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This is theoretically a fair criticism. But note that the 27% vs 0.01% never appears in the NBER paper. Further note the extreme limitations of any clustering b

by darawk 4y ago

This is theoretically a fair criticism. But note that the 27% vs 0.01% never appears in the NBER paper. Further note the extreme limitations of any clustering based analysis. And finally, note that they do not actually identify individuals, they identify clusters, and they also treat mining pools as individuals. I see no support for the headline number in this paper. What it appears that the people making this video did was take "1000 individuals" (which the paper defines as clusters of wallets) and divide by 68 million wallets in existence. What you actually get here when you do this is 0.001% vs 16%, which is reasonably close to the figured cited in the video, so is likely essentialy the calculation they did. It should be obvious how absurd this is. EDIT: Hah, actually the exact calculation they did is 10k/68mm and 5mm/18mm. That gives you exactly 0.01% and 27%. Discrepancy resolved. This is the exact ludicrious calculation the people in this video did.

amelius 4y ago
The fact remains that cryptocurrencies are Ponzi schemes. Even the original inventor of Bitcoin said so. https://www.thetimes.co.uk/article/craig-wright-i-invented-bitcoin-now-its-a-ponzi-scheme-hkrv75clr https://www.thetimes.co.uk/article/craig-wright-i-invented-b... Also, they are a way to fund criminal activity, of which ransomware is just one example. Cryptocurrencies are barely used for legitimate payments. They are mostly used for speculation (gambling). It's just bad news. Not the liberation we have been waiting for.
- darawk 4y ago
  Whatever you think of them, it's extremely important to note that Craig Wright was absolutely not the inventor of Bitcoin.
- chromatin 4y ago
  Craig Wright is so obviously not the pseudonymous creator of Bitcoin ("satoshi") that the only people who maintain this typically have a financial interest, viz. the failed "BSV" fork.
- ch4s3 4y ago
  I am 100% a crypto skeptic and don't own any coins, but it is incorrect to call them a Ponzi scheme[1], which is an investment fraud that uses funds from new investors to pay existing investors. You can make a very credible case that many coins were designed for pump and dump scams, but that is not a Ponzi scheme. The crux of Bitcoins is that its value is derived from people's belief in its value. Lot's of assets and to an extent fiat moneys work this way. The "magic" of bitcoin et.al. is that they are finite, have clear chain of custody, and can be traded peer to peer. Those features can and do inspire confidence, but at the end of the day these coins have limited real world utility outside of money transfers and holding wealth. Those uses are directly tied to the faith of the market for those coins. If someone asked me if they should buy and hold these coins, I would say no. However, speculation is somewhat in the eye of the beholder and turns on the risk of losing the investment. It's nearly impossible to predict future changes in asset prices, especially when an asset has been steadily increasing in value for years, but has a limited history. TL;DR you're misusing the phrase "Ponzi scheme" which means something else. [1] https://en.wikipedia.org/wiki/Ponzi_scheme https://en.wikipedia.org/wiki/Ponzi_scheme
  - mistrial9 4y ago
    > crux of Bitcoins is that its value is derived from people's belief in its value brave, but .. fail. The crux of BTC is that it is secure to attacks while moving assets that are represented digitally. In order to succeed in that, the integrity of the chain is required. Popularism is a "nice to have."
    - FPGAhacker 4y ago
      gp > “belief in its value” p > “assets that are represented digitally” Those seem equivalent to me.
      - ch4s3 4y ago
        Yeah, that's kind of what I'm saying.
    - mlyle 4y ago
- v0idzer0 4y ago
  By this definition of ponzi scheme, isn’t USD also a ponzi scheme?
- birthday 4y ago
  "the inventor of bitcoin" hah. Don't believe everything you read, just like this post from OP.
- barnbuilder 4y ago
  The Times is the newspaper whose headline Satoshi referenced in his genesis block: "Chancellor on brink of second bailout for banks". So I would have thought even though all newspapers do a terrible job of reporting on Bitcoin, they might be a little more inclined to do it well. And yet here they are uncritically repeating the claims of known plagiarist and con artist Craig Wright.
- gjvc 4y ago
  "hot potato" asset is possibly a better description. sell it while it's still hot before it goes cold and nobody wants to buy it.
upsidesinclude 4y ago
Of course, as we all know, in crypto there's only one wallet per person and this is strictly enforced!
v0idzer0 4y ago
Yeah I mean the post is clickbait, but crypto (which can be bought with USD) unsurprisingly has similar inequality issues to USD. But the selling point of crypto was never curing inequality. It could have never done that. So the entire post is a bit of a straw man.
- atweiden 4y ago
  Government money is a tool nations can use to further their own national interests. While this isn’t without its downsides (though see Yanis Varoufakis on CBDCs [1]), the gains from it are socialized. By contrast, an enormous percentage of bitcoin and all other major cryptocurrencies was mined (or worse, “premined”) in the first few years after launch. What nation of people benefits from this form of inequity? Cryptocurrency is entirely nationless. [1]: https://the-crypto-syllabus.com/yanis-varoufakis-on-techno-feudalism/ https://the-crypto-syllabus.com/yanis-varoufakis-on-techno-f...
- twelve40 4y ago
  > the selling point of crypto was never curing inequality Sure it was. Definitely not the only selling point, but there is a ton of drivel out there about how it is supposed to liberate us from the big bad banks (banks are now replaced by Coinbase et al) How something that's supposed to be decentralized, consensus-based, not prone to manipulation by the greedy corporations, greedy individuals and governments is now actually turning out to be something else. And it even has some real equality-related use cases like wiring remittances to Argentina, or the failed El Salvador experiment. But overall trending in the opposite direction to equality.
- rschneid 4y ago
  I think it's a bit of an oversimplification to define equality as 'current distribution of wealth.' A very important part of wealth is being able to actually use it, and there are many ways holders or would-be-recipients of USD are restricted in who they can transact with that are far from equal. Cryptocurrencies are not without restrictions of their own, but their restrictions are more objective/technical rather than the vaguely phrased, regularly changing, cultural nature of traditional 'laws' that govern USD transactions. Ultimately, I agree with your assessment of the research avenue as a straw man.
FabHK 4y ago
You might well want to criticise the paper, but I think the video is a fair representation of the contents of the paper. Regarding the number of holders, the paper says: "While the original database has 896 million addresses, after we remove addresses in peeling chains we end up with 640 million addresses. Theses addresses belong to 189 million clusters, of which 116 million clusters are single-address clusters." Not sure where the number of 68 million wallets comes from. Taking 189m as the number of holders, we'd have 0.005% of BTC holders holding 27% of all BTC. But even we take that 68m "wallet" number, and assume that each holder controlled multiple wallets, say 10 on average, we'd have 6.8m holders, and then 0.15% of holders controlling about 27% of BTC. Still enormous concentration. More from the paper: "It is also important to note that 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. In particular, in the above calculations, we do not assign the ownership of early bitcoins, which are held in about 20,000 addresses, to one person (Satoshi Nakamoto) but consider them as belonging to 20,000 different individuals." Another interesting part of the paper: "To the best of our knowledge, we have the most complete information about crypto entities that have been used in academic research up to this point. Our data cover 1,043 different entities. These include 393 exchanges, 86 gambling sites, 39 on-line wallets, 33 payment processors, 63 mining pools, 35 scammers, 227 ransomware attackers, 151 dark net market places and illegal services."
- darawk 4y ago
  > You might well want to criticise the paper, but I think the video is a fair representation of the contents of the paper. I do have criticisms of the paper, but those are milder. They are inherent limitations of the methodology, which the authors seem to recognize. The headline in this HN post is not remotely a fair representation of anything whatsoever in the paper. > Not sure where the number of 68 million wallets comes from. Taking 189m as the number of holders, we'd have 0.005% of BTC holders holding 27% of all BTC. But even we take that 68m "wallet" number, and assume that each holder controlled multiple wallets, say 10 on average, we'd have 6.8m holders, and then 0.15% of holders controlling about 27% of BTC. Still enormous concentration. The 68 million number comes from here: https://www.statista.com/statistics/647374/worldwide-blockchain-wallet-users/ https://www.statista.com/statistics/647374/worldwide-blockch... and when you use these figures with the ones from the paper, the results line up exactly with the headline here. If you do the divisions I think it's pretty clear that the video divided 10k/68m and 5m/18m, which is completely illegitimate, considering the paper is discussing "clusters" of wallets. As for your analysis, i'm not really sure what manipulation you're doing there. There is no coherent way to adjust for the number of wallets owned by an individual, because you don't know the composition of that ownership. Unless you can identify who owns which groups of wallets, you can't back out wealth inequality here under the assumption of multiple wallet ownership. That's exactly why the paper tries to do this clustering analysis that it does. Its purpose is to group wallets presumed to be owned by one person. > More from the paper: "It is also important to note that 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. In particular, in the above calculations, we do not assign the ownership of early bitcoins, which are held in about 20,000 addresses, to one person (Satoshi Nakamoto) but consider them as belonging to 20,000 different individuals." This cuts both ways, though. It may be that a huge number of the low balance wallets are duplicates controlled by individuals as well. People that programmatically created wallets, e.g. for the purpose of anonymization, and left tiny bits of dust in them. They aren't filtering by low balance in any way I can observe. > Another interesting part of the paper: "To the best of our knowledge, we have the most complete information about crypto entities that have been used in academic research up to this point. Our data cover 1,043 different entities. These include 393 exchanges, 86 gambling sites, 39 on-line wallets, 33 payment processors, 63 mining pools, 35 scammers, 227 ransomware attackers, 151 dark net market places and illegal services." I'm sure this is all true, and i'm sure it is the most complete academic dataset used to date. That doesn't really mean it is complete though. Note that they enumerate an impressive list of entities, but we have no idea how complete their coverage of those entity's wallets is. And as someone that has done this kind of analysis, I do not trust academic econometricians just trying to publish their next paper to do a good job of it. Chainalysis is hard and inherently quite fuzzy. It's also an adversarial environment, intermediaries often intentionally try to mask their activity, as do individuals. Let's look at the actual content of their methodology, though in the paragraph directly above: > To link address clusters to real entities we scrape cryptocurrency blogs and websites, such as Reddit, Blockchain.info, bitinfocharts.com, bitcointalk.org, walletexplorer.com, and Matbea.com for all publicly available addresses of prominent Bitcoin entities such as exchanges, payment processors, gambling sites, and others. We supplement this information with the state-of-the-art database of crypto entities from Bitfury Crystal Blockchain. Bitfury Crystal Blockchain is one of the leading providers of anti-moneylaundering tools and analytic solutions in the crypto space Does this sound comprehensive to you? The only wildcard here is this "Bitfury" thing which i've certainly never heard of, but we can quickly look at their customers page to get a gauge of how serious they are: https://crystalblockchain.com/due-diligence-tool-for-crypto-exchanges-businesses/ https://crystalblockchain.com/due-diligence-tool-for-crypto-... Everyone on that list i've also never heard of. There is a company that dominates this space, and it's https://www.chainalysis.com/ https://www.chainalysis.com/ Compare Chainalysis's customer list to Bitfury's. Every name on there is a serious entity that you've probably heard of. Why aren't they using data from Chainalysis? Or data from someone else reputable? We have no insight into what "Bitfury"s methodology is, so I can't explicitly critique it, but there are really good reasons to be very suspiciuos of its quality. Finally, I note that they make no mention of mixers or contracts like WBTC, which can hold enormous quantities of coins, and can also create tons of fragmentation in the address space, which is very likely to significantly frustrate any clustering based methodology or naive chainalysis attempt.
jonas21 4y ago
Which part do you think is absurd? It looks like they used the 10,000 number from the NBER paper as the numerator and the crypto.com estimate of 114M people with Bitcoin as the denominator to come up with the 0.01% figure [1]. Do you find it hard to believe that ~100M people hold Bitcoin? This seems at least in the right ballpark when you cross-reference it with survey data [2]. [1] https://www.wsj.com/articles/bitcoins-one-percent-controls-lions-share-of-the-cryptocurrencys-wealth-11639996204 https://www.wsj.com/articles/bitcoins-one-percent-controls-l... [2] https://www.pewresearch.org/fact-tank/2021/11/11/16-of-americans-say-they-have-ever-invested-in-traded-or-used-cryptocurrency/ https://www.pewresearch.org/fact-tank/2021/11/11/16-of-ameri...
- onlyrealcuzzo 4y ago
  Are they counting that the first wallet owns ~5% of BTC? With this in mind - it's less surprising that the remaining 0.01% own 22%. This isn't TOO far off of regular inequality. IIUC, the top 0.01% globally own >12% of wealth: https://www.chicagobooth.edu/review/never-mind-1-percent-lets-talk-about-001-percent https://www.chicagobooth.edu/review/never-mind-1-percent-let... Given that crypto had such absurd hyper growth - I'm actually shocked inequality isn't far worse.

by darawk 4y ago

amelius 4y ago

The fact remains that cryptocurrencies are Ponzi schemes. Even the original inventor of Bitcoin said so. https://www.thetimes.co.uk/article/craig-wright-i-invented-bitcoin-now-its-a-ponzi-scheme-hkrv75clr https://www.thetimes.co.uk/article/craig-wright-i-invented-b... Also, they are a way to fund criminal activity, of which ransomware is just one example. Cryptocurrencies are barely used for legitimate payments. They are mostly used for speculation (gambling). It's just bad news. Not the liberation we have been waiting for.

darawk 4y ago
Whatever you think of them, it's extremely important to note that Craig Wright was absolutely not the inventor of Bitcoin.
chromatin 4y ago
Craig Wright is so obviously not the pseudonymous creator of Bitcoin ("satoshi") that the only people who maintain this typically have a financial interest, viz. the failed "BSV" fork.
ch4s3 4y ago
I am 100% a crypto skeptic and don't own any coins, but it is incorrect to call them a Ponzi scheme[1], which is an investment fraud that uses funds from new investors to pay existing investors. You can make a very credible case that many coins were designed for pump and dump scams, but that is not a Ponzi scheme. The crux of Bitcoins is that its value is derived from people's belief in its value. Lot's of assets and to an extent fiat moneys work this way. The "magic" of bitcoin et.al. is that they are finite, have clear chain of custody, and can be traded peer to peer. Those features can and do inspire confidence, but at the end of the day these coins have limited real world utility outside of money transfers and holding wealth. Those uses are directly tied to the faith of the market for those coins. If someone asked me if they should buy and hold these coins, I would say no. However, speculation is somewhat in the eye of the beholder and turns on the risk of losing the investment. It's nearly impossible to predict future changes in asset prices, especially when an asset has been steadily increasing in value for years, but has a limited history. TL;DR you're misusing the phrase "Ponzi scheme" which means something else. [1] https://en.wikipedia.org/wiki/Ponzi_scheme https://en.wikipedia.org/wiki/Ponzi_scheme
- mistrial9 4y ago
  > crux of Bitcoins is that its value is derived from people's belief in its value brave, but .. fail. The crux of BTC is that it is secure to attacks while moving assets that are represented digitally. In order to succeed in that, the integrity of the chain is required. Popularism is a "nice to have."
  - FPGAhacker 4y ago
    gp > “belief in its value” p > “assets that are represented digitally” Those seem equivalent to me.
    - ch4s3 4y ago
      Yeah, that's kind of what I'm saying.
  - mlyle 4y ago
v0idzer0 4y ago
By this definition of ponzi scheme, isn’t USD also a ponzi scheme?
birthday 4y ago
"the inventor of bitcoin" hah. Don't believe everything you read, just like this post from OP.
barnbuilder 4y ago
The Times is the newspaper whose headline Satoshi referenced in his genesis block: "Chancellor on brink of second bailout for banks". So I would have thought even though all newspapers do a terrible job of reporting on Bitcoin, they might be a little more inclined to do it well. And yet here they are uncritically repeating the claims of known plagiarist and con artist Craig Wright.
gjvc 4y ago
"hot potato" asset is possibly a better description. sell it while it's still hot before it goes cold and nobody wants to buy it.

upsidesinclude 4y ago

Of course, as we all know, in crypto there's only one wallet per person and this is strictly enforced!

v0idzer0 4y ago

Yeah I mean the post is clickbait, but crypto (which can be bought with USD) unsurprisingly has similar inequality issues to USD. But the selling point of crypto was never curing inequality. It could have never done that. So the entire post is a bit of a straw man.

atweiden 4y ago
Government money is a tool nations can use to further their own national interests. While this isn’t without its downsides (though see Yanis Varoufakis on CBDCs [1]), the gains from it are socialized. By contrast, an enormous percentage of bitcoin and all other major cryptocurrencies was mined (or worse, “premined”) in the first few years after launch. What nation of people benefits from this form of inequity? Cryptocurrency is entirely nationless. [1]: https://the-crypto-syllabus.com/yanis-varoufakis-on-techno-feudalism/ https://the-crypto-syllabus.com/yanis-varoufakis-on-techno-f...
twelve40 4y ago
> the selling point of crypto was never curing inequality Sure it was. Definitely not the only selling point, but there is a ton of drivel out there about how it is supposed to liberate us from the big bad banks (banks are now replaced by Coinbase et al) How something that's supposed to be decentralized, consensus-based, not prone to manipulation by the greedy corporations, greedy individuals and governments is now actually turning out to be something else. And it even has some real equality-related use cases like wiring remittances to Argentina, or the failed El Salvador experiment. But overall trending in the opposite direction to equality.
rschneid 4y ago
I think it's a bit of an oversimplification to define equality as 'current distribution of wealth.' A very important part of wealth is being able to actually use it, and there are many ways holders or would-be-recipients of USD are restricted in who they can transact with that are far from equal. Cryptocurrencies are not without restrictions of their own, but their restrictions are more objective/technical rather than the vaguely phrased, regularly changing, cultural nature of traditional 'laws' that govern USD transactions. Ultimately, I agree with your assessment of the research avenue as a straw man.

FabHK 4y ago

You might well want to criticise the paper, but I think the video is a fair representation of the contents of the paper. Regarding the number of holders, the paper says: "While the original database has 896 million addresses, after we remove addresses in peeling chains we end up with 640 million addresses. Theses addresses belong to 189 million clusters, of which 116 million clusters are single-address clusters." Not sure where the number of 68 million wallets comes from. Taking 189m as the number of holders, we'd have 0.005% of BTC holders holding 27% of all BTC. But even we take that 68m "wallet" number, and assume that each holder controlled multiple wallets, say 10 on average, we'd have 6.8m holders, and then 0.15% of holders controlling about 27% of BTC. Still enormous concentration. More from the paper: "It is also important to note that 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. In particular, in the above calculations, we do not assign the ownership of early bitcoins, which are held in about 20,000 addresses, to one person (Satoshi Nakamoto) but consider them as belonging to 20,000 different individuals." Another interesting part of the paper: "To the best of our knowledge, we have the most complete information about crypto entities that have been used in academic research up to this point. Our data cover 1,043 different entities. These include 393 exchanges, 86 gambling sites, 39 on-line wallets, 33 payment processors, 63 mining pools, 35 scammers, 227 ransomware attackers, 151 dark net market places and illegal services."

darawk 4y ago
> You might well want to criticise the paper, but I think the video is a fair representation of the contents of the paper. I do have criticisms of the paper, but those are milder. They are inherent limitations of the methodology, which the authors seem to recognize. The headline in this HN post is not remotely a fair representation of anything whatsoever in the paper. > Not sure where the number of 68 million wallets comes from. Taking 189m as the number of holders, we'd have 0.005% of BTC holders holding 27% of all BTC. But even we take that 68m "wallet" number, and assume that each holder controlled multiple wallets, say 10 on average, we'd have 6.8m holders, and then 0.15% of holders controlling about 27% of BTC. Still enormous concentration. The 68 million number comes from here: https://www.statista.com/statistics/647374/worldwide-blockchain-wallet-users/ https://www.statista.com/statistics/647374/worldwide-blockch... and when you use these figures with the ones from the paper, the results line up exactly with the headline here. If you do the divisions I think it's pretty clear that the video divided 10k/68m and 5m/18m, which is completely illegitimate, considering the paper is discussing "clusters" of wallets. As for your analysis, i'm not really sure what manipulation you're doing there. There is no coherent way to adjust for the number of wallets owned by an individual, because you don't know the composition of that ownership. Unless you can identify who owns which groups of wallets, you can't back out wealth inequality here under the assumption of multiple wallet ownership. That's exactly why the paper tries to do this clustering analysis that it does. Its purpose is to group wallets presumed to be owned by one person. > More from the paper: "It is also important to note that 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. In particular, in the above calculations, we do not assign the ownership of early bitcoins, which are held in about 20,000 addresses, to one person (Satoshi Nakamoto) but consider them as belonging to 20,000 different individuals." This cuts both ways, though. It may be that a huge number of the low balance wallets are duplicates controlled by individuals as well. People that programmatically created wallets, e.g. for the purpose of anonymization, and left tiny bits of dust in them. They aren't filtering by low balance in any way I can observe. > Another interesting part of the paper: "To the best of our knowledge, we have the most complete information about crypto entities that have been used in academic research up to this point. Our data cover 1,043 different entities. These include 393 exchanges, 86 gambling sites, 39 on-line wallets, 33 payment processors, 63 mining pools, 35 scammers, 227 ransomware attackers, 151 dark net market places and illegal services." I'm sure this is all true, and i'm sure it is the most complete academic dataset used to date. That doesn't really mean it is complete though. Note that they enumerate an impressive list of entities, but we have no idea how complete their coverage of those entity's wallets is. And as someone that has done this kind of analysis, I do not trust academic econometricians just trying to publish their next paper to do a good job of it. Chainalysis is hard and inherently quite fuzzy. It's also an adversarial environment, intermediaries often intentionally try to mask their activity, as do individuals. Let's look at the actual content of their methodology, though in the paragraph directly above: > To link address clusters to real entities we scrape cryptocurrency blogs and websites, such as Reddit, Blockchain.info, bitinfocharts.com, bitcointalk.org, walletexplorer.com, and Matbea.com for all publicly available addresses of prominent Bitcoin entities such as exchanges, payment processors, gambling sites, and others. We supplement this information with the state-of-the-art database of crypto entities from Bitfury Crystal Blockchain. Bitfury Crystal Blockchain is one of the leading providers of anti-moneylaundering tools and analytic solutions in the crypto space Does this sound comprehensive to you? The only wildcard here is this "Bitfury" thing which i've certainly never heard of, but we can quickly look at their customers page to get a gauge of how serious they are: https://crystalblockchain.com/due-diligence-tool-for-crypto-exchanges-businesses/ https://crystalblockchain.com/due-diligence-tool-for-crypto-... Everyone on that list i've also never heard of. There is a company that dominates this space, and it's https://www.chainalysis.com/ https://www.chainalysis.com/ Compare Chainalysis's customer list to Bitfury's. Every name on there is a serious entity that you've probably heard of. Why aren't they using data from Chainalysis? Or data from someone else reputable? We have no insight into what "Bitfury"s methodology is, so I can't explicitly critique it, but there are really good reasons to be very suspiciuos of its quality. Finally, I note that they make no mention of mixers or contracts like WBTC, which can hold enormous quantities of coins, and can also create tons of fragmentation in the address space, which is very likely to significantly frustrate any clustering based methodology or naive chainalysis attempt.

jonas21 4y ago

Which part do you think is absurd? It looks like they used the 10,000 number from the NBER paper as the numerator and the crypto.com estimate of 114M people with Bitcoin as the denominator to come up with the 0.01% figure [1]. Do you find it hard to believe that ~100M people hold Bitcoin? This seems at least in the right ballpark when you cross-reference it with survey data [2]. [1] https://www.wsj.com/articles/bitcoins-one-percent-controls-lions-share-of-the-cryptocurrencys-wealth-11639996204 https://www.wsj.com/articles/bitcoins-one-percent-controls-l... [2] https://www.pewresearch.org/fact-tank/2021/11/11/16-of-americans-say-they-have-ever-invested-in-traded-or-used-cryptocurrency/ https://www.pewresearch.org/fact-tank/2021/11/11/16-of-ameri...

onlyrealcuzzo 4y ago
Are they counting that the first wallet owns ~5% of BTC? With this in mind - it's less surprising that the remaining 0.01% own 22%. This isn't TOO far off of regular inequality. IIUC, the top 0.01% globally own >12% of wealth: https://www.chicagobooth.edu/review/never-mind-1-percent-lets-talk-about-001-percent https://www.chicagobooth.edu/review/never-mind-1-percent-let... Given that crypto had such absurd hyper growth - I'm actually shocked inequality isn't far worse.