Surprise! One-Third of All Bitcoin Is Owned by 10,000 Individuals

Well, that's not very decentralized.
Chris Young

A new study shows that almost half of all Bitcoin, the decentralized digital currency championed by billionaire Elon Musk, is owned by a select few individuals despite its recent surge in popularity, a report by Bloomberg reveals.

The study also reveals that a great concentration of Bitcoin mining is carried out by an exceedingly small percentage of all miners, potentially leaving the market at the mercy of a group of colluding miners.

The research, conducted by the National Bureau of Economic Research (NBER), shows that the top 10,000 individual investors control approximately a third of all Bitcoin in circulation. The NBER researchers used a data collection method that set individuals and organizations apart to help them sort and organize hard-to-track cryptocurrency addresses. They found that individuals control about 8.5 million Bitcoin and that the top 1,000 individual investors control at least 3 million worth of the cryptocurrency.

According to researchers Igor Makarov and Antoinette Schoar, "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." As an example, Satoshi Nakamoto, the developer of Bitcoin, held early Bitcoins in roughly 20,000 different addresses, in a way, making them appear as though they belonged to 20,000 different individuals.

Bitcoin is vulnerable to a 51 percent attack

The researchers also revealed that the top 10 percent of Bitcoin miners control 90 percent of global Bitcoin mining capacity. 50 percent of all mining capacity is owned by only 0.1 percent of miners. As the new study points out, this high concentration means the Bitcoin network is vulnerable to a 51 percent attack where a group of miners team up to take control of the majority of the network and essentially hold Bitcoin to ransom.

"Our results suggest that despite the significant attention that Bitcoin has received over the last few years, the Bitcoin ecosystem is still dominated by large and concentrated players, be it large miners, Bitcoin holders, or exchanges," the researchers explained. "This inherent concentration makes Bitcoin susceptible to systemic risk and also implies that the majority of the gains from further adoption are likely to fall disproportionately to a small set of participants."

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This month, Bitcoin reached a new record high of $65,000 shortly after the cryptocurrency entered the New York Stock Exchange for the first time on October 19. The cryptocurrency gained a massive boost in popularity this year thanks in part to a high-profile $1.5 billion investment from EV automaker Tesla, and endorsements from its CEO Elon Musk.

The digital currency is processed via the blockchain to bypass the need for a centralized regulatory body. However, the NBER's new study suggests that Bitcoin may not be as decentralized as it says on the label.

Disclaimer: Some members of the IE team, including editors of this article, have personally invested in a number of cryptocurrency and stock markets. However, their private investment viewpoints have no impact on editorial content.