Too Long; Didn’t read
- 6 companies hold 72% of BTC hash rate
- Top 118 addresses hold 17% of the current supply
- bitcoin’s trait of ‘decentralisation’ is currently debateable
Whilst many people debate ’s centralisation or decentralisation by tying in external factors within the Network like , this article will solely focus on how decentralised the network is itself. I think it is imperative to note that is undoubtedly the most decentralised out there. This debate is for another blog post which we will be looking to write soon; however, the sole fact that is the only without a marketing team says enough about the claimed decentralisation of other projects.
Perhaps the most important trait of is its decentralised nature. There have been countless teams over the last few years that have stolen this trait for marketing purposes within their own project; when they are evidently far from being decentralised. has no person, organisation or state controlling it; there’s no central repository of data, no central management and crucially, no central point of infiltration and failure. This would suggest that it is decentralised. Whilst it is true that the network possesses the ability to achieve all of these traits, the truth of whether it does or does not is debated within the community every single day.
2 aspects of Decentralising network
(1) How decentralised the supply/release of it is.
(2) How decentralised is the distribution of coins currently stored in wallets
(1) To evaluate whether or not the network is ‘decentralised,’ which is itself an extremely vague term, we must explore the network, the supply of the currency. The supply of expands every 10 minutes every time a new block is mined; this is the reward. Every time a new block is mined, the miner gets a reward for their work, which at the minute stands at 12.5 units of (halving to 6.25 in 2020). Due to the process of blocks being so challenging, people and organisations use ‘ rigs’ and equipment to mine it for them. In the last few years, there has been a war between dozens of cartels to see which one of them can achieve the highest levels of computational power (ie owning the most & best rigs; also known as the ‘hash rate’) in order to receive more rewards and to have more influence over the fast-growing network. It has proved to be entirely possible to buy your influence into network, however, as time goes by, miners’ influence over the network will diminish. More than 82% of Bitcoins that will ever exist have been mined and distributed to the network. The vast supply of has already been shared out and is on the global market as we speak; becoming more decentralised every day as new people, particularly institutions, enter the space.
At current, a mere six companies control 72.3% of the hash rate. Meaning that if a few of these cartels decided to collude, they could cause some serious damage to the network, including a 51% attack where they could pause all of the ’s transactions and double-spend previous sent funds. In June of this year, cartels from just peaked and at one point collectively accounted for 71% of the blocks mined over a 7-day period. Although within the last week, an estimated 800k rigs had to be shut-down in due to multiple reasons including the recent dump, rising electricity costs in certain Chinese regions and competition simply buying better and more efficient rigs, making many machines outdated and uncompetitive.
If you look at the pie chart above, I won’t have to answer whether the supply of and the flow of it into the market is a decentralised process.
2) The other factor that we must study is the current distribution of . As of the time of writing this article, there are 17,394,825 units of available to the market. A recent study found that of these 17.3 million, an estimated 4 million are lost in old wallets to which the owner does not remember the keys to or have been destroyed already; but for simplicity, let us assume that there are 17.3 million units of currently available.
- The top 5 addresses hold 517,000 BTC which is 3.28% of the available supply.
- The top 118 addresses own almost 3-million units of BTC which accounts for 17% of the current circulating supply.
- Whilst 131,498 wallets (1% of all of them) hold over 87% of the bitcoin’s available.
The first thing I must note here is that 1 doesn’t equal 1 person. A person, often whales, can hold multiple wallets and distribute their holdings across each of them in order to hedge the risk of losing them. The quote “don’t put all of your eggs in one basket” is extremely relevant here. Therefore, the fact that 118 addresses own 17% of all Bitcoins doesn’t tell that much. This could be, and most likely is, 50 people and organisations, using a couple of wallets.
Additionally, 4 of the top 5 richest addresses are in fact owned by Exchanges (Bittrex, Bitfinex, Huobi, Bitstamp) and not individual whales. Although they still have the power to cause network havoc with their large supply of , the scope for an exchange launching an attack on the network or abusing their centralised power is less than that of whales. This is due to the fact that such a decision requires collective action from those in charge in the exchange and it is also not in their best interest to do so. Whereas a whale can act on self-interest and only have to agree with themselves. If they get drunk one day and decide that selling their large sums of to make a fortune is a wise decision, they definitely could; and this would definitely cause a shift in the market given current volumes.
Conclusion:
Whether you classify as centralised or decentralised largely depends on what you mean by it. Are you categorising it by people, companies or countries? The most obvious example, and a concern for many, is that ’s supply is centralised to Chinese companies. If the authoritative Chinese government decided to intervene (an entirely plausible scenario), would the power and influence of these Chinese cartels affect the network? Absolutely. You could also say that the network is centralised as less than 20 companies around the world control almost the entirety of the . But it is still a debate as to whether is centralised in terms of people. A total 131,000 wallets own 87% of the ’s available and whilst that sounds like an intimidating percentage, the figure is still enormous. 131,000 different wallets accounting for 87% of the network’s wealth is a promising start for a new distributed network; which is inherently prone to monopolization or ‘whale creation’ in it’s infancy.
REMEMBER, IF YOU BUY CHEAP AND SELL HIGH, YOU’RE DOING SOMETHING RIGHT!
DISCLAIMER: THIS ARTICLE EXPRESSES OUR PERSONAL OPINIONS, PREDICTIONS, AND MARKET SPECULATIONS BASED ON THE WAY WE INTERPRET THE INFORMATION WE HAVE AVAILABLE TO US. IT IS BY NO MEANS TO BE CONSIDERED EXPERT ADVICE. WE TAKE NO RESPONSIBILITY/ LIABILITY FOR ANY ACTIONS TAKEN BY YOU BASED ON ANYTHING WE HAVE MENTIONED.
WE ARE IN NO WAY AFFILIATED WITH ANY COMPANIES, SITES, EXCHANGES AND THAT WE MENTION IN THESE ARTICLES, THESE ARE SIMPLY THE ONES WE CHOOSE TO USE DUE TO OUR PERSONAL PREFERENCE.
Published at Mon, 07 Jan 2019 12:13:01 +0000
