Bitcoin: a cryptocurrency still highly concentrated

What is the distribution of bitcoin? Is the mining capacity highly concentrated? Two questions answered, in part, by a new American study.

The National Bureau of Economic Research (NBER) has just released an interesting report on bitcoin in the United States. It allows us to better understand the distribution of cryptocurrencies and realize that virtual currency, despite its growth, is still in the hands of a “small” number of operators in the world. In fact, of the 14 million bitcoins mined, 5.5 million are in the hands of intermediary platforms and 8.5 million by individuals.

Going a little further in its research stopped at the end of 2020, this organization was also able to observe that 10,000 people own roughly a third of all “issued” bitcoins. As for the 1000 biggest investors, they alone control about 3 million bitcoins. And again, the NBER itself tempers the reliability of its analyzes, indicating that concentration could be even more important. In fact, it is more than likely that the analyzed entities actually have several bitcoin holder accounts.

Regardless, this high concentration is also on the side of bitcoin production. While many people on Earth have once embarked on bitcoin mining by running their graphics cards, the huge mining farms set up where energy is cheap now totally control the “market”. Therefore, the ability to mine bitcoins is in the hands of very few players. According to this study, 10% of bitcoin miners own 90% of the mining capacity and 0.1% (or about fifty miners) control 50% of the mining.

Systemic risk

According to the NBER, this puts Bitcoin in a vulnerable situation, especially when its price drops and its concentration increases. “These results suggest that despite the significant attention that bitcoin has received in recent years, this ecosystem is still dominated by large and concentrated players, whether they are large miners, bitcoin holders or stock exchanges. Exchange (…) This concentration makes Bitcoin susceptible to systemic risk and also implies that most of the gains from subsequent adoption are likely to fall disproportionately into the hands of a small group of participants, ”the authors of this research conclude.

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