The words ‘Bitcoin’ and ‘decentralized’ are never too far away from one another. After all, decentralization is at the heart of what Bitcoin was designed to be: a currency that existed free of the controls of a government or financial institution. However, information published by BitInfoCharts has revealed that the Bitcoin network is much more centralized than most of us would like to believe.
BitInfoCharts found that of the 11 million Bitcoin holders in the world, only 1,000 of them (approximately 0.009 percent) control 35.4 percent of all of the BTC in circulation. Of those 1,000, the top ten account holders control 5.96 percent of all BTC.
Bitcoin Whales “Literally Control the Currency”
Cryptocurrency expert Bob McDowall believes that these major ‘hodlers,’ colloquially knowns as ‘whales,’ have the power to manipulate the Bitcoin network. They “literally control the currency,” he told the Business Times. Their holdings essentially grant them the ability to “dictate monetary policy, which is normally the function of a central bank or a government."
Of course, it’s entirely possible that the network could be even more centralized--one individual could hold several large Bitcoin wallets, skewing the information; it’s also possible that a group of individuals could hold a single account, making the network slightly less centralized.
Centralization is Also Reflected in Transactional Activity
The Business Times also reported that the centralized nature of the Bitcoin network is reflected in the network’s transactional activity: over a 24-hour period between Monday, June 11th, and Tuesday, June 12th,
“the 100 biggest bitcoin transactions out of 200,000 accounted for 24 percent of the money volumes.”
In a practical sense, this level of centralization means that individuals who hold large amounts of BTC have a troubling amount of control over BTC’s valuation. If one--or several--of these major holders should suddenly choose to liquidate their assets, it could send the price of BTC into a tailspin. Smaller holders may then panic-sell their assets; the whales buy them up. The cycle continues.
However, the network may be moving further away from being centralized. A study by Chainalysis found that “the supply of bitcoin available for trading has increased by 57 percent since December 2017." We can hope that this trend will continue.
