Bitcoin's founder Satoshi Nakamoto envisioned it as an egalitarian P2P payment network. No matter where anyone is, they can buy, store, and use BTC on the internet. The Bitcoin blockchain answers to no nation, bank, or corporation.
While the above features explain Bitcoin's rising value, it doesn't mean there aren't centralization risks. Large BTC holders (aka whales) have an outsized influence on the crypto market. Due to the pseudonymity of crypto wallets, Bitcoin whales can collude and manipulate the crypto’s spot price.
The more concentrated BTC's supply is, the less BTC there’ll be for the global population. Since Bitcoin has a maximum supply of 21 million coins, those with significant BTC positions have tremendous power on crypto exchanges. Some crypto advocates are also concerned about banks and governments acquiring large shares of BTC and taking over the network.
Unlike the more recent "pre-mined" cryptocurrencies, Bitcoin didn’t give a large portion of the tokens to the protocol developers and there were no investors. From the first block in 2009, every Bitcoin has been mined into existence. Using a consensus mechanism called proof-of-work (PoW), Nakamoto required computers to solve complex algorithms on the Bitcoin blockchain. If a miner solves this problem first every 10 minutes, they can validate a new set of transactions for BTC rewards.
These regular rewards are how new bitcoins enter circulation. Every four years, BTC rewards are cut in half during a "halving" event. Since the hard cap of Bitcoin is 21 million coins, no new BTC will enter circulation once the 21 millionth coin is mined.
While it's possible to earn bitcoins with mining rigs, it's more difficult today due to large mining pools and professional mining companies. Businesses like Riot Blockchain and HIVE Blockchain Technologies control a large proportion of Bitcoin's hashpower, which gives them better odds of winning BTC block rewards.
For those outside the mining industry, the easiest way to receive Bitcoin is to buy it on an exchange. Since Bitcoin is the oldest and largest cryptocurrency, most centralized cryptocurrency exchanges (CEX) offer BTC trading.
The current distribution is based on date in time, and this article was written in February 2023. Recent studies from the National Bureau of Economic Research and the University of Limerick suggest that Bitcoin's distribution is concentrated in the hands of a few whales. According to blockchain analysts, approximately 6,952 BTC wallets control 58.21% of available bitcoins, which means about 0.01% of the total BTC holders have almost 60% of BTC's supply.
To be fair, the wallet concentration for Bitcoin has been going up in pure number terms. For instance, only 1,840 wallets held more than 50% of BTC's supply in 2012. That number went up to around 4,652 wallets in 2020.
It's also important to note that these findings don't account for lost or burned bitcoins. Researchers at crypto firms like Glassnode suggest as much as 10% of BTC's total supply could be in inaccessible wallets. For example, James Howells, a U.K. engineer, lost 8,000 BTC in a hardware device in 2013.
There are also questions over whether the roughly one million bitcoins in Nakamoto's 22,000 BTC wallets are still active. Since Nakamoto’s identity is unknown, some speculate that these bitcoins are effectively burned, and Nakamoto has not appeared in over a decade.
Lastly, when compared with competing P2P cryptocurrencies, Bitcoin's concentration of wealth isn't as centralized. For instance, researchers found that a mere 12 wallets held 51.25% of Dogecoin's supply. Only 853 Litecoin wallets hold 63.55% of LTC's supply, and 1,087 Bitcoin Cash wallets hold 48.55% of BCH.
(Statistical representation of Bitcoin’s distribution)
Although it’s unknown who's behind every BTC wallet, a few individuals, public and private companies, and crypto exchanges aren't hiding their large BTC holdings.
Since Ethereum (ETH) is the second-largest digital currency, blockchain firms often compare ETH's distribution with BTC. In 2022, Ethereum changed its consensus algorithm from PoW to proof-of-stake (PoS) in an event called “the Merge.” Since Ethereum holders could lock their ETH on the new PoS chain, many of the largest ETH whales are validators.
Indeed, the top ETH wallet address on Etherscan is Ethereum's official Beacon Chain. Anyone could deposit 32 ETH on the Beacon Chain to become a validator. This smart contract address now holds 14,409,324 ETH.
Other major ETH wallets are associated with crypto exchanges like Binance, Kraken, and Gemini, each of which offers ETH staking services to customers. The decentralized staking pool Lido Finance also holds a significant amount of Ethereum (currently 578,583 ETH).
A potential concern surrounding Ethereum's distribution has to do with voting rights. Since validators can now vote on blockchain proposals using their staked ETH, some worry large staking pools will dictate the future direction of the Ethereum blockchain. However, Ethereum developers are hoping to introduce new features like sharding that may add extra decentralization to the blockchain.
Early Bitcoin adopters may have a large percentage of BTC, but that doesn't invalidate the dream of cryptocurrency. Projects like Worldcoin are working hard to ensure everyone has equal access to the future of finance. We aim to put a share of our crypto in the hands of every individual on the planet for free. Subscribe to our YouTube channel to learn more about our mission and the cryptocurrency market.
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