A study by the US National Bureau of Economic Research (NBER) suggests that, according to onchain data, some large miners and large cryptocurrency exchanges still have enormous control over BTC, undermining its decentralization.
In its report, the NBER stated:
- 11,043 onchain entities (addresses) realizes about 55% of all volumes of BTC transactions
- Estimates that exchanges carry out about three quarters of all transactions
- 1000 largest investors controls about 3 million BTC (15.9% of circulating BTC)
- Another 9000 largest investors controls 2 million BTC (10.6% circulating BTC)
- Individual BTC holders (smaller players) hold 8.5 million BTC (45.1% of the offer)
- 10% of BTC miners controls about 90% of the total BTC hashrate
- The 50 largest miners, which make up only about 0.1% of the total number of active miners, control up to 50% of the hashrate
Is BTC centralized?
Based on these data, the NBER stated that BTC remains largely centralized in terms of its distribution: “The BTC ecosystem is still dominated by big and concentrated players, whether they are big miners, big BTC holders or cryptocurrency exchanges.”
At the same time, BTC adds that the centralization of large miners (a smaller number of miners who control a large part of the hashrate) increases the theoretical possibility of 51% of the attack.
Is it really that bad?
The conclusions of the NBER need to be respected and accepted to some extent. In the early years of Bitcoin existence, many whales (addresses with a large number of BTCs) emerged, which get rid of their BTCs only at a slow pace or not at all. It is necessary to take into account that many BTC may have been lost (it is estimated that it may be 3-4 million), but from the point of view of statistics they are listed as “whale” BTC. At the same time, BTC is still not used on a large scale as currency, which means that onchain transactions are still significantly associated mainly with its transfers to and from the exchange.
In a deeper analysis of NBER shots, it is therefore necessary to follow the BTC trends themselves and they are positive:
- The total number of BTC whales (those that own 1000 BTC and more) is declining.
- The number of addresses with 0.01 to 0.1 BTC or 0.1 BTC to 1 BTC is growing almost continuously, which means that BTC are distributed among an increasing number of retail, ie small investors
- BTC mining has become more decentralized due to the mining ban in China. While before May 2021 it was estimated that Chinese miners controlled over 65% of the world’s hashrate, today their share of mining is diametrically lower. The largest piece of the cake currently belongs to the USA, but with a share of about 30%, it can no longer be said that one country has a dominant position in BTC mining.
- To the NBER theory of a possible 51% attack on BTC by the largest miners, it should be added that this type of attack makes absolutely no logic. If the data from the NBER are also correct and 50% of the hashrate is under the control of the 50 largest miners, it is difficult to imagine the circumstances in which they could find a common agreement on attacking BTC. An attempt at a 51% attack on BTC would ruin their entire business, which in their case is not only associated with current mining (energy consumption), but also costly investments in their infrastructure, which they have been building for years.
- The adoption of the Lightning Network is growing, i.e. the use of the second BTC layer for fast and cheap BTC transactions. The number of active nodes, the total capacity of the network and also the number of open channels every day create new historical maximum. Although the Lightning Network is still in its infancy, it is well on its way, and the more it is used, the more decentralized BTC will be, as it will be under the control of more independent entities.