With reports of 2% of Bitcoin addresses owning 80% percent of the total Bitcoin (BTC) supply, there are fears of BTC wealth centralization. Some critics say such a high percentage control by a comparably insignificant number of wallets runs antithetical to the philosophical premise of Bitcoin.
However, other commentators have highlighted certain problems in the logic used to arrive at the conclusion that Bitcoin has a wealth centralization problem. They instead point to the ownership spread for altcoins are examples of skewed cryptocurrency wealth distribution.
Is Hodling Creating a Bitcoin Wealth Centralization Problem?
Tweeting on Tuesday, blockchain entrepreneur and former Coinbase engineer Preethi Kasireddy revealed that about 2% of Bitcoin wallet addresses held 80% of the current total BTC supply. On the surface of this revelation, BTC would have a wealth centralization problem.
Bitcoin wealth distribution: 2% of addresses control 80% of the wealth.
Ouch. pic.twitter.com/MtNe3nKf5K
— Preethi Kasireddy (@iam_preethi) August 13, 2019
Further highlighting this centralization is that a further 15% increase in Bitcoin ownership requires close to a 35% increase in wallet addresses. For Vinny Lingham CEO of Civic, these statistics reveal a fundamental problem with Bitcoin.
Lingham argues that the current ‘tokenomics’ dominating the BTC space is one that has strayed away from the central principles of the cryptocurrency. Dan Held, co-founder of Interchange, fears of Bitcoin wealth centralization are exaggerated.
Commenting on the matter, Held stated that as Bitcoin distribution will increase as the BTC price climbs higher. Some Bitcoin holders have an upper-profit level which if reached would trigger selling.
Reading Beyond the Numbers
One of the main problems with the analysis provided by commentators who favor the BTC wealth centralization argument lies in an examination of the wallets themselves. The wealth centralization conclusion requires detailed knowledge of the ownership of Bitcoin addresses.
As pointed out by Gabor Grubacs of VanECK, crypto exchanges tend to hold a greater majority of the current Bitcoin supply. To compare wallets owned by the likes of Binance or Bittrex to wallets owned by individual Bitcoin holders significantly weakens the argument.
Also, some of these wallets contain an insignificant amount of BTC (called dust). Again, there is an argument in favor of setting limits to which wallets can be included when attempting to determine the wealth centralization of Bitcoin.
The number of bitcoin addresses holding 1 billionth of the money supply (about 0.018 BTC / $200) is at an all-time high. https://t.co/FOnR0txOad pic.twitter.com/sO7YsWsb84
— Jameson Lopp (@lopp) August 13, 2019
When considering wallet addresses with significant BTC deposits, the Bitcoin wealth distribution picture appears to change. According to Jameson Lopp of Casa, the number of BTC addresses holding at least $200 in Bitcoin is at an all-time high (ATH).
With talk of Bitcoin moving from the speculative investment spectrum into the haven asset class arena, BTC ownership might become even less centralized. If central banks continue to adopt more dovish monetary policies, the smart money will most likely flow into Bitcoin as a hedge against the coming uncertainties in the market.
