Recent Study Finds Bitcoin Ownership Could Be Too Concentrated

Bitcoin was founded on principles of open access and decentralized supply. Whereas a more concentrated inventory of Bitcoin could undermine its reason to exist.

Key points

• The National Bureau of Economic Research found that 1% of Bitcoin holders control 27% of the supply.
• The study found that the top 10,000 accounts hold 5 million Bitcoin.
• Researchers suggest this concentration makes the Bitcoin network more susceptible to systemic risk and provides benefits to the wealthiest rather than the average investors it was created for.

When Bitcoin and its technology were conceived and named in its now famous 2008 white paper, it was built on the concepts of distributed transaction verification and accessibility to anyone on a decentralized network. Ironically, a new study finds that after more than 12 years in existence the Bitcoin cryptocurrency is fairly centralized -- which means too few individuals hold too many Bitcoin.

Key research results regarding top Bitcoin holders

According to a study by the National Bureau of Economic Research (NBER), the top Bitcoin holders own 1% of the 27% of the 19 million Bitcoin currently in circulation. The study showed that the top 10,000 Bitcoin accounts hold 5 million Bitcoins, an equivalent of approximately $232 billion.

"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," researchers Igor Makarov and Antoinette Schoar wrote.

Further, the research by the NBER also noted that the concentration of Bitcoin miners -- those individuals who decrypt complex codes to validate blockchain transactions and "unlock" new Bitcoin -- is even more consolidated. The top 10% of miners control 90% of the Bitcoin mining capacity, and roughly 50 miners control 50% of Bitcoin mining capabilities.

Possible problems of Bitcoin concentration

"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 wrote. "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."

There's an old saying that someone's greatest strength is usually also their greatest weakness. That seems to hold true for Bitcoin. Bitcoin seems to be a victim of its own success. As its popularity grows, its price increases and its supply decreases. These economic factors seem to be moving Bitcoin out of reach of average investors -- the very individuals for whom it was originally created to help.