Bitcoin Q&A: Wealth distribution statistics


“What are your thoughts on the fact that only fifteen
million Bitcoin addresses hold more than $1 [of bitcoin], and less than five million hold more than $100 worth?” I have been seeing these statistics a lot. The implication here is that wealth is
very unequally distributed within Bitcoin. “Five addresses alone hold billions of dollars!”
“Most addresses have very small amounts!” Well, here is [the truth]: addresses are not people. Despite this being obviously true, if you have done any
research in this space, people still try to shoehorn… these kinds of statistics to demonstrate [something], that by [counting] the number of addresses and
the amounts in them, they can draw a conclusion — or, since it would be wrong to draw conclusions,
implying [various] things — in a very weasel way. Implying that this means wealth is concentrated,
conclusions about the number of people who do ‘x’ or ‘y.’ Here is why that is wrong: if you look at an organization
like Coinbase, one of the largest exchanges, though… this applies to all of the exchanges
[running] custodial accounts… They have twelve to fourteen million customers.
Do you think they have fourteen million addresses? They do not. The vast majority of their funds are
kept in a handful of addresses in cold storage. A company may only have a hundred and fifty bitcoin
addresses holding the wealth of fourteen million users. That looks like an enormous concentration of wealth,
but it doesn’t belong to just a hundred and fifty users; it belongs to fourteen million users, even though
it is concentrated in the hundred and fifty addresses. Meanwhile, on the exact opposite end of the spectrum,
how many addresses does a power use have, who spends bitcoin on a daily basis, with a hardware
wallet that uses a different address per transaction… and generates change addresses, maybe
with both SegWit and [legacy] addresses, across multiple wallets (a warm mobile wallet
for operational expenses vs. a cold storage wallet)? What would that user look like on the blockchain?
Well, I am one of those [power users]. I can tell you. Over the past five years, I have probably
used twenty thousand bitcoin addresses. At any point in time, my wallets may have two,
three, or five hundred bitcoin addresses… with change and various small quantities less
than a dollar each, maybe one to three dollars. [To a naïve journalist], that activity looks like
a bunch of people who have very little bitcoin. And so they say “Fifteen million Bitcoin
addresses hold less than one dollar.” Well, I have a whole bunch of Bitcoin
addresses with less than a dollar in them. You cannot make these conclusions [about wealth
distribution] from statistics that divide or cluster… addresses and values [to individual people];
you will [likely] draw the wrong conclusion every time. ‘Honey-Podge’ points out, “The question
wasn’t really about concentration of wealth.” “It was about how most people don’t own their
coins. Isn’t that very dangerous to the network, if there was a hack [of the custodial wallet]?” Yes. Okay. If that was the point of the question,
I am sorry that I misunderstood it. For weeks now, I have seen those statistics being used
to make some point about wealth distribution. Yes, you can use that data to show how custodial
exchanges concentrate wealth in a few addresses. And yes, that is dangerous if there is a hack. Let me rephrase that. You asked, “Isn’t that very
dangerous to the network if there was a hack?” It is not an “if,” it is a “when.” It is not dangerous
to the network, but a lot of people will lose money. I think Bitcoin has shown great
resilience, even with big hacks. Even if there is a hack, the money will get
re-distributed back into the economy eventually. The network doesn’t suffer, although
a lot of people will lose their money. It is very dangerous when there is a hack.
It is not [a question of] ‘if.’

49 thoughts on “Bitcoin Q&A: Wealth distribution statistics”

  1. I think your response to the first question shows an intrinsic problem with Bitcoin as it currently stands. If I have lots of physical change, I can put it together, and either spend it as one sum, or bank it for a total number. With Bitcoin, your 75 cent adresses are effectively unusable since the transfer fees for the network are extraordinarily high for small transactions. Please comment? Thanks Andreas.

  2. I can’t believe the knowledge u have on economics, money and Blockchain tech. You keep stunning me with ur knowledge.

  3. Sorry, I'm not on the technical side yet, thus a question:
    How does Coinbase (or a similar exchange) redistribute the Bitcoins of its customers, having much fewer cryptocurrency-addresses? Basically, they have control on this distribution, i.e., they keep the (extra) records, how big is the part of a wallet every particular account holds?

  4. Simply saying exchanges have a small amount of bitcoin addresses doesn't completely justify an argument against the statistic. There is a huge level of inequity with Bitcoin right now, that's just a fact. Pretending this is any different than oil tycoons who got in early in the 19th century is both naive and dangerous information to spread.

  5. It would have been good for andreas to specific that an individual wallet or server might get hacked and the private keys gained access to, but NOT the bitcoin network itself – to someone ignorant this is very important

  6. Every time you select receive on your Wallet (ie Ledger Nano) it creates a new address.
    So anyone with say 10 Bitcoins that has been buying them in small batches for the last year could easily have 20-40 addresses.
    It's the magic of the wallet software that compiles all those small amounts in each address and displays your total amount.

  7. Any human endeavor results in uneven distribution given the fact that humans themselves are not equal to one another. Most people who hold thousands of bitcoins are the ones who believed in it early on. That risked their money on some weird project on the internet that nobody cared about. Now when it's become very successful everyone wants a piece of it and complain that they don't have as much as the early adopters. No one would complain about uneven distribution if the Bitcoin project had failed.

  8. Why can't we parse out the wallets that make up the 1% Bitocin worth on the top end and the X% of wallets that contain less than $1-2 as that is usually from dust or just not statistically significant?

  9. This issue is not about a new wealth distribution so much is it as about the wealth moving into the hands of a new disruptive creative group.

  10. 1 address can be associated with multiple people (ex. exchanges/multisig)
    many addresses can be associated with a single person (ex. HD wallets)

    These statistics are basically useless unless you want to spread misinformation.

  11. Hi Andreas. We worked together at Nemertes in 2009. Glad to see your new path has worked out for you, and a really interesting video!

  12. Wealth is not distributet equaly in any society. Thats why Andreas`s work is so important. To let the common guy learn about bitcoin so balance can be restored. I accualy hope poor countries get to learn about bitcoin faster than rich countries.

  13. So what if the grid gets wiped out? (EMP’s for example) then we are all back at square one trading various physical items with a corresponding monetary value… something to consider. Then it could be assumed that the people who have accumulated the most precious metals and gems will have the most power and influence, which is not much different then it is now.

  14. Wtf… How would anyone hack an exchange? How would the hacker guess the keys? How would he get the 24 words of the seed? Anyone?

  15. wealth distribution on Bitcoin is likely to mirror wealth distribution in the real world. Cryptocurrencies are just systems. They can remove habitually immoral parties from the equation (eg banks, central government), and this will obviously have some good effect, but they do not alter our human ethical environment, our personal financial objectives, etc. The majority of people are relatively poor compared to a minority who are relatively wealthy. The distribution of Bitcoin will mirror this, until something changes at the deeper ethical level.

  16. Meh, those complaints about bitcoin wealth distribution you hear are from losers who didn't get in early enough and now can't afford a whole bitcoin. So they whine about it, not understanding the high divisibility means that everyone can have a place at the table if they want it. The fact is they can stop their whining and buy whatever fraction of a bitcoin they can afford right now, but instead they'd rather bash because it's not them doing the winning.

  17. is it worth somebody coming up with a idea to accumulate these micro wallets with less than a few dollars. Together there must be millions of dollars going to waste.

  18. Great video aantonop, I totally agree with you when you say it's a matter of when, not if. A question for you, could you help me decide if I should invest in this Crypto Debit Card ICO. Looks like the the next Monaco or TenX. Id be happy if it reaches even half the price Monaco reached a month after launch. Let me know. Here’s the link to their page <www.amon.tech>

  19. Αντρίκο με όλο τον σεβασμό καλό το παραμύθι αλλά δεν έχει δράκο

  20. Here is how I see the scalability problem.

    Every transaction will eventually need to be processed on the blockchain. You can try to find ways to do things off chain. But you will eventually need to enter those transactions on the chain.

    If bitcoin is to become a widely used currency, that means millions and millions of transactions every hour of every day.

    And so each and every node on the chain will need to be able to process those millions and millions of transactions every hour. If you think they will one day have decentralized laptops and decentralized home miners, I think you are delusional. Bitcoin is pretty much unsustainable as a widely accepted currency.

  21. There is a problem when the addresses hold small amounts of Bitcoin because transaction fees are determined by the amount of data the transaction sends. A transaction combining, say, ten addresses with small amounts to send a larger amount will have a much larger transaction fee, correct? With these high transaction fees on Bitcoin core, they effectively have frozen the addresses with small amounts in them because the transaction fee to send them is such a high percentage of the value.

  22. I think at the end he forgot to stress that he's taking about hacks on these exchanges that concentrate wallet addresses not on the bitcoin network itself which is only at threat of the very improbable 51% attack. these exchanges that concentrate wallets in custodial accounts are not miners validating the network. So when he's saying when at attack will happen he means on the exchange that relies on conventional encryption and not on the blockchain consensus security.

  23. greetings I am an enthusiast of the cryptocurrencies I have been following since 2010 I am from Venezuela when the president evenincio the oil I felt a lot of emotion and because I felt that one way and another our country would join the network of the chain of blocks. WOULD YOU LIKE TO CONCER YOUR OPINION OF THE VENEZUELAN PETRO? as a solution to the twoday pain attack and the economic crisis in which we live? and your suggestions about it

  24. You used yourself as a use case for the number of addresses a user may use within a set period. Do you have any quantitative data to look at that shows how many individuals experience a user journey similar to yours?

  25. Ok agreed addresses are not people. What about steem blockchain exhibiting the wealth disparity where accounts represent people( rarely communities).

  26. It's called the Pareto distribution, a naturally occuring law that exists in nature through any means of production or value. It's essentiall what Marx got wrong about Capitalism. Recently popularized by psychologist Jordan B. Peterson (video and wiki links below).

    https://en.wikipedia.org/wiki/Pareto_distribution
    https://youtu.be/TcEWRykSgwE

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