PARIS, FRANCE - FEBRUARY 09: In this photo illustration, a visual representation of the digital Cryptocurrency, Bitcoin is on display on February 09, 2021 in Paris, France. The value of Bitcoin (BTC) has exceeded the threshold of 48,000 dollars for the first time in history. Electric vehicle maker Tesla has invested $ 1.5 billion in the virtual currency and will begin accepting it as payment for the purchase of its cars, the group said. The move comes days after Elon Musk temporarily changed his Twitter mini-description to simply #bitcoin. (Photo illustration by Chesnot/Getty Images)
Bitcoin is often called decentralized, which it is, but only if compared to fiat currencies. The idea of decentralization would mean that Bitcoin won’t be controlled by a single entity or person. And centralization means the exact opposite, for example, fiat currencies are controlled by the government. So, now you must be thinking that Bitcoin is not controlled by the government, so it must be decentralized. Well, a study found that most of Bitcoin’s supply is controlled by a small group of people and companies. Therefore, Bitcoin is not as decentralized as it seems.
A recent report from the National Bureau of Economic Research shows that the top 10,000 BTC investors hold 1/3rd of the entire supply of the coin. The data also took into accounts the exchanges that held coins for its users and individual people separately. It was found that the individual people owned 8.5 million coins while the groups had almost 5.5 million coins. Now, you might be thinking 10,000 is still a big number which is right. But the research also showed that out of the 8.5 million, almost 3 million coins were held only by the top 1000 investors, and the remaining 9000 held only 5.5 million coins.
The research also said that it is very probable that the top addresses are controlled by the same person or groups. Even Satoshi, the creator of Bitcoin, is also believed to be among the top BTC holders with 5% of the entire supply.
Miners are in control
Now let’s take a look at the big players that can tank the price of BTC if they want. The mining industry is very concentrated among the top 10% of companies. They control about 90% of Bitcoin’s hash rate. So, if they suddenly decide to shut off their companies, BTC will tank. This is because we know BTC’s price slowly adjusts to the hash rate and is directly proportional to it.
What’s scarier is that 0.1% of miners account for 50% of the total mining capacity. We even saw a live example of this when the price of BTC tanked due to a drop in the hash rate. There were power supply problems in one of the Chinese regions where a large mining firm was operating.
What are your thoughts on the research that shows that Bitcoin is not as decentralized? And does it go against what you believed till today? Let us know in the comments below. Also, if you found our content informative, do like and share it with your friends.