on the crypto
The whole modus operandi of Bitcoin is decentralization. No banks, no governments, nada - all the technology is hosted on an international network of computers, their operators are anonymous, and anyone can use the open source project to create their own at any time.
And for the most part, these principles hold true in practice, according to blockchain analytics firm Coin Metrics, which recently released a research report on the subject.
"Bitcoin is significantly decentralized in terms of the concentration of miners and exchanges, and its supply is increasingly evenly distributed," he concluded. Coin Metrics analyzed the Bitcoin blockchain through three main parameters: distribution of wealth, distribution of hash power and market share of exchanges.
Does Bitcoin have a wealth inequality problem?
Coin Metrics analyzed the presence of whales, ultra-rich users, using publicly available on-chain data. He found that Bitcoin definitely has its whales, but since the network was created in 2008 "its offering has become more evenly distributed." And small accounts with less than $ 100 in Bitcoin "still represent most accounts."
Is Bitcoin's hash power distributed?
Hash power is a parameter that represents the computing power spent by miners to verify transactions on the Bitcoin blockchain. If the network were not decentralized at all, then only a few miners, or mining pools, would dominate the hash power; someone with over 51% hash power could control the network and manipulate and credit wallets with cryptocurrency tokens at will.
But Bitcoin mining is "a thriving and distributed ecosystem," Coin Metrics found. Power is dispersed across several major exchanges, including Binance, OKEx, and Huobi, as well as several dedicated mining pools.
But since its power is financed by its customers, “Even a rational and resourceful mining pool may have difficulty coordinating a '51% attack', as miners could leave the pool if the operator decides to attack the network ".
Is there a monopoly on crypto exchanges?
The latest carrier is the dominance of cryptocurrency exchanges. Since most people use these companies to buy and sell Bitcoin, they exert a huge influence on the network.
This is because most of the large exchanges are custodial, which means they control the Bitcoins deposited on the same exchanges. "Excessive centralization between exchanges exposes the market to systemic risk in the event of insolvency," Coin Metrics said.
Only a few exchanges dominate the market, including Coinbase, Huobi, Binance OKEx, despite this the market is not monopolistic, Coin Metrics found.
Analyzing the monopoly of exchanges for buy Bitcoins/ USD using a tool called the Herfindahl-Hirschman Index (HHI), which “rises as a market becomes more monopolistic”, Coin Metrics found that “the market is considered moderately consolidated by this metric,” and not monopolistic.
While Coin Metrics acknowledges its analysis is far from complete, it believes its research "gives cause for cautious optimism."
