It's good to be 1% bitcoin. The top holders of bitcoin control a greater proportion of the cryptocurrency than do the richest US households in dollars, according to a study by the National Bureau of Economic Research.
The study showed that the top 10,000 bitcoin accounts have 5 million bitcoins, an equivalent to roughly $ 232 billion.
With an estimated 114 million people around the world owning cryptocurrency, according to crypto.com, that means that roughly 0.01% of bitcoin holders control 27% of the 19 million bitcoins in circulation.
By comparison, in the US, where wealth inequality is at its most extreme in decades, the top 1% of households own about a third of all wealth, according to the Federal Reserve.
The study, conducted by finance professors Antoinette Schoar at the MIT Sloan School of Management and Igor Makarov at the London School of Economics, for the first time mapped and analyzed every transaction in the more than 13-year history of bitcoin.
The ramifications of that centralization are mainly twofold, the document argues. First, it makes the entire bitcoin network more susceptible to systemic risk. Second, it means that most of the gains from rising price and increased adoption go to a disproportionately small group of investors.
"Despite having been around for 14 years and the hype that has grown, it is still a very concentrated ecosystem," Schoar said of Bitcoin.
Bitcoin was introduced in 2008 as an open source software project intended to be an electronic form of physical cash with no gatekeepers. Anyone can download the software, become a "node" on the net and "mine" for bitcoin.
In practice, however, bitcoin has become highly centralized. Most of the people who trade do so through exchanges. The costs of mining have become so high that only a small group of enterprise-level companies can afford it.
The wealth of bitcoin miners and exchanges has exploded in the past two years as the price of a single bitcoin jumped from $ 5,000 in March 2020 to $ 68,990 last month. The number of people who own bitcoin has doubled and now includes several well-known investors, hedge fund manager Paul Tudor Jones, entrepreneurs Elon Musk and Mark Cuban, and celebrities like actress Maisie Williams.
However, the vast majority of bitcoin transactions, about 90%, stem from two activities that have no real economic function, the researchers said.
The first activity is simply the way the network processes bitcoin transactions; Think of it as the equivalent of making a change for $ 20 when you buy coffee. The second is transactions sent between wallets by the same user trying to hide their identity, a common tactic for those seeking anonymity.
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The remaining 10% of volume, what the researchers call "real volume," dominates trading. Transactions between exchanges and trading desks accounted for about 75% of the total volume, they said.
By comparison, scams, gambling sites and other illicit uses, which rightly concern law enforcement and legislators, accounted for less than 3%.
This type of analysis is possible, more than with physical cash, because bitcoin runs on a network that records each transaction in a publicly visible ledger. While user identities are not tied to those transactions, it is still possible to track and analyze those transactions, determine their usage, and discern whether the accounts represent institutions or individuals.
Write to Paul Vigna in paul.vigna@wsj.com
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