Graph: Distribution of Top 96 Bitcoin Address Volume

It is common knowledge that many Internet phenomena such as weblogs and Twitter and other complex systems, are scale-free networks exhibiting a power law distribution. For a while I was wondering whether Bitcoin would also exhibit such a long tailed distribution, the famous graph popularized by Wired Magazine’s Chris Anderson in his book The Long Tail:

A recent post by Jon Matonis alerted me to some data on ‘Bitcoin’s Richest’, i.e. the amount of BTC owned by the top 96 addresses, of which I made this graph:

Top 96 Bitcoin Address Volume (BTC)

Source: snort987 and github

I do not want to draw too many conclusions based on so little data, but what might be interesting is the following. The fact that wealth under the contemporary money system is distributed according to a power law is known for long. In other words, this is the story of the rich getting richer, the 99%, etcetera. An issue of debate is always 1. why this is the case and; 2. whether this is a kind of social injustice. A common argument concerning the how-and-why of the contemporary spread of wealth is that some people are just more entrepreneurial, hard-working, or just plain smart, compared to others.

Theory based on data from new media applied to the money system might paint another story, yielding the insight that the resulting distributions are in part, and at least more than is commonly assumed, attributable to feedback factors in a system that are beyond individual control. Examples are preferential attachment (being earlier is better) and this combined with growth and selection bias results in the formation of hubs (see for example this paper by Laszlo et al. on scale-free networks [PDF alert]). In addition, recommendation mechanisms familiar from platforms like Amazon and Twitter provide more positive feedback loops, which has the effect of what is popularly described as ‘the rich getting richer’.

If we look specifically at Bitcoin’s distribution, the power law is also directly related to the distribution of ‘old’ money. Why? This is due to the protocol of the Bitcoin network that determines how Bitcoins are created (‘mined’). What do you need to get Bitcoins? A lot of hardware and electricity, which in most cases must be paid for with ‘old’ money. Bitcoin does not operate in a vacuum, so those who command more old money are structurally better situated to mine Bitcoins.

Notes

  • Top outlier address has a volume of 438825 BTC, with a market value of almost 3 million dollar
  • These are the top 96 addresses, not wallets. Wallets can consist of multiple addresses
  • Multiple wallets can belong to one identity
  • Many address volumes are rounded;
  • 21/96 addresses have a volume of 10.000 BTC

Further research

  • retrieve information on more than 96 addresses (if you know how, please let me know..)
  • combine addresses into wallets, this would yield a more informative metric concerning the distribution of BTC than adresses

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6 Reacties op Graph: Distribution of Top 96 Bitcoin Address Volume

  1. Jon Matonis schreef:

    Nice graph. However, the transfer of wealth that is (or will) occur in bitcoin is actually not very much related to wealth in the old world. Very few people of “old world” wealth even recognize bitcoin as an asset class and, even if they did, they would probably be very reluctant to invest sizable portions of their current wealth.

    Mining rig investments and even individual conversions into bitcoin are relatively affordable on a risk/return basis. The ones that will benefit from bitcoin rising as an asset class are those that believe in the power of cryptography and can extrapolate what that means for government-managed currencies. Bitcoin is a beta software project with little to no mainstream adoption; therefore the earliest adopters will be the huge winners and that has nothing to do with their wealth of today. It will be a social class realignment.

  2. Mark A. Jansen schreef:

    Thanks, Jon. I get your view but I would like to nuance some things:

    “…the transfer of wealth that is (or will) occur in bitcoin is actually not very much related to wealth in the old world. Very few people of “old world” wealth even recognize bitcoin as an asset class and, even if they did, they would probably be very reluctant to invest sizable portions of their current wealth.”

    Sure, but those who do recognize it are probably better educated and at least able to act on their insight and invest some spare savings. In other words, a person needs quite a combination of expertise, assets and insight into the project’s potential to ‘profit’ from Bitcoin. You might say that this is no different from many other innovative business ventures.

    “Mining rig investments and even individual conversions into bitcoin are relatively affordable on a risk/return basis. .. Bitcoin is a beta software project with little to no mainstream adoption; therefore the earliest adopters will be the huge winners and that has nothing to do with their wealth of today.”

    I might follow you that it is affordable (I have not yet studied these cost/benefit numbers), but affordability does not make it unrelated to existing wealth patterns.

    “therefore the earliest adopters will be the huge winners and that has nothing to do with their wealth of today.”

    Sure, the earliest adopters did not need enormous computing power (hardware/energy), so you are right that some early adopters might not have needed ‘old’ wealth and were able to get wealthier without significant investment of their wealth from before, but this situation is no longer actual.

    “It will be a social class realignment.”

    Why? Please don’t get me wrong, I find Bitcoin (and internet in general) fascinating (hence I write about it), but statements such as these are often made when new technologies are invented http://en.wikipedia.org/wiki/Technological_utopianism . I am not saying that Bitcoin will not be a change agent, on the contrary; I believe the project is very important in how people experience and think about the money concept.

    But as of yet I fail to see why Bitcoin would single-handedly re-distribute wealth and change existing patterns of ownership (if that is what you mean with social class realignment?). The way the Bitcoin protocol is configured clearly has not the objective to distribute newly created Bitcoins (the wealth that the network adds to the world) evenly among nodes in the network. Here, I am not even arguing that it should but just noting facts; Bitcoin’s network politics are based on proof-of work based on computing power; Nakamoto writes in the Bitcoin paper that the rule is “one-CPU-one-vote”. These resources are not evenly distributed. So, with an exception for the earliest adopters, Bitcoin is related to the current wealth distribution.

  3. Jon Matonis schreef:

    Thank you for your excellent feedback to my comments, Mark. Just as a side-note, cryptographers, regardless of education level, can be some of the least wealthy people that I know.

    Actually, I am writing a paper on this topic now however, on your last question, I will refer you and your readers to this piece by Ryan Dickherber, “Bitcoin is the Economic Singularity” themonetaryfuture.blogspot.com/2011/06/bitcoin-is-economic-singularity.html

  4. Mark A. Jansen schreef:

    Here is a Quantitative Analysis of the Full Bitcoin Transaction Graph http://eprint.iacr.org/2012/584

  5. Pingback: Bitcoin Client Downloads Per State | Mark A. Jansen

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