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:

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