitcoins, which are held in about 20,000 addresses, to one person (Satoshi Nakamoto) but consider them as belonging to 20,000 different individuals."
This cuts both ways, though. It may be that a huge number of the low balance wallets are duplicates controlled by individuals as well. People that programmatically created wallets, e.g. for the purpose of anonymization, and left tiny bits of dust in them. They aren't filtering by low balance in any way I can observe.
> Another interesting part of the paper: "To the best of our knowledge, we have the most complete information about crypto entities that have been used in academic research up to this point. Our data cover 1,043 different entities. These include 393 exchanges, 86 gambling sites, 39 on-line wallets, 33 payment processors, 63 mining pools, 35 scammers, 227 ransomware attackers, 151 dark net market places and illegal services."
I'm sure this is all true, and i'm sure it is the most complete academic dataset used to date. That doesn't really mean it is complete though. Note that they enumerate an impressive list of entities, but we have no idea how complete their coverage of those entity's wallets is. And as someone that has done this kind of analysis, I do not trust academic econometricians just trying to publish their next paper to do a good job of it. Chainalysis is hard and inherently quite fuzzy. It's also an adversarial environment, intermediaries often intentionally try to mask their activity, as do individuals.
Let's look at the actual content of their methodology, though in the paragraph directly above:
> To link address clusters to real entities we scrape cryptocurrency blogs and websites, such as Reddit, Blockchain.info, bitinfocharts.com, bitcointalk.org, walletexplorer.com, and Matbea.com for all publicly available addresses of prominent Bitcoin entities such as exchanges, payment processors, gambling sites, and others. We supplement this information with the state-of-the-art database of crypto entities from Bitfury Crystal Blockchain. Bitfury Crystal Blockchain is one of the leading providers of anti-moneylaundering tools and analytic solutions in the crypto space
Does this sound comprehensive to you? The only wildcard here is this "Bitfury" thing which i've certainly never heard of, but we can quickly look at their customers page to get a gauge of how serious they are:
https://crystalblockchain.com/due-diligence-tool-for-crypto-...
Everyone on that list i've also never heard of. There is a company that dominates this space, and it's https://www.chainalysis.com/ Compare Chainalysis's customer list to Bitfury's. Every name on there is a serious entity that you've probably heard of.
Why aren't they using data from Chainalysis? Or data from someone else reputable? We have no insight into what "Bitfury"s methodology is, so I can't explicitly critique it, but there are really good reasons to be very suspiciuos of its quality.
Finally, I note that they make no mention of mixers or contracts like WBTC, which can hold enormous quantities of coins, and can also create tons of fragmentation in the address space, which is very likely to significantly frustrate any clustering based methodology or naive chainalysis attempt.
If you operate in this industry and haven’t heard of Bitfury, you may have less of a grasp of the landscape than you think. It was created by some of the main insiders and has employed many former government officials. I would have a rethink of my authoritative stance if I were you.
From everything I know about crypto, the linked paper checks out. A lot of people discuss these issues — I think Vitalik recently lamented that cryptocurrencies seem to devolve into feudal dollars.
Employing government officials is not an index of seriousness. I should have been more clear, i've heard of Bitfury in the context of mining and ASICs, but I was unaware they had started a chainalysis product, and I don't take their efforts there seriously. I think the advertised customer list for this product speaks for itself.
> From everything I know about crypto, the linked paper checks out. A lot of people discuss these issues — I think Vitalik recently lamented that cryptocurrencies seem to devolve into feudal dollars.
I'm not denying that the basic idea is correct: that ownership inequality is high. It's just not as high as this headline is indicating.
Remember, the paper does not anywhere assert this 0.01% vs 27% stat. That is created by combining the paper's data on wallet clusters with crypto.com estimate of bitcoin owners. If you read the crypto.com whitepaper on how they computed this, they note that a limitation of their analysis is that they cannot count people who bought Bitcoin at one time, and have since sold it. That means that if you accept everything else about their analysis (which I don't), the denominator they're using counts literally everyone who has ever owned any non-zero fraction of a Bitcoin, ever.
Do you find it hard to believe that ~100M people hold Bitcoin? This seems at least in the right ballpark when you cross-reference it with survey data [2].
[1] https://www.wsj.com/articles/bitcoins-one-percent-controls-l...
[2] https://www.pewresearch.org/fact-tank/2021/11/11/16-of-ameri...
With this in mind - it's less surprising that the remaining 0.01% own 22%.
This isn't TOO far off of regular inequality.
IIUC, the top 0.01% globally own >12% of wealth: https://www.chicagobooth.edu/review/never-mind-1-percent-let...
Given that crypto had such absurd hyper growth - I'm actually shocked inequality isn't far worse.
Not idiots, just people who want to publish something that will turn into a juicy headline, and don't care much about how closely it aligns with reality.
I've seen a lot of dumb takes coming out of people from LSE, and as such will have to say "yes".
(Haven't read the study but am not surprised by the conclusion)
From the perspective of btc, not your keys not your coins still applies and those coins belong to the custodian wallet, not to WBTC holders.
- A single address might be a contract like WETH, which can hold tens of billions of dollars worth of tokens despite all users in the network having access to it. Similar with centralized exchanges holding many tokens. Addresses are not users.
- This metric often confuses “inequality of interest” with “inequality of wealth.” A user holding $10,000 of ETH and another user holding $100 of ETH may be in similar fiat-wealth brackets, but one is more interested & invested in crypto than the other.
- It is very easy to spin up a new wallet as it’s effectively just a random unique number. A single user might have 10-20 wallets with almost-zero tokens leftover, and all of their assets concentrated on one or two accounts, which further skews this stat.
- A number of tokens in the network are inaccessible due to being locked in a contract or sent to a burn address. The standard ETH burn address has $250M worth of tokens.
There is a lot of crypto disparity and inequality but this stat at face value is fairly meaningless.
Almost all of your points apply to non-crypto as well, but nobody is denying wealth inequality there.
But claims that crypto networks display 100x more wealth inequality is not supported by this statistic, and articles should not be basing their arguments on this stat without understanding the implications.
Mmmmhmmmm. Welcome to the User-Agent problem. Unfortunately, Society will take your idea and massage it until the rest of society "safely" (to their thinking) can make that assumption.
When I was first excited for bitcoin, it was because of its revolutionary capacity for people to transact without governments and banks, and to own and control that means themselves. Well that really hasn't panned out at all.
If you buy btc, and value goes up, and you use it to "send cash" that is a gain.
What about for the duration of you keeping it in your wallet?
What are the specific figures & sources you derived this claim from? Last time I looked into this it was somewhat surpising, but there are huge problems with the methodology (e.g. assuming that 1 address = 1 person is a really broken assumption)
https://www.frontiersin.org/articles/10.3389/fbloc.2021.7301... is a good attempt, but still flawed methodology. It's latest estimate for bitcoin is gini index on wealth per account at ~0.45
Which if it was a country would make it one of the least high in terms of wealth inequality which is hard to believe.
https://en.wikipedia.org/wiki/List_of_countries_by_wealth_in...
This has panned out. This is the exact reality of crypto right now. It has nothing to do with inequality whatsoever. Solving inequality has not panned out, but it was never expected to, nor possible.
Which metric are you referring to?
The authors of the paper on which the statement is based are fully aware and address most of issues you enumerate.
See my other comment.
The paper does point to the fact that holdings are skewed; 400,000 individuals control almost half of the circulating supply, so—like with the stock market—a very small handful of players stand to benefit if the price continues to appreciate significantly. This is particularly a problem for crypto currencies like Bitcoin that have a fixed supply capacity and are primarily used as a store of value. (Disclaimer: I own no BTC and feel it has inherent problems.)
Another study comparing Bitcoin, Ethereum and other coins to real world Gini coefficients finds similar results: that a small number of addresses hold a significant sum of tokens, but that overall wealth distribution in crypto currencies is often in-line with that of real economies.[1] The idea that crypto holdings mirror the wealth inequality of real economies is hardly surprising considering this is where the investors are coming from.
Two more interesting points raised by [1] worth noting:
> Results from both Bitcoin-like and Ethereum-like cryptocurrencies suggest that the wealth distribution is initially poor likely due to only a select few participants controlling the majority of the wealth. But this concentration often dissipates as more participants join the system, as observed in Bitcoin and Ethereum.
> Bitcoin-like coins often have capped supply, i.e., the number of these coins are algorithmically limited to a predefined quantity to provide intrinsic value to the asset. Ethereum, on the other hand, does not impose a strict limit on the supply of Ethers. ... Thus the figures reported in this subsection will likely change significantly over time, unlike Bitcoin-like currencies in which a large proportion of wealth is already distributed.
[1] https://ulir.ul.ie/bitstream/handle/10344/11073/Sai_2021_Cha...
Beyond that, bitcoin wasn't designed to "decentralize wealth and power", it is a disingenuous claim made by an agenda poster. Bitcoin was created to take a step towards a future where economic power is not synonymous with political power. The natural distribution of wealth is not at issue, so long as it's just that: natural.
From the ground, so long as nobody with political power influences the distribution of wealth and it flows with the market it is a natural distribution.
Unless some people are somehow worth less than others, which would be an interesting assertion to make.
There are those that argue that correlation between economic and political power is natural, and in a world where you can buy guns, that's somewhat true. But the creation of an artificial peaceful political system occurs in part to decorrelate the two. Money should buy you trinkets, political power should be democratized, at least if you believe in governments.
In the bitcoin world ownership is lot more concentrated than in the real world, which makes truly decentralizing anything else hard if not impossible.
A currency entirely owned by one person isn't a currency, and people actually using it causes dispersal to a naturally occurring Pareto distribution over time.
If you see how actual physical cash [2] i.e. dollar bills ownership then it won’t be distributed in a typical Pareto curve.
If I don’t have access to notes and coins. I won’t use them so government makes sure I have access . They still will mint it even a at loss like the penny.
Also all power distributions are not Pareto distributions, bitcoin is lot steeper than the standard ones used in economics , that is what this article implies /shows in its analysis .
——
[1] including other cash equivalents like bank accounts not just literal printed money. Accounting standards has well understood definition of cash equivalents
[2] comparing against only physical cash (M0) because there is finite fixed amount of bitcoins available at any given point It is not possible to increase bitcoin M1/M2 supply like with fractional reserve banking so you cannot compare against narrow money let alone broad money(M3/M4)
Of course, once you have solved the money question you notice that it is not just money that needs to be decentralised. Everything else, housing and the land it sits on must be decentralised. CO2 emission rights must be decentralised. Resource extraction rights must be decentralised. Intellectual property must be fixed. Taxes must be decentralised. Income earning/education opportunities must be decentralised.
It is kind of funny how solving all these challenges would get you to something one could call true anarchism, yet actual anarchist movements aren't even anywhere close to solving them or consider them important enough to solve. They just change the governance model and assume that the aforementioned problems will resolve themselves once people get to organize their society in this way.
All of this would bring us closer to a free(as in freedom) market. As it stands right now, most capitalists are happy calling this broken mess a free market. You're free to choose to not be allowed to legally exist. The truth is that it is a free market as in free of cost as there are so many tax loopholes to be exploited.
I'm just saying that 'staking' in proof of stake isn't materially different than taking your Bitcoin and purchasing a share of a company that mines Bitcoin. [edit] you can always un-stake by selling your share.
Mining is a business, with real costs and logistics to fret about.
People should really stop doing the mental gymnastics to make push-button passive income generation seem extraordinarily challenging and, even more egregious, extremely equitable (“it’s _at least_ as fair as Bitcoin”).
The primary cost of staking is the initial investment in the stake, handedly.
The initial investment in the stake dwarfs the cost of even the most sophisticated staking infrastructure.
Every well known proof of stake system today was either premined, ICO’d, sold to investors in private rounds at “special” prices, or some combination of these.
Naturally, if you were autoyielding passive income by staking pos coins you had a cost basis of effectively zero in, either because you participated in an ICO, or worse, because you had the right connections, or exploited your privileged position as developer to hard code coin balances for yourself into your own ledger prior to launch, you’d _love_ proof of stake and trumpet its supposed equity and fairness in public.
In reality, the most privileged and exploitative of investors who have the lowest entry price get the highest rate of return on staking (effectively ∞ in the case of premine recipients).
To insinuate this situation is “equitable” is beyond ridiculous.
late entrants add value to networks, and some of that value accrues to early entrants. this is the same for any network. a publicly accessible ico is just as equitable as someone mining btc with their cpu on low difficulty.
once the price of the token goes up, the difference between someone who was invited there early versus found their own way in does not matter to the new adopters. the inequity is felt purely based on the token price difference rather than the security mechanic.
Fairly launched proof of work systems are a great deal more equitable than PoS premined ICO coins. This is just a fact.
> a publicly accessible ico is just as equitable as someone mining btc with their cpu on low difficulty.
No, absolutely not. Obviously someone has to get the ICO money. How on earth is that “just as equitable” as anyone in the world being able to use any old Windows computer to mine coins on demand. With proof of work, money isn’t being transferred from end users to developers, or their many Swiss foundations.
the value accrues to the network (20 million to 300 billion over the last decade or so), not the dollars that went into the ico sale. the ico dollars are a rounding error.
Anyway, the mining/staking in crypto isn't primarily about increasing wealth, it is about defending the blockchain. In this aspect, there is a huge difference between the PoW and PoS. If someone has >50% of a PoS token, there is no way to usurp their control of the blockchain unless they willingly sell their tokens. With PoW, because the mining uses a different resource (energy), it is always possible to invest more capital to usurp the control of the blockchain by creating a larger hashrate. The ownership structure of the actual PoW token doesn't really matter, because outside capital can be introduced into the system.
Buying Bitcoin miners at first requires you to spend the Bitcoin.
Mining may help you gain Bitcoin, but it doesn't much allow you to control Bitcoin.
Pos literally gives you voting power over the currency's ecosystem just by having more of it. It completely concentrates control, and then it also returns gains to those with the larger stake (more wealth in said currency).
Pretty sure you got that backward.
Those 0.01% don't have the same control over Bitcoin that the Fed has over the dollar. That is, that 0.01% wouldn't have been able to engineer the enormous inflation we have today for the dollar, but for Bitcoin.
I don't think Bitcoin is about democratizing anything, it's about maybe you don't want your share to be diluted by 2-10% every year.
But to answer your question: the same difference that there is between chance and intention, for example, the same difference that there is between someone being murdered and that person dying accidentally. This difference is very important for most people and can have direct consequences in you life.
In addition, the dollar is guaranteed to be diluted, meanwhile for Bitcoin, there's no such certainty.
People having to HODL tell themselves whatever they need to to feel confident in their so-called investment. Frankly, people that bought towards the top in Bitcoin are still massively down and that lack of certainty isn't exactly a comfort.
Besides, although I tend to think of your comment painting USD in a poor light, the USD is actually working as designed; to be nominally inflationary to encourage spending and investment in productive aspects of society and business and not to encourage hoarding. The USD is doing exactly what it's supposed to do.
Isn't this the case with almost any other asset at the moment?
> The USD is doing exactly what it's supposed to do.
The current levels of inflation weren't planned. But lowering interest rates it's so tempting and easy, and rising them so unpopular.
The US debt has bee doubling every 8-9 years in the XXI century. The current approach is not sustainable and nobody wants to be the one to stop it. I don't foresee a bright future for the dollar and I fear the day our debtors demand actual stuff for our dollars.
That is a common misconception, it seems to me. Assume a PoS scheme in which the probability that you get the reward is proportional to your share of all coins. Yes, large holders are more likely to get the reward, but if they get the reward, it basically increases their share by close to nothing. If a small holder gets the reward, they get a substantial boost. It averages out.
It is a bit like a savings account. Everyone gets X% interest a year, so the big holders get more interest than the small holders, sure. But the proportions of wealth stay constant.
If you don't have that, you can pool your ETH the same way you can pool compute for PoW.
This model unfortunately also exists in stock markets and most aspects of a capitalist society. Arguably PoS returns in crypto networks may be slightly more equitable long-term as it is not a permissioned and closed-door system (validator queues cannot discriminate based on class, race, credit score, region, and family for example).
Bitcoin did not start out being distributed to "the masses" in an even manner. It was mostly picked up by folks in the tech world who typically have excess wealth to engage in speculation. Then when it went big, you had the investor class (ie: Winklevoss types) jump into the fray.
Bitcoin, stocks, SPACs, 2nd homes... It's all the same. Stuff owned by rich people.
Regarding to bitcoin as a currency, as I read in some comment here:
1) You can't demand your money from your bank at any time given. This gives the banks the leverage to maintain and/or invest your money however they seem possible, rendering them a complete "Ponzi" machine (lending all the time in order to invest and make more money while paying out whatever you want to withdraw within calculated timelines).
2) Bitcoin can't print money as it is designed to have a fixed number of distribution. You can't inflate it. You have the capability to become your own autonomous, independent bank. With a fiat such as USD, job wages do not increase in correlation to the USD volume. This promotes poverty, inequality and is completely unethical -- regardless if that effect is intended or not. There must be a public mathematically proven metric that constitutes as a stable currency, this is what Bitcoin is trying to solve. A so-called mathematical gold.
3) Different problems arise, such as: (a) incapability for consistent day-to-day payments due to processing inefficiency, (b) early birds get the bag, (c) global warming (hi tesla).
Along with early miners
How is that controversial?
There is zero mechanism to change that reality and not an issue bitcoin was claiming to solve. Whichever frothing at the mouth enthusiast told you otherwise can just be ignored.
This is only news because people never made their own analysis after hearing someone else be excited for the wrong reasons.
I don't think that has anything to do with bitcoin or any cryptocurrency’s distribution. Its a boon, to me, that it functions like any other asset class, no reason to hold it up to fictional higher standards to discredit it.
The amount of electrocity that went into it is a bit a chafe though.
Also, these estimates of wealth distribution all suffer from the same flaw: addresses do not correspond to users.
A single address might lock the funds of thousands of people. For example, this is how exchanges operate.
A single user can control thousands of addresses or more.
It's extremely difficult to nail down how addresses relate to users. And that's by design.
It actually has mathematical meaning. For instance, if you take a single example at exactly the x percentile, that particular person gets a fair share.
For instance, if there's 100 people and it's 80-20, 20% of the people get 80% of the wealth, then the person at exactly the 80th percentile gets 1% of the total. For him specifically, it might as well be shared equally.
Tell me where that x percent gets 100-x percent equilibrium is!
If you add assets under management for all banks in the USA, you will probably get to an even more extreme distribution.
Bank of America alone has $1.55 trillion under management.
Wealth equality != fairness. Effort, sacrifice, and contribution to the well-being of society is not – and never will be – equal for everyone, so rewarding everyone equally would be inherently unfair.
yeah that makes a lot of sense
Can we infer how close we are to X% of holders having 50._% and what is X% is as an absolute number?
The point of Bitcoin is "they" cannot print more of it, they have to earn it fair and square.
You can't mine Bitcoin and Ethereum at the same time. You can't use electricity for two tasks at once.
Conservation of energy --> conservation of money.
I wonder how many of those 27% are lost.
the gene pool is too shallow. It makes them too brittle and way too susceptible to co-ordinated abuse.
The top 9/10 are exchanges so it's not too surprisingly.
No politician could write a few lines of code and grant them a one-time issuance of new coins.
No matter what percentage of coins one person, corporation, or government holds they have gained zero control over the network.
Equality of rules, not equality of wealth.
Also it is in a miner's best interest to not disrupt the system as their livelihood and profitability depend on it.
Who decides which validators are malicious?
Phone-a-friend consensus aka “weak subjectivity” doesn’t meaningfully differ from the administration of centralized Git repositories. If your blockchain requires human intervention to resolve disputes, as do all pure proof of stake implementations, you probably never needed a blockchain to begin with.
That’s a great question, and one Jude C. Nelson — who has a PhD in distributed systems from Princeton — is better equipped to answer [1] than me (or you, probably):
“PoW requires less proactive trust and coordination between community members than PoS -- and thus is better able to recover from both liveness and safety failures -- precisely because it both (1) provides a computational method for ranking fork quality, and (2) allows anyone to participate in producing a fork at any time. If the canonical chain is 51%-attacked, and the attack eventually subsides, then the canonical chain can eventually be re-established in-band by honest miners simply continuing to work on the non-attacker chain. In PoS, block-producers have no such protocol -- such a protocol cannot exist because to the rest of the network, it looks like the honest nodes have been slashed for being dishonest. Any recovery procedure necessarily includes block-producers having to go around and convince people out-of-band that they were totally not dishonest, and were slashed due to a "hack" (and, since there's lots of money on the line, who knows if they're being honest about this?).”
See the “spawn camping” description and defence in my prior link.
Something about this explanation seems incomplete.
Users and developers are dependent on miners to create blocks. The negotiating power of miners is self-evident.
I thought the rule is we each will be given same amount?
/s.
and my immediate thought was the crypto tumblers are not working which then made me wonder if this is an in-plain-sight money laundering exercise using the power of celebrity!?!
Elon Musk is definitely in market moving territory and sailing close to the window for things like buying Twitter and then pulling out, I wonder how many puts and shorts existed in dark pools? LOL
The fact that Binance or Coinbase holds 10% of bitcoin doesn't mean that it owns 10% of bitcoin.
You can say something similar about any fiat currency, because almost all USD for example lives on the balance sheet of the big banks - JPM, Chase, BoA, ...
Being decentralized doesn't mean that there are not huge entities which control most of the system.
Bitcoin was created specifically as a way to counteract centralize control of money. The fact that many people store their crypto in central exchanges implies that they don't actually care about the advantage of decentralized money.
Do you believe it's decentralization has value or not? Despite the fact that the vast majority of people use it just for Facebook and Instagram.
The value Bitcoin provides is that it allows you to bypass government controls and other monopolies on transferring money. If you put that Bitcoin on an exchange you no longer have that ability to bypass government controls because Coinbase will lock your account if the government tells them to do so.
You are ok with 99% of people using only a couple of sites on the decentralized internet, but not ok with 99% of people keeping the crypto on a couple of exchanges on the decentralized bitcoin.
I'm saying that crypto exists to bypass authorities and people putting crypto on a centralized exchange proves that it is only about making money trading, not about doing anything useful.
It's fair to say that they likely care about it less than someone not using those services... but so what? The world isn't just black and white.
The authors are well aware of this, the analysis excludes these exchange accounts holding 5.5 M Bitcoin and is only about what is held in individual accounts which collectively own 8.5M bitcoin.
I don’t care about Bcash and other worthless forks and I could tell it was an attack to unmask old utxos.
Why not have an address associated with each user?
[1] https://www.nber.org/system/files/working_papers/w29396/w293...
> That’s 100x the wealth concentration of the regular economy
sauce?