11 ms·

It's time for an inequality index for cryptocurrencies distribution

63 points by pog92 5y ago

It is quite famous that 95% of Bitcoin is owned by 2% of accounts. This concentration not only risks to threaten blockchain's own premises, but also exposes minor investors to risk of whales who lead the market and can easily speculate on prices since they can influence the price trends. Is there any crypto inequality index? I thought that Gini index could work too! I would like to find an inequality index in the cryptocurrency description on CMC and similar, it would help me make better investment choices. What do you think?

leishman 5y ago
Most people keep their coins on exchanges which are represented as large single holders on the blockchain so it’s not an accurate characterization.
nbaksalyar 5y ago
> 95% of Bitcoin is owned by 2% of accounts The problem is, how do you measure this reliably? I'd wager that a large chunk of 95% of Bitcoin is either irrevocably lost or owned by Satoshi (estimate is at "between 750,000 and 1,100,000 bitcoin" -- and arguably these TXs will never be spent). Simply put, there's no way to differentiate between coins that are just sitting there unspent and coins which no one can access anymore because of lost wallet keys (and there's no shortage of such stories).
- chrisco255 5y ago
  The bigger problem is that addresses are not measures of people. A lot of addresses are purposely generated as throwaway accounts, never to be used again. A single person may have or use dozens of wallets. Or a single wallet may be used by a large exchange which represents thousands of depositors.
  - EGreg 5y ago
    So much for Bitcoin’s vaunted decentralization. In fact the inequality is probably far more pronounced. Since multiple accounts can belong to one organizatipn - but not the other way around :) PS: if a bitcoin wallet belongs to one centralized exchange, it’s still under centralized control!
    - chrisco255 5y ago
      Bitcoin's decentralization remains unaffected by its distribution. But its distribution is fine. Any distribution is going to follow the pareto principle. No getting around that. If you're looking for idealistic purity, and assume it's worthless if unattained, you're wrong.
      - EGreg 5y ago
        Somewhat a large strawman to go from “1% owns 92%” and “you just want idealistic purity”. And also “not decentralized” to “worthless”. I thought this was supposed to liberate us from problems of the current financial system? Decentralization of Bitcoin can be understood in a variety of ways. 1) To make forward progress: it is extremely centralized, all transactions in the world must go through a miner 2) In terms of concentration of ownership and effect on price: highly centralized, again 3) In terms of mining pools: once again, highly centralized What exactly is the lure?
        chrisco255 5y ago
        Decentralization is a security and censorship-resistant feature of Bitcoin. All transactions must go through a miner, but the only way to mine a block is by solving a SHA256 hash in competition with tens of thousands of other miners also trying to solve for the hash all around the world. There is no way of saying 1% owns 92% (after all, I can churn out a million addresses used purely for one-off transactions, if desired, that's totally acceptable, wallets are practically free to produce). But it wouldn't matter if it did, because distribution of Bitcoin does not affect its security or censorship resistant properties. All transactions get the same amount of security. All holders are equal in terms of protection provided by the network. Concentration of ownership of any capital asset is going to follow a Pareto distribution. That is not unique to Bitcoin... it's true of everything from stamps to stocks. Bitcoin never made the claim to some sort of idealistic theoretical "even" distribution as if that would be fair, but I digress... Bitcoin is also not the end all be all of crypto assets, and plenty of additional capital value has been distributed among the long tail of crypto assets that have cropped up since (over 60% of crypto's market cap is among other crypto assets). Mining pools are not centralized entities. They are loose organizations that miners join to even out the yield on their mining equipment. A miner can fluidly leave and re-join a different pool at will. The pool's sole function is to smooth out yield. If a pool fails to do that, it loses its miners. It's not some central entity that can command the miners in it to 51% attack the network. That's not how pools work. But even if they did, it would be painfully obvious that it was happening, and the Bitcoin community would mount a response, which may include a hard fork if desired. I am more involved in the Ethereum community than Bitcoin. The lure is that I can borrow and send six figures worth of crypto in 2 minutes, and deploy it to a smart contract multisig and create an on-chain organization in a single afternoon that is used to deploy capital for anything from charitable fundraising to art commissions and auctions to online gaming production to startup operations. I can coordinate across jurisdictions frictionlessly. I can retain my assets when moving across borders. I can retain true ownership and custody of my funds without any central parties. I can earn yield on my funds by lending it out to on-chain options markets. I can fund any one I want on the internet without Paypal's permission or blessing. I can move to a third world country and still retain all of these capabilities. It's not going anywhere, it's hugely valuable. It continues to get more powerful and more user-friendly.
- wmf 5y ago
  There will eventually be 21M BTC and Satoshi mined 1M which is around 5%. Some people have estimated that ~20% of BTC is lost. That leaves 70% controlled by whales and exchanges.
- hiq 5y ago
  That, and the fact that anyone can own an unlimited number of wallets.
- deleted 5y ago
  [deleted]
- waffle_maniac 5y ago
  A lot of that is large centralized exchange wallets that hold crypto for retail investors.
- tromp 5y ago
  Besides inequality in individual ownership of Bitcoin, there is also inequality of acquisition cost. The two are related since lower costs make it much easier to acquire large amounts as demonstrated by Satoshi himself. While we cannot reliably compute individual ownership inequality, all we need to compute cost inequality is the price history of Bitcoin. Let d_0..d_n be all days in Bitcoin history sorted by price on day d_i. So d_0 is launch day, when Bitcoin was worthless, and d_n is the day when price last peaked. Plot a graph where x coordinate is Sum 0<=i emission(d_i) and y coordinate is Sum 0<=i emission(d_i)*price(d_i). If Bitcoin were a stable coin then this would produce a straight diagonal line. But not only did the price go up exponentially, at the same time the emission went down exponentially. The extent to which the graph lies below that line is the Gini index of Bitcoin price inequality.
- 8note 5y ago
  Never is a strong statement; Bitcoin has resulted in a lot of investment in hardware that can solve problems similar to "what's satoshi's private key"
ryan93 5y ago
A lot of those accounts are run by exchanges. So we don’t and can’t know true distribution. Unless Coinbase and binance release stats on their customers
- marto1 5y ago
  > Unless Coinbase and binance release stats on their customers And even then, I'd argue there's a lot of incentive to lie about it.
smoldesu 5y ago
> This concentration not only risks to threaten blockchain's own premises, but also exposes minor investors to risk of whales who lead the market and can easily speculate on prices since they can influence the price trends The problem is that you can only associate value with a wallet, not an individual, and even that doesn't really make the market any safer; it just further exposes how terrible cryptocurrency is as an investment asset. Gold is valuable due to it's scarcity. Diamonds are popular due to their demand. Cryptographic hashes are valuable because of their transient demand and abundant supply.
- chrisco255 5y ago
  Price is a function of supply and demand, so trying to isolate one or the other doesn't make sense. Why does it matter how many people are associated with a particular wallet? The wallet with $150 worth of Bitcoin has the same amount of security as the wallet with $15M, and it's considerable. The protocol itself has never been hacked, despite holding nearly $1 trillion of value.
  - ArnoVW 5y ago
    Arguably, if someone would hack BTC, he or she would have to make sure no-one found out. Because if people knew that BTC was hacked, the bottom would fall out under it, and all your stolen coins would become worthless. Not to say that I think it's been hacked....
- imtringued 5y ago
  Gold is expensive because of scarcity, that does not make it valuable. In fact, people are wasting their time on this planet, digging up gold which is merely supposed to represent wealth but not be wealth in itself. If you think of gold as a speculative accounting system then it really is just a very resource inefficient way of book keeping. Digging up gold and going to war for gold mines makes you poorer, not richer. Yet people believe that this system is infallible.
rdbell 5y ago
How are you defining an account when you say that 95% of BTC is owned by 2% of accounts?
- atmosx 5y ago
  Adir Shamir did long time ago: https://eprint.iacr.org/2012/584.pd https://eprint.iacr.org/2012/584.pd tl;dr: 98% of BTC in circulation at the time belonged to 2% portfolios.
  - ajaimk 5y ago
    fixed the link: https://eprint.iacr.org/2012/584.pdf https://eprint.iacr.org/2012/584.pdf
    - atmosx 5y ago
      Thanks!
atmosx 5y ago
> This concentration not only risks to threaten blockchain's own premises [...] BTC was designed specifically to avoid any kind of _state control_ and by _state control_ I mean something along the lines of a central bank. Adding protections here and there will inevitably lead to a system that is similar to current financial system with all the bells and whistles. I think you're missing the point: BTC tries to sell lack of any kind of control (or protection, however you want to call it) as a _feature_.
- micromacrofoot 5y ago
  so instead we have “not banks” that are less accountable?
  - maxwell86 5y ago
    bitcoin has no banks, period.
    - micromacrofoot 5y ago
      right, most people keep their crypto in exchanges which are definitely not just worse banks
      - ur-whale 5y ago
        > most people keep their crypto in exchanges Do they? What is your evidence for this? Also, if we assume they do, well ... their BTC is now potentially subject to seizure, hacking, fees, bankrupt exchanges ... well, their choice. Darwinism at work as far as I'm concerned. Not you keys, not your coins.
      - jonathan-adly 5y ago
        source: trust me bro! Bitcoin maxis literally go insane telling people to take their coins off exchanges. It's part of the dogma.
      - randomhodler84 5y ago
PeterisP 5y ago
Meh, since there's no hard registry of identities of owners, if someone would make and popularize an inequality index, that index would simply be gamed (e.g. by artificial splitting of accounts) to show whatever is most beneficial to show, as soon as a gameable metric is used for a practical purpose (e.g. making better investment choices), it ceases to be useful for that purpose as it gets manipulated, see Goodhart's law https://en.wikipedia.org/wiki/Goodhart%27s_law https://en.wikipedia.org/wiki/Goodhart%27s_law .
RichardHeart 5y ago
You're describing the Gini coefficient. Here's an article on why you shouldn't overuse that: https://vitalik.ca/general/2021/07/29/gini.html https://vitalik.ca/general/2021/07/29/gini.html That being said, 42% of all Bitcoin sits in 2100 addresses. Google "Bitcoin rich list" and you'll also be able to look on that site at other coins as well. People will point out that those are exchanges representing users. And I'll point out, crypt was invented to remove middlemen and exchanges are middlemen.
- howdydoo 5y ago
  Crypto isn't intented to remove middlemen. It's intended to give people the choice of who to trust. People can choose to trust an exchange, or to self-custody, and deal with the consequences in either direction. If I choose to self-custody, it's much safer to memorize a seed phrase than to store cash in my mattress. Most people don't bother and use banks. But I think it's good that people now have a choice in the matter.
  - RichardHeart 5y ago
    I'll quote the first sentence from the Bitcoin whitepaper. "A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution."
    - wmf 5y ago
      Right; it allows not using middlemen but it doesn't force it. Forced decentralization is a mostly unsolved problem.
  - acdha 5y ago
    > Crypto isn't intented to remove middlemen That isn’t what the sales pitch has been for the last 13 years, with lots of fanciful rhetoric about removing the need for banks (“you can be your own bank!” is basically a cliché by now). > If I choose to self-custody, it's much safer to memorize a seed phrase than to store cash in my mattress. Are you sure about this? Lots of people have been phished or compromised, whereas someone breaking in and searching your house is relatively uncommon and limited to people in the same area whereas your cryptocurrency can be stolen by anyone in the world.
howdydoo 5y ago
Many BTC addresses are owned by companies (e.g. exchanges, trusts, etc) and not by individuals. The Gini coefficient only looks at individuals, not companies. In other words, it doesn't treat Google as a person and compare its wealth directly to yours. So you can't directly compare those numbers.
iskander 5y ago
Wallets != people. Without proof of personhood, you never know the distribution.
- jonathan-adly 5y ago
  This right here. Everybody running and screaming about the OP statistic have 0 knowledge how bitcoin works or purposefully spreading false information. It's like the elections being stolen, or anti-vax propaganda or whatever other idiocy being spread on FB on any given moment.
  - cuteboy19 5y ago
    No, OP is correct actually >95% of Bitcoin is owned by 2% This is just the lower limit on the concentration of wealth in Bitcoin, found from onchain data. Since people can have multiple addresses it is possible that the 2% actually control 97% or even more of btc supply
    - seedless-sensat 5y ago
      This isn't necessarily true, because some of those largest wallets are probably exchanges/trusts. It can go both ways: one wallet may have many owners, and one owner may have many wallets.
    - jonathan-adly 5y ago
      Can you tell me right now how many wallets does Satoshi have?
- epgui 5y ago
  Isn't this a problem? More specifically: assuming we can't derive it by some clever means, or approximate it from some tax reporting data, isn't it a problem that we can't get such a distribution? I mean this not as a moral judgement, but more as a system dynamics concern. It's easy enough to see how wealth concentration can destabilize a money/value system absent other factors. So my concern isn't about what's right or wrong socially, but whether there might be a reason to question the implicit trust that the maths will work out.
hartator 5y ago
How do you know concentrations is not even worse? Same person can have multiple accounts.
irvingprime 5y ago
If you mean you want a way to quickly measure how distributed ownership of a particular currency is, that sounds fine. You should be able to develop a decent visualization from blockchain explorers themselves without too much trouble. Well, some trouble. But it's possible. Any moderately good programmer should be able to do it for you. Keep in mind, though, that other comments on this thread have pointed out that addresses and wallets don't have a 1 to 1 relationship with people. So you won't really be seeing who owns the most. Leave the word "inequality" out of it. I don't think it means what you think it means.
paulpauper 5y ago
>It is quite famous that 95% of Bitcoin is owned by 2% of accounts. This concentration not only risks to threaten blockchain's own premises, but also exposes minor investors to risk of whales who lead the market and can easily speculate on prices since they can influence the price trends. It doesn't threaten it though. It would only threaten it if miners colluded. Crypto may be manipulated, but so is everything else, like Gamestock stock in 2021. The crypto bubble is already deflating, with btc having fallen 40% in the past 2 months. These problems will fix themselves as the bubble continues to deflate.
- baby 5y ago
  Jul 16 2021, bitcoin was 30k, today it’s 40k, how is this a deflating bubble?
  - headmelted 5y ago
    Because you just picked a randomly favourable date from an escalating speculative asset?
    - baby 5y ago
      So did you?
      - deleted 5y ago
        [deleted]
  - paulpauper 5y ago
    was at 70k
    - baby 5y ago
      false, https://www.yahoo.com/now/crypto-daily-movers-shakers-july-003419625.html https://www.yahoo.com/now/crypto-daily-movers-shakers-july-0... > July 15, 2021 > Bitcoin, BTC to USD, fell by 2.84% on Thursday. Reversing a 0.29% gain from Wednesday, Bitcoin ended the day at $31,890.0.
baby 5y ago
Bitcoin is not proof of stake so I’m not sure why this would matter.
CodeWriter23 5y ago
I think a thought spent on crypto is a thought wasted.
- bogota 5y ago
  I think this comment is a waste under its own assertion. No?
  - CodeWriter23 5y ago
    While I see your point of irony, and can only be amused by your comment and the apparent absurdity of my speaking my point, I’d say on balance and considering the future potential of thought waste, there is a net conservation of thoughts.
ur-whale 5y ago
> It is quite famous that 95% of Bitcoin is owned by 2% of accounts. Is it? What's your evidence for this?
marto1 5y ago
So we have an asset that follows a Pareto distribution[1]. Now if one has spent any time and resources investing they'd notice that this holds true for a lot of assets. Bitcoin is really not exceptional in this. Are you after an asset that doesn't follow that distribution ? Do you consider this a good thing ? [1] https://en.wikipedia.org/wiki/Pareto_distribution https://en.wikipedia.org/wiki/Pareto_distribution
- epgui 5y ago
  The pareto distribution has an alpha parameter. If alpha is large enough, then one person/wallet contains the totality of the wealth, and the rest all have exactly zero of it. This is illustrated plainly by the limit of alpha -> infinite in the graph. I think it's obvious that this extreme case is very bad. So there must be a point where alpha goes from being in "good" territory to being in "bad" territory, or there must be some gradient of "least concerning" to "most concerning". The question asked by OP is basically equivalent to "what is the value of alpha?" Considering the potential for concern, this seems like a useful thing to measure. I don't want to speak for anyone else, but when most people talk about wealth/income distribution or inequality, they generally aren't advocating for a flat line (everyone has an equal amount of dollars), they are generally advocating for keeping Pareto's alpha at some reasonable level.
ur-whale 5y ago
> This concentration not only risks to threaten blockchain's own premises ... And, yet another claim that needs to be justified. Assuming one whale owns 20M Bitcoins, that still leaves 1M Bitcoins to use for transactions. That's 10^14 satoshis, plenty enough to allow people to exchange value in complete freedom. Can the one guy who owns the 20M tank the price by playing market games? Maybe, but why would he shoot himself in the foot by doing so? And even if he did and - say - crashed the price down to BTCUSD = 2 ... would that prevent people from using Bitcoin to exchange value? Nope.
bogota 5y ago
Crypto will be the death of HN. OPs comment is something that has been talk about since 2012 and looking at one or two parent comments they cover the depth that is required to answer why this doesn’t matter or can’t be determined. However it’s crypto so now we have 50+ comments about why X thinks Y is stupid. Why crypto is a waste. Why crypto is the best. But its all 100% stupid unfounded word vomit. HN has shows crypto is too polarizing of content to have intelligent discussion here. IMO is should be banned from the site. You could replace these comments with comments from a reddit post that hit the front page and you wouldn’t know the difference.
- randomhodler84 5y ago
  We should never attempt to ban technology, it only grows more powerful in the shadows.
timdaub 5y ago
- https://rugpullindex.com https://rugpullindex.com rates some ERC20 pools by gini index - In the future, we want to rank all of them - Method specification: https://rugpullindex.com/specification#CalculatingtheEqualityofLiquidityProvidersinthePoolGinicoefficient https://rugpullindex.com/specification#CalculatingtheEqualit...
Proven 5y ago
gremlinsinc 5y ago
I'd rather see a currency that has a guaranteed validated identity tied to every wallet, and you can only have 1 wallet, and that wallet has a max limit on currency. The coin would also tax based on hodl vs spending the lower your overall wealth and the more you spend monthly (more transactions, not more total) the more UBI you get, the more you hodl, the more your tax obligation is. The longer you hodl the more your tax obligation as well. Basically use it or lose it, and if it could become pegged to the price of a loaf of bread or something wherever you live... then it could achieve some form of universality...but that last bit would be hard to figure out as I'm no economist.
TradingPlaces 5y ago
Easy to calc: https://en.wikipedia.org/wiki/Gini_coefficient https://en.wikipedia.org/wiki/Gini_coefficient
JSavageOne 5y ago
Yes I agree. Even if it's not a perfect metric, it'd still be useful.

63 points by pog92 5y ago

leishman 5y ago

Most people keep their coins on exchanges which are represented as large single holders on the blockchain so it’s not an accurate characterization.

nbaksalyar 5y ago

> 95% of Bitcoin is owned by 2% of accounts The problem is, how do you measure this reliably? I'd wager that a large chunk of 95% of Bitcoin is either irrevocably lost or owned by Satoshi (estimate is at "between 750,000 and 1,100,000 bitcoin" -- and arguably these TXs will never be spent). Simply put, there's no way to differentiate between coins that are just sitting there unspent and coins which no one can access anymore because of lost wallet keys (and there's no shortage of such stories).

chrisco255 5y ago
The bigger problem is that addresses are not measures of people. A lot of addresses are purposely generated as throwaway accounts, never to be used again. A single person may have or use dozens of wallets. Or a single wallet may be used by a large exchange which represents thousands of depositors.
- EGreg 5y ago
  So much for Bitcoin’s vaunted decentralization. In fact the inequality is probably far more pronounced. Since multiple accounts can belong to one organizatipn - but not the other way around :) PS: if a bitcoin wallet belongs to one centralized exchange, it’s still under centralized control!
  - chrisco255 5y ago
    Bitcoin's decentralization remains unaffected by its distribution. But its distribution is fine. Any distribution is going to follow the pareto principle. No getting around that. If you're looking for idealistic purity, and assume it's worthless if unattained, you're wrong.
    - EGreg 5y ago
      Somewhat a large strawman to go from “1% owns 92%” and “you just want idealistic purity”. And also “not decentralized” to “worthless”. I thought this was supposed to liberate us from problems of the current financial system? Decentralization of Bitcoin can be understood in a variety of ways. 1) To make forward progress: it is extremely centralized, all transactions in the world must go through a miner 2) In terms of concentration of ownership and effect on price: highly centralized, again 3) In terms of mining pools: once again, highly centralized What exactly is the lure?
      - chrisco255 5y ago
        Decentralization is a security and censorship-resistant feature of Bitcoin. All transactions must go through a miner, but the only way to mine a block is by solving a SHA256 hash in competition with tens of thousands of other miners also trying to solve for the hash all around the world. There is no way of saying 1% owns 92% (after all, I can churn out a million addresses used purely for one-off transactions, if desired, that's totally acceptable, wallets are practically free to produce). But it wouldn't matter if it did, because distribution of Bitcoin does not affect its security or censorship resistant properties. All transactions get the same amount of security. All holders are equal in terms of protection provided by the network. Concentration of ownership of any capital asset is going to follow a Pareto distribution. That is not unique to Bitcoin... it's true of everything from stamps to stocks. Bitcoin never made the claim to some sort of idealistic theoretical "even" distribution as if that would be fair, but I digress... Bitcoin is also not the end all be all of crypto assets, and plenty of additional capital value has been distributed among the long tail of crypto assets that have cropped up since (over 60% of crypto's market cap is among other crypto assets). Mining pools are not centralized entities. They are loose organizations that miners join to even out the yield on their mining equipment. A miner can fluidly leave and re-join a different pool at will. The pool's sole function is to smooth out yield. If a pool fails to do that, it loses its miners. It's not some central entity that can command the miners in it to 51% attack the network. That's not how pools work. But even if they did, it would be painfully obvious that it was happening, and the Bitcoin community would mount a response, which may include a hard fork if desired. I am more involved in the Ethereum community than Bitcoin. The lure is that I can borrow and send six figures worth of crypto in 2 minutes, and deploy it to a smart contract multisig and create an on-chain organization in a single afternoon that is used to deploy capital for anything from charitable fundraising to art commissions and auctions to online gaming production to startup operations. I can coordinate across jurisdictions frictionlessly. I can retain my assets when moving across borders. I can retain true ownership and custody of my funds without any central parties. I can earn yield on my funds by lending it out to on-chain options markets. I can fund any one I want on the internet without Paypal's permission or blessing. I can move to a third world country and still retain all of these capabilities. It's not going anywhere, it's hugely valuable. It continues to get more powerful and more user-friendly.
wmf 5y ago
There will eventually be 21M BTC and Satoshi mined 1M which is around 5%. Some people have estimated that ~20% of BTC is lost. That leaves 70% controlled by whales and exchanges.
hiq 5y ago
That, and the fact that anyone can own an unlimited number of wallets.
deleted 5y ago
[deleted]
waffle_maniac 5y ago
A lot of that is large centralized exchange wallets that hold crypto for retail investors.
tromp 5y ago
Besides inequality in individual ownership of Bitcoin, there is also inequality of acquisition cost. The two are related since lower costs make it much easier to acquire large amounts as demonstrated by Satoshi himself. While we cannot reliably compute individual ownership inequality, all we need to compute cost inequality is the price history of Bitcoin. Let d_0..d_n be all days in Bitcoin history sorted by price on day d_i. So d_0 is launch day, when Bitcoin was worthless, and d_n is the day when price last peaked. Plot a graph where x coordinate is Sum 0<=i emission(d_i) and y coordinate is Sum 0<=i emission(d_i)*price(d_i). If Bitcoin were a stable coin then this would produce a straight diagonal line. But not only did the price go up exponentially, at the same time the emission went down exponentially. The extent to which the graph lies below that line is the Gini index of Bitcoin price inequality.
8note 5y ago
Never is a strong statement; Bitcoin has resulted in a lot of investment in hardware that can solve problems similar to "what's satoshi's private key"

ryan93 5y ago

A lot of those accounts are run by exchanges. So we don’t and can’t know true distribution. Unless Coinbase and binance release stats on their customers

marto1 5y ago
> Unless Coinbase and binance release stats on their customers And even then, I'd argue there's a lot of incentive to lie about it.

smoldesu 5y ago

> This concentration not only risks to threaten blockchain's own premises, but also exposes minor investors to risk of whales who lead the market and can easily speculate on prices since they can influence the price trends The problem is that you can only associate value with a wallet, not an individual, and even that doesn't really make the market any safer; it just further exposes how terrible cryptocurrency is as an investment asset. Gold is valuable due to it's scarcity. Diamonds are popular due to their demand. Cryptographic hashes are valuable because of their transient demand and abundant supply.

chrisco255 5y ago
Price is a function of supply and demand, so trying to isolate one or the other doesn't make sense. Why does it matter how many people are associated with a particular wallet? The wallet with $150 worth of Bitcoin has the same amount of security as the wallet with $15M, and it's considerable. The protocol itself has never been hacked, despite holding nearly $1 trillion of value.
- ArnoVW 5y ago
  Arguably, if someone would hack BTC, he or she would have to make sure no-one found out. Because if people knew that BTC was hacked, the bottom would fall out under it, and all your stolen coins would become worthless. Not to say that I think it's been hacked....
imtringued 5y ago
Gold is expensive because of scarcity, that does not make it valuable. In fact, people are wasting their time on this planet, digging up gold which is merely supposed to represent wealth but not be wealth in itself. If you think of gold as a speculative accounting system then it really is just a very resource inefficient way of book keeping. Digging up gold and going to war for gold mines makes you poorer, not richer. Yet people believe that this system is infallible.

rdbell 5y ago

How are you defining an account when you say that 95% of BTC is owned by 2% of accounts?

atmosx 5y ago
Adir Shamir did long time ago: https://eprint.iacr.org/2012/584.pd https://eprint.iacr.org/2012/584.pd tl;dr: 98% of BTC in circulation at the time belonged to 2% portfolios.
- ajaimk 5y ago
  fixed the link: https://eprint.iacr.org/2012/584.pdf https://eprint.iacr.org/2012/584.pdf
  - atmosx 5y ago
    Thanks!

atmosx 5y ago

> This concentration not only risks to threaten blockchain's own premises [...] BTC was designed specifically to avoid any kind of _state control_ and by _state control_ I mean something along the lines of a central bank. Adding protections here and there will inevitably lead to a system that is similar to current financial system with all the bells and whistles. I think you're missing the point: BTC tries to sell lack of any kind of control (or protection, however you want to call it) as a _feature_.

micromacrofoot 5y ago
so instead we have “not banks” that are less accountable?
- maxwell86 5y ago
  bitcoin has no banks, period.
  - micromacrofoot 5y ago
    right, most people keep their crypto in exchanges which are definitely not just worse banks
    - ur-whale 5y ago
      > most people keep their crypto in exchanges Do they? What is your evidence for this? Also, if we assume they do, well ... their BTC is now potentially subject to seizure, hacking, fees, bankrupt exchanges ... well, their choice. Darwinism at work as far as I'm concerned. Not you keys, not your coins.
    - jonathan-adly 5y ago
      source: trust me bro! Bitcoin maxis literally go insane telling people to take their coins off exchanges. It's part of the dogma.
    - randomhodler84 5y ago

PeterisP 5y ago

Meh, since there's no hard registry of identities of owners, if someone would make and popularize an inequality index, that index would simply be gamed (e.g. by artificial splitting of accounts) to show whatever is most beneficial to show, as soon as a gameable metric is used for a practical purpose (e.g. making better investment choices), it ceases to be useful for that purpose as it gets manipulated, see Goodhart's law https://en.wikipedia.org/wiki/Goodhart%27s_law https://en.wikipedia.org/wiki/Goodhart%27s_law .

RichardHeart 5y ago

You're describing the Gini coefficient. Here's an article on why you shouldn't overuse that: https://vitalik.ca/general/2021/07/29/gini.html https://vitalik.ca/general/2021/07/29/gini.html That being said, 42% of all Bitcoin sits in 2100 addresses. Google "Bitcoin rich list" and you'll also be able to look on that site at other coins as well. People will point out that those are exchanges representing users. And I'll point out, crypt was invented to remove middlemen and exchanges are middlemen.

howdydoo 5y ago
Crypto isn't intented to remove middlemen. It's intended to give people the choice of who to trust. People can choose to trust an exchange, or to self-custody, and deal with the consequences in either direction. If I choose to self-custody, it's much safer to memorize a seed phrase than to store cash in my mattress. Most people don't bother and use banks. But I think it's good that people now have a choice in the matter.
- RichardHeart 5y ago
  I'll quote the first sentence from the Bitcoin whitepaper. "A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution."
  - wmf 5y ago
    Right; it allows not using middlemen but it doesn't force it. Forced decentralization is a mostly unsolved problem.
- acdha 5y ago
  > Crypto isn't intented to remove middlemen That isn’t what the sales pitch has been for the last 13 years, with lots of fanciful rhetoric about removing the need for banks (“you can be your own bank!” is basically a cliché by now). > If I choose to self-custody, it's much safer to memorize a seed phrase than to store cash in my mattress. Are you sure about this? Lots of people have been phished or compromised, whereas someone breaking in and searching your house is relatively uncommon and limited to people in the same area whereas your cryptocurrency can be stolen by anyone in the world.

howdydoo 5y ago

Many BTC addresses are owned by companies (e.g. exchanges, trusts, etc) and not by individuals. The Gini coefficient only looks at individuals, not companies. In other words, it doesn't treat Google as a person and compare its wealth directly to yours. So you can't directly compare those numbers.

iskander 5y ago

Wallets != people. Without proof of personhood, you never know the distribution.

jonathan-adly 5y ago
This right here. Everybody running and screaming about the OP statistic have 0 knowledge how bitcoin works or purposefully spreading false information. It's like the elections being stolen, or anti-vax propaganda or whatever other idiocy being spread on FB on any given moment.
- cuteboy19 5y ago
  No, OP is correct actually >95% of Bitcoin is owned by 2% This is just the lower limit on the concentration of wealth in Bitcoin, found from onchain data. Since people can have multiple addresses it is possible that the 2% actually control 97% or even more of btc supply
  - seedless-sensat 5y ago
    This isn't necessarily true, because some of those largest wallets are probably exchanges/trusts. It can go both ways: one wallet may have many owners, and one owner may have many wallets.
  - jonathan-adly 5y ago
    Can you tell me right now how many wallets does Satoshi have?
epgui 5y ago
Isn't this a problem? More specifically: assuming we can't derive it by some clever means, or approximate it from some tax reporting data, isn't it a problem that we can't get such a distribution? I mean this not as a moral judgement, but more as a system dynamics concern. It's easy enough to see how wealth concentration can destabilize a money/value system absent other factors. So my concern isn't about what's right or wrong socially, but whether there might be a reason to question the implicit trust that the maths will work out.

hartator 5y ago

How do you know concentrations is not even worse? Same person can have multiple accounts.

irvingprime 5y ago

If you mean you want a way to quickly measure how distributed ownership of a particular currency is, that sounds fine. You should be able to develop a decent visualization from blockchain explorers themselves without too much trouble. Well, some trouble. But it's possible. Any moderately good programmer should be able to do it for you. Keep in mind, though, that other comments on this thread have pointed out that addresses and wallets don't have a 1 to 1 relationship with people. So you won't really be seeing who owns the most. Leave the word "inequality" out of it. I don't think it means what you think it means.

paulpauper 5y ago

>It is quite famous that 95% of Bitcoin is owned by 2% of accounts. This concentration not only risks to threaten blockchain's own premises, but also exposes minor investors to risk of whales who lead the market and can easily speculate on prices since they can influence the price trends. It doesn't threaten it though. It would only threaten it if miners colluded. Crypto may be manipulated, but so is everything else, like Gamestock stock in 2021. The crypto bubble is already deflating, with btc having fallen 40% in the past 2 months. These problems will fix themselves as the bubble continues to deflate.

baby 5y ago
Jul 16 2021, bitcoin was 30k, today it’s 40k, how is this a deflating bubble?
- headmelted 5y ago
  Because you just picked a randomly favourable date from an escalating speculative asset?
  - baby 5y ago
    So did you?
    - deleted 5y ago
      [deleted]
- paulpauper 5y ago
  was at 70k
  - baby 5y ago
    false, https://www.yahoo.com/now/crypto-daily-movers-shakers-july-003419625.html https://www.yahoo.com/now/crypto-daily-movers-shakers-july-0... > July 15, 2021 > Bitcoin, BTC to USD, fell by 2.84% on Thursday. Reversing a 0.29% gain from Wednesday, Bitcoin ended the day at $31,890.0.

baby 5y ago

Bitcoin is not proof of stake so I’m not sure why this would matter.

CodeWriter23 5y ago

I think a thought spent on crypto is a thought wasted.

bogota 5y ago
I think this comment is a waste under its own assertion. No?
- CodeWriter23 5y ago
  While I see your point of irony, and can only be amused by your comment and the apparent absurdity of my speaking my point, I’d say on balance and considering the future potential of thought waste, there is a net conservation of thoughts.

ur-whale 5y ago

> It is quite famous that 95% of Bitcoin is owned by 2% of accounts. Is it? What's your evidence for this?

marto1 5y ago

So we have an asset that follows a Pareto distribution[1]. Now if one has spent any time and resources investing they'd notice that this holds true for a lot of assets. Bitcoin is really not exceptional in this. Are you after an asset that doesn't follow that distribution ? Do you consider this a good thing ? [1] https://en.wikipedia.org/wiki/Pareto_distribution https://en.wikipedia.org/wiki/Pareto_distribution

epgui 5y ago
The pareto distribution has an alpha parameter. If alpha is large enough, then one person/wallet contains the totality of the wealth, and the rest all have exactly zero of it. This is illustrated plainly by the limit of alpha -> infinite in the graph. I think it's obvious that this extreme case is very bad. So there must be a point where alpha goes from being in "good" territory to being in "bad" territory, or there must be some gradient of "least concerning" to "most concerning". The question asked by OP is basically equivalent to "what is the value of alpha?" Considering the potential for concern, this seems like a useful thing to measure. I don't want to speak for anyone else, but when most people talk about wealth/income distribution or inequality, they generally aren't advocating for a flat line (everyone has an equal amount of dollars), they are generally advocating for keeping Pareto's alpha at some reasonable level.

ur-whale 5y ago

> This concentration not only risks to threaten blockchain's own premises ... And, yet another claim that needs to be justified. Assuming one whale owns 20M Bitcoins, that still leaves 1M Bitcoins to use for transactions. That's 10^14 satoshis, plenty enough to allow people to exchange value in complete freedom. Can the one guy who owns the 20M tank the price by playing market games? Maybe, but why would he shoot himself in the foot by doing so? And even if he did and - say - crashed the price down to BTCUSD = 2 ... would that prevent people from using Bitcoin to exchange value? Nope.

bogota 5y ago

Crypto will be the death of HN. OPs comment is something that has been talk about since 2012 and looking at one or two parent comments they cover the depth that is required to answer why this doesn’t matter or can’t be determined. However it’s crypto so now we have 50+ comments about why X thinks Y is stupid. Why crypto is a waste. Why crypto is the best. But its all 100% stupid unfounded word vomit. HN has shows crypto is too polarizing of content to have intelligent discussion here. IMO is should be banned from the site. You could replace these comments with comments from a reddit post that hit the front page and you wouldn’t know the difference.

randomhodler84 5y ago
We should never attempt to ban technology, it only grows more powerful in the shadows.

timdaub 5y ago

- https://rugpullindex.com https://rugpullindex.com rates some ERC20 pools by gini index - In the future, we want to rank all of them - Method specification: https://rugpullindex.com/specification#CalculatingtheEqualityofLiquidityProvidersinthePoolGinicoefficient https://rugpullindex.com/specification#CalculatingtheEqualit...

Proven 5y ago

gremlinsinc 5y ago

I'd rather see a currency that has a guaranteed validated identity tied to every wallet, and you can only have 1 wallet, and that wallet has a max limit on currency. The coin would also tax based on hodl vs spending the lower your overall wealth and the more you spend monthly (more transactions, not more total) the more UBI you get, the more you hodl, the more your tax obligation is. The longer you hodl the more your tax obligation as well. Basically use it or lose it, and if it could become pegged to the price of a loaf of bread or something wherever you live... then it could achieve some form of universality...but that last bit would be hard to figure out as I'm no economist.

TradingPlaces 5y ago

Easy to calc: https://en.wikipedia.org/wiki/Gini_coefficient https://en.wikipedia.org/wiki/Gini_coefficient

JSavageOne 5y ago

Yes I agree. Even if it's not a perfect metric, it'd still be useful.