• A new report has unveiled that 0.01 percent of all Bitcoin owners control the greater portion of the asset that is in circulation.
• According to the study, this degree of centralization creates certain risks affecting BTC’s system, price, and adoption.

Only 0.01 percent of Bitcoin (BTC) holders control the lion’s share (27 percent) of the current 18.9 million Bitcoin in circulation. This is according to a recent study conducted by the National Bureau of Economic Research (NBER). This top percent consists of 10,000 Bitcoin accounts, all together holding 5 million Bitcoins (roughly $232 million at current prices).

This wealthy cohort, despite its insignificant size, stands out among the 114 million people worldwide that own the cryptocurrency. The US, a nation plagued by the decade’s highest wealth inequality, had different figures for the same kind of analysis. According to the Federal Reserve, just 1 percent of households in the country hold a third of all its wealth.

Bitcoin holding dominated by the few

This is the first time a study has mapped and analyzed all Bitcoin transactions in its 13+ years of existence. According to the paper, the aforementioned degree of centralization poses two dangers in Bitcoin. First, it creates greater systemic risk for the entire network. Second, it means that a disproportionately limited number of investors have the greater say in the asset’s price movements and adoption rate.

“Despite having been around for 14 years and the hype it has ratcheted up, it’s still the case that it’s a very concentrated ecosystem,” Ms Schoar, one of the researchers, noted about Bitcoin.

Unveiled in 2018, the Bitcoin open-source software was meant to support a digital form of money that thrives without overseers. Any interested party can download the software, become a node, and mine the digital asset.

The reality, however, depicts high centralization. Most people trading the crypto asset do so on exchanges. Additionally, BTC’s mining costs have become unbearable for most people, leaving the activity to a few heavily funded enterprises.

Most BTC transactions are non-economic

Bitcoin holders have seen their wealth approach stellar heights as the digital asset rose from $5K in March 2020 to near $70K last month. Hodlers have also doubled, with a number of high-ranking investors joining the bandwagon. They include billionaire entrepreneurs Elon Musk and Mark Cuban, hedge fund manager Paul Tudor Jones, and celebrities like actress Maisie Williams who was a lead character on Game of Thrones.

Nonetheless, the research notes that about 90 percent of Bitcoin’s transactions come from two non-economic activities. The first comes from transaction processing and the second from transactions sent between wallets by users seeking anonymity.

In the remaining 10 percent, or “real volume,” as the study calls it, trading dominates. Transactions involving exchanges and trading desks took up about 75 percent of the total volume, the paper adds. Illicit activities like scams and illegal gambling comprise less than 3 percent.