Wealth distribution among Bitcoin and altcoins holders
When Bitcoin first came out more than a decade ago, it promoted a sense of equity and fairness that hasn’t been typical for the traditional financial system. However, the current distribution of coins shows that the gap between Bitcoin poor and rich is even more dramatic.
Wealth distribution in Bitcoin and other cryptocurrencies is something different from what we have in the ecosystem of traditional assets.
The control of wealth is often a mirror image of the control of power. Until now, the distribution of wealth has been quite difficult to trace. People quite often hide their wealth or the true number of assets they own. Cryptocurrencies have made a big leap in transparency of wealth distribution. This is a completely new class of asset in which it is possible to fully analyse the distribution of supply from the very moment it appears. Given that all crypto transactions (with the exception of some anonymous coins) are verifiable and easy to analyse, blockchain data can be used to calculate the balance of any address. We can then evaluate the overall distribution of the offer by examining the balances of individual addresses.
Distribution of world wealth
Let’s start by taking a look at the traditional financial system and see how fair it is in this regard. In May 2020, the World Bank predicted that the number of people living on less than two dollars a day would increase by 60 million following the pandemic. Overall, there have been many articles on the distribution of world wealth over the last ten years. All figures in these articles are generally quoted from the annual reports of the Swiss bank Credit Suisse:
- Total world wealth is estimated at $361 trillion
- The number of dollar millionaires is approximately $47 million
- On average, almost $71 000 equivalent per adult person
- The forecast of total world wealth for 2024 is $459 trillion.
The uneven distribution of wealth is calculated using the Gini coefficient. Over the last 20 years, the Gini coefficient has improved for the world economy from 91.9% to 88.5%, which means that humanity is moving very slowly towards a more honest economy. Although still the wealthiest 1% of the world’s population owns almost half of its assets.
Wealth distribution in Bitcoin
According to Bitinfocharts, more than 85% of all bitcoins are owned by only 0.5% of the addresses, which seems to be quite uneven. But it’s not so clear. First of all, the richest wallets on the Bitcoin network are the cold exchange wallets with users’ funds on them, and it is not quite correct to include them in the report. It is also not quite correct to take into account the majority of addresses with very old unspent exits (before 2011 and earlier), as experts estimate that most of these addresses will never move again. In addition, it has been accurately determined that around three percent of all coins have been lost for various reasons. This is why the data presented is not entirely fair.
The CoinMetrics analysts have ruled out long-spent addresses, as well as addresses created for business purposes, and have only taken into account addresses with the equivalent of more than one ten billionth of the total supply, which is about $20.5 at the time of writing. They also found in their report that the number of addresses that hold more than one thousandth of the total circulation as a percentage of the total circulation has decreased from 33% in 2011 to 11% of all bitcoins in 2020. The same applies to other fairly large holders (more than one ten thousand, more than one hundred thousand) and their values are decreasing. At the same time, the number of small online deposits is increasing. It turns out that the distribution of wealth on the Bitcoin network becomes more even over time.
Wealth distribution in other cryptocurrencies
In contrast to Bitcoin, the initial distribution of Ethereum (ETH) took place via crowdsale. The ETH supply was initially heavily concentrated on large wallets, but over time the distribution became more even.
The percentage of supply on large addresses (at least 0.001% of the total supply) peaked at 60% in July 2016. The volume held by these addresses declined significantly as the ICO bubble blew away — from late 2017 to 2018. In February 2020, these addresses held around 40% of the total ETH supply.
The share of coins at relatively small addresses (from 1/100k of total supply or less) has been growing steadily since 2016.
In 2013, Litecoin had several notable drops in the number of coins held by large addresses (at least 0.001% of the total supply). This happened just before the price spike in December 2013, during 2017 and before the peak in January 2018.
Interestingly, almost 46% is still concentrated on large LTC addresses. Bitcoin, as mentioned above, has this figure at 11%.
During hard fork, such networks inherit the Bitcoin supply distribution. This is why the forks may at first have seemed relatively evenly distributed. However, unlike Bitcoin, the Bitcoin Cash (BCH) supply began to concentrate more and more on large addresses over time.
When Bitcoin Cash separated from the Bitcoin network in August 2017, approximately 14% of its supply was located in large addresses. Each of them held at least 0.001% of the total coin supply. In February 2020, more than 29% of BCH was located in large addresses.
The share of Bitcoin SV (BSV) at addresses with a balance of at least 0.001% remained almost unchanged, except for a significant decline in February 2019 and a sudden increase in June 2019.
In 2018, when the BSV appeared, about 26% of the total new coin supply was at the respective addresses. In February 2020, this figure was around 24%.
Ripple and Stellar
Ripple (XRP) and Stellar (XLM) are account-based networks, behind which there are formal organisations that control a large part of the supply. About 85% of all XRP tokens are located at addresses with a balance of at least 0.001%.
Approximately 95% of XLM is stored at addresses with a balance of at least 0.001% of the total offer. This is largely due to the fact that the Stellar Development Foundation (SDF) holds more than half of all coins (29.4 billion XLM).
In autumn, the SDF burned 50% of the total XLM supply, reducing it to 50 billion XLM coins. However, after being sent to the burning address, these coins are still displayed as part of the total monetary weight in the blockchains.
Tether, which is the largest stablecoin by most criteria, has issued tokens on several blockchains. As part of this analysis, we reviewed the versions of Tether in Omni (USDT-Omni), Ethereum (USDT-ETH) and Tron (USDT-TRX) networks.
All three versions of Tether start with absolute asset concentration. However, USDT-Omni and USDT-ETH have become increasingly distributed over time. The reason for this can be explained by the demand for assets as a means of exchange, with the result that funds from large addresses flow to addresses with small balances.
The Tron version of Tether (USDT-TRX), however, is almost entirely controlled by large addresses. This is a sign that USDT-TRX has not yet gained popularity as a means of exchange. On the other hand, this version of Tether was introduced relatively recently — in spring 2019.
It should also be noted that a spike in the concentration of USDT-Omni took place in January 2018, amidst the peak of the price bubble in the market.
The crypto industry seems to be continuing some sort of initial capital accumulation. As before, huge funds are accumulated at the addresses of early adopters and in the cold wallets of the largest exchanges.
The huge amount of irretrievably lost Bitcoins (estimated between 20% and 30%) makes the first cryptocurrency an even more scarce asset. In addition, the actual decline in market supply further aggravates the problem of uneven distribution of digital gold.
Despite the abundance of different and interesting coins, most investors prefer the “good old Bitcoin”. This can be seen, in particular, in the steadily rising BTC domination index, which reached values in early 2017.
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