Decentralisation is one of the promises of cryptocurrency
that makes it shine. Decentralisation is the premise through which Bitcoin
was established and through which the majority of cryptocurrencies exist within. Decentralisation means that overall, nobody owns overall control of the asset.
Yet, when you look at the statistics, many cryptocurrencies
are owned in majority by few entities, Bitcoin is no exception to this. A new report out today by Finance Magnates actually highlights that overall, less than 1% of Bitcoin investors actually have the capacity to control over 35% of the network, therefore you could argue that Bitcoin really isn’t so decentralised after all.
According to Finance Magnates:
“BitInfoCharts found that of the 11 million Bitcoin holders in the world, only 1,000 of them (approximately 0.009%) 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.”
What does this mean?
Well, it means that the top 1% have a unique power through their asset ownership that allows them to change the network. They can adjust policies in the same way a government or a bank might, which in turn can influence the value of the asset. So, when decentralisation means no authorities can adjust policies and make changes, with these figures in mind, Bitcoin is certainly not decentralised.
Why would such investors abuse these powers?
Whilst the intricacies of how they could abuse these powers is up for debate, their justifications for it are simple. They have the ability to indirectly adjust values to a point, which means they can buy and sell at preferential rates and thus get the most value for their money. Moreover, according to Finance Magnates:
“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.”
Whilst we are forced to trust that these investors will not allow this to happen, realistically, the problem here is that they have the power in the first place.
This is not the fault of Bitcoin nor is it a problem with Bitcoin, if anything, it just highlights issues that lie within the definition of the word decentralised. These reports do make us think though and if nothing else, this at least highlights another factor that continues to ply vulnerability onto the cryptocurrency markets.
You can see the full report by Finance Magnates for yourself, here-