Vast Majority of Bitcoin Addresses 'Economically Irrelevant,' Study Shows

Blockchain Blockchain Blockchain comprises a digital network of blocks with a comprehensive ledger of transactions made in a cryptocurrency such as Bitcoin or other altcoins.One of the signature features of blockchain is that it is maintained across more than one computer. The ledger can be public or private (permissioned). In this sense, blockchain is immune to the manipulation of data, making it not only open but verifiable. Because a blockchain is stored across a network of computers, it is very difficult to tamp Blockchain comprises a digital network of blocks with a comprehensive ledger of transactions made in a cryptocurrency such as Bitcoin or other altcoins.One of the signature features of blockchain is that it is maintained across more than one computer. The ledger can be public or private (permissioned). In this sense, blockchain is immune to the manipulation of data, making it not only open but verifiable. Because a blockchain is stored across a network of computers, it is very difficult to tamp Read this Term analytics firm Chainalysis in a recent study revealed that of the 460 million Bitcoin addresses on the Blockchain, only 172 million are "economically relevant."

“Out of the 172 million economically relevant addresses, Chainalysis has identified 147 million, or 86%, as belonging to named services, such as an exchange or a darknet market,” stated the analytics firm.

While the Bitcoin blockchain contains over 460 million addresses, only about 37% are economically relevant. Read more in our latest research: https://t.co/2GsQz3Pxau pic.twitter.com/6KUDsPkdtJ

— Chainalysis (@chainalysis) December 19, 2018

The New York-headquartered firm analyzed all Bitcoin addresses created so far and found that only 25 million address actually hold any amount of Bitcoin.

“At Chainalysis, we have identified that 86% of these [addresses] belong to a named service. The remaining addresses are largely used to facilitate Payments Payments One of the bases of mediums of exchange in the modern world, a payment constitutes the transfer of a legal currency or equivalent from one party in exchange for goods or services to another entity. The payments industry has become a fixture of modern commerce, though the players involved and means of exchange have dramatically shifted over time.In particular, a party making a payment is referred to as a payer, with the payee reflecting the individual or entity receiving the payment. Most commonl One of the bases of mediums of exchange in the modern world, a payment constitutes the transfer of a legal currency or equivalent from one party in exchange for goods or services to another entity. The payments industry has become a fixture of modern commerce, though the players involved and means of exchange have dramatically shifted over time.In particular, a party making a payment is referred to as a payer, with the payee reflecting the individual or entity receiving the payment. Most commonl Read this Term, meaning that just 20% of transaction value on the Bitcoin network is an economic transfer, moving bitcoin between two different parties,” Chainalysis noted.

Cryptography in Action

Bitcoin’s core cryptography makes the transactions more complicated as compared to digital fiat transactions. If a seller with 10 Bitcoins in their wallet wants to sell one, the person has to empty his or her address of all ten bitcoins but will receive nine back in change. Though the effective value of the transaction is worth only one Bitcoin, the blockchain will register a transaction value of 10 Bitcoins.

This creates a lot of ‘connective tissue’ addresses which hold Bitcoin for a short period of time, usually less than a day.

“They are typically single use and hold bitcoin for only a short time. For instance, three-quarters have held bitcoin for less than a day. The majority of these addresses are either change addresses or ‘connective tissue,’ meaning they hold bitcoin for a short time to facilitate payments between people and services,” stated Chainalysis.

Last year, when Bitcoin reached its peak, Chainalysis reported that around 4 million Bitcoins, then valued at $37 billion, were lost forever. Another study, earlier this year, revealed that only 1 percent of Bitcoin holders, otherwise known as ‘sharks,’ is holding more than 34 percent of the value of the network.