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Bitcoin Concentration Could Result in 51% Attack Study Finds

Bitcoin Concentration Could Result in 51% Attack Study Finds

A study from the National Bureau of Economic Research has found that the top 10,000 investors in Bitcoin control one third of the total supply. The study also found that Bitcoin mining is even more concentrated, with the top 10 percent of miners controlling 90 per cent of the bitcoin mining capacity.

With the popularity of Bitcoin on the increase and adoption of cryptocurrencies steadily increasing, the number of top institutional investors across the globe has also grown. However, despite the growing adoption of Bitcoin, a large percentage of it is held in the hands of a relatively small group.

The study undertaken by Igor Makarov and Antoinette Schoar analyses the Bitcoin Network and its main participants,  including the transaction volume and network structure of the biggest participants on the blockchain.

The study notes:

“Our results suggest that despite the significant attention that Bitcoin has received over the last few years, the Bitcoin ecosystem is still dominated by large and concentrated players, be it large miners, Bitcoin holders or exchanges. This inherent concentration makes Bitcoin susceptible to systemic risk and also implies that the majority of the gains from further adoption are likely to fall disproportionately to a small set of participants.”

Bitcoin ownership is possibly even more concentrated, as Makarov and Schoar note, due to the multiple address ownership of individuals. For example, the ownership of early Bitcoins was not assigned to one individual but multiple, but which could have belonged to one rather than many individuals.

As the largest and most popular cryptocurrency, Bitcoin mining is also the most concentrated. The study reveals that the top 50% of miners control almost all mining capacity.  When it comes to the top 10%, the total control is 90% and a mere 0.1% control close to 50%.

The intensity of this concentration means that the Bitcoin network could be susceptible to a 51% attack, which would place the network in the hands of a significantly small group of individuals.

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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