When it comes to bitcoin, it’s good to be in the top one percent.
The top bitcoin holders control a greater share of the popular cryptocurrency than the wealthiest American households control in dollars, according to a new study by the National Bureau of Economic Research.
The study found that the top 10,000 bitcoin accounts hold 5 million bitcoins, an equivalent of approximately $232 billion.
With an estimated 114 million people globally holding the bitcoin, according to crypto.com, that means that approximately 0.01% of bitcoin holders control 27% of the 19 million bitcoin in circulation, reports the Wall Street Journal.
The study, conducted by finance professors Antoinette Schoar at MIT Sloan School of Management and Igor Makarov at the London School of Economics, mapped and analyzed every transaction in bitcoin’s more than 13-year history.
The report argues that this centralization makes the entire bitcoin network more susceptible to systemic risk. It also means the majority of the gains from the rising price and increased adoption go to a tiny group of investors.
“Despite having been around for 14 years and the hype it has ratcheted up, it’s still the case that it’s a very concentrated ecosystem,” Schoar said about Bitcoin, per WSJ.
Bitcoin was unveiled in 2008 as an open-source software project intended to be an electronic form of physical cash without gatekeepers. Anybody could download the software, become a “node” on the network, and “mine” for bitcoin.
In practice, though, bitcoin has become highly centralized. Most people who trade do so through exchanges. The costs of mining have become so high that only a small group of enterprise-level firms can afford to do it.
The report also found that a staggering 90 precent of all bitcoin transaction perform no actual economic function.
The first activity is simply the way the network processes bitcoin transactions — think of it as the equivalent of making change for a $20 when you buy coffee. The second are transactions sent between wallets by the same user trying to obfuscate their identity, a common tactic for those seeking anonymity.
Of the remaining 10% of volume, what the researchers call “real volume,” trading dominates. Transactions between exchanges and trading desks comprised roughly 75% of total volume, they said.
By comparison, scams, gambling sites and other illicit uses, which justifiably concern law enforcement and lawmakers, comprised less than 3%.
As crypto becomes increasingly popular while being hyped by the likes of billionaire bitcoin investors like Elon Musk and Mark Cuban, the wealth of bitcoin miners and exchanges has exploded over the past two years.
The price of a single bitcoin jumped from just $5,000 in March 2020 to as high as $68,990 last month.