Excerpted from Stanislav Datskovskiy:
” One of the world’s greatest cryptographers, Adi Shamir, published the following analysis:
- “We discovered that almost all these large transactions were the descendants of a single large transaction involving 90,000 Bitcoins which took place on November 8th 2010, and that the subgraph of these transactions contains many strange looking chains and fork-merge structures, in which a large balance is either transferred within a few hours through hundreds of temporary intermediate accounts, or split into many small amounts which are sent to different accounts only in order to be recombined shortly afterwards into essentially the same amount in a new account.” (source: Dorit Ron and Adi Shamir, Quantitative Analysis of the Full Bitcoin Transaction Graph.”
Most bitcoins are, in fact, in the hands of a very few people. Are you surprised? I’m not.
We also learn that, of the approximately 9 million bitcoins which currently exist, less than 2 million actually circulate – that is, change hands with any appreciable frequency:
- “It is remarkable that 97% of all owners had fewer than 10 transactions each, while 75 owners use the network very often and are affiliated with at least 5,000 transactions.”
And it would appear that most of the non-circulating coins are in the hands of a very small number of people – who, one may reasonably suspect, were involved from with building and propagandising Bitcoin from its very beginning. So, who are the lords of Bitcoin?
The most damning fact revealed in the paper is not the extreme top-heaviness of the Bitcoin ownership pyramid, but rather the elaborate lengths to which the hoarders went in order to conceal their existence from “rank and file” users. Think of it! Hundreds of thousands of shill accounts, with vast rivers of wealth moving back and forth – for one purpose only: to deceive. None of it was done by accident.
Bitcoin turns out to be something other than the fully-decentralized, unkillable network which so many imagined it to be.
People who have invested serious time and wealth in Bitcoin ought to feel angry. Not from any abstract sense of fair play, but from the simple fact that Ron and Shamir’s findings reveal a serious – and quite mathematically-certain – flaw in the sytem. The total number of bitcoins in actual circulation is much smaller than previously believed. If the early adopters were to cash out and place their hoards on the market, the exchange rates (as denominated in anything) would dive through the floor, never to recover. The hoarders, in effect, possess an off switch for Bitcoin.
Whether and under what circumstances they would press the switch, I cannot say. But the Bitcoin kill switch exists.
So, what, if anything, could be done about it? Unfortunately, the one solution which I can think of (other than the idiotic head-in-the-sand solution of not giving a damn, which the Bitcoin user community seems to favour) is a rather unlikely one, and would be quite distasteful – on a gut level – to most users. I am speaking, of course, of proscription. If the Bitcoin community – or a reasonable subset thereof – agreed that the kill switch ought to be neutralized by any means possible, it would be a fairly straightforward matter to declare the hoarders persona non grata and collectively agree to use modified Bitcoin clients (let’s call them Bitcoin-P) which act as if the particular coins currently held by A, C-F, H-K, and M-S were not bitcoins at all. And that such pseudo-coins will never be accepted as genuine in trade for any good or service. In effect, they would be retroactively shitcoined for all time.
This act would not require cooperation from every single Bitcoin user, or the imposition of any kind of governing authority. If even a minority of users were to move to Bitcoin-P, operating separate exchanges and the like, said users would be forever immune to the effects of a future market glut resulting from hoarders cashing out. Users of conventional Bitcoin would feel the effects in full, suffering the loss of most if not all of their purchasing power.
But I am under no illusions that Bitcoin-P will ever happen, given the libertarian bent of most Bitcoin users. They will mutter of dekulakization and the like. Fine, lose your hard-earned wealth to a pyramid scheme operator at some unspecified future date. But if you like the idea of decentralized cryptocurrencies without built-in kill switches, think hard about Bitcoin-P. Anyone who wants to can start using Bitcoin-P right now, without having to wait for others to be convinced of its merits. Just compile a list of the Satoshi gang’s bitcoins, and start pretending that they aren’t coins at all. It really is that simple.”