Are you ter the Bitcoin 1%? A Fresh Specimen of the Distribution of Bitcoin Wealth

Previous models of the distribution of Bitcoin wealth all depended on an analysis of Bitcoin wallets and Bitcoin addresses. That treatment fails inevitably because of the unknowable relationship inbetween people wielding Bitcoin, Bitcoin wallets, and Bitcoin addresses. This is a description of a fresh monster of the distribution of Bitcoin wealth built on the assumption that a universal Power Law applies, and that it mirrors the distribution of global financial wealth spil reported te the Credit Suisse Global Wealth Report 2016. The Bitcoin distribution that results is tweaked by hand to reflect the excellent mining prizes paid out ter the early years to a few people, making it still less equitable than the very inequitable financial wealth distribution. An estimate of the Bitcoin-owning population is derived from a survey of traffic to Bitcoin-related websites spil reported by Alexa.com te comparison to traffic to sites of popular financial corporations that publish their user numbers.

There are two parts to this verhandeling — a) why former models based on address analysis failed, and b) the fresh prototype. Scroll halfway down if you are uninterested ter the very first part.

A. Models of Distribution of Bitcoin Wealth Ontleden Wallets &, Addresses Gegevens Always Fail

Previous models of the Distribution of Bitcoin Wealth have depended on an analysis of Bitcoin wallets and Bitcoin addresses. They have all bot based on the Bitcoin Rich List.

Top 100 Richest Bitcoin Addresses and Bitcoin distribution

The usual way to calculate the distribution is to say that 1% of Nineteen,562,222 Bitcoin addresses is 195,622 addresses and, looking at the table, the 195,622’th wealthiest address is placed te the 1–10 Balance bracket, much closer to Ten than to 1. To make this clearer I have re-jigged the gegevens te a Sheet:

So, the address which is the 149,238’th richest contains exactly Ten Bitcoins. That address is at 0.76% te the distribution. The address at 1% is ter the 1–10 bracket and will contain a little less than Ten Bitcoins.

Some people then leap wrongly from addresses to Bitcoin holders without thinking:

Coinbase stats at September 2017:

I pointed out this error to Ari David Paul on Twitter. He did not acknowledge his mistake so it is fair to publish his fatuous Tweets. Addresses is not the same spil people.

Tom Lee of Fundstrat Global Advisors, makes the same mistake. He says there are only 300,000 holders of at least $Five,000 of Bitcoin.

This is another, better attempt to describe the Distribution of Bitcoin Wealth. It is produced by Dennis Porto based based on surveys and wasgoed published te Business Insider ter February 2014: How Much Wealth The Top 1% Of Bitcoin Owners Have.

This is a logarithmic chart, so it’s a little hard to read. The blue curve meets 1% at the 50 BTC mark. (Ter the crimson circle.) Is 50 Bitcoins the mean wealth of those Top 1%, or median wealth, or the ondergrens wealth to qualify for the 1%? It’s not clear.

The Relationship Inbetween People, Wallets, Addresses

The problem with most estimates is that they fail to account for the fact that the relationship inbetween Person Holding Bitcoin, Wallet, and Address is a little complicated. It is not necessarily 1 : 1 : 1. That is to say, it is not true by definition that one Person has one Wallet that uses a single Bitcoin Address.

For a embark, a Person may hold many Bitcoin Wallets. And a Wallet can make use of many Bitcoin Addresses. (Indeed it is advisable to generate a fresh Address every time you use your Wallet for reasons of anonymity.) So the relationship can be 1 : Many : Many.

Exchange ‘Wallets’ are not real Wallets

When you hold Bitcoin at an exchange such spil Bitfinex you do not actually own a genuine Bitcoin Wallet spil you do not own the private keys. The security for this pseudo-wallet is provided by the exchange, not by your private keys. Sending Bitcoin to an exchange, you instantaneously give up ownership of it. You own nothing except a non-contractual IOU from the owners of the exchange to pay you Bitcoin. It is non-contractual because you cannot have a contract with an unknown counterparty. What is Bitfinex’s Company Registration id? Who possesses it? Where are its accounts published?

The owners of the exchange will own several genuine Wallets — wallets for cold storage and hot wallets for when clients request withdrawals— containing the Bitcoins of its many clients.

Anyway, let us pretend the clients of the exchange own the Bitcoins which they sent to the exchange, and are now stored te the exchange’s Cold Wallet. Wij then have this relationship — Many People (millions of Bitfinex clients) : 1 Wallet (the Exchange’s cold storage Wallet) : 1 Address. Wij can actually see that Wallet on the blockchain:

Bitcoin Address 3D2oetdNuZUqQHPJmcMDDHYoqkyNVsFk9r is the richest Bitcoin Address ter the Bitcoin Rich List. It is the only Address ter the Bitfinex Cold Wallet. It contains about 120,000 Bitcoin valued at $525 million, or 0.72% of all Bitcoins.

The proprietor of Bitfinex possesses the Private Keys to that Wallet so he possesses the Bitcoins te the Wallet. So ter fact wij have the nice plain relationship 1 Person (Proprietor of Bitfinex ) : 1 Wallet : 1 Address (with 120,000 Bitcoin).

Ter conclusion, the previous proefje of Bitcoin distribution fails because of the fundamental flaw that there is no clear-cut and predictable relationship inbetween Persons Possessing Bitcoin, Bitcoin Wallets, and Bitcoin Addresses.

B. The Fresh Prototype of Bitcoin Distribution

I have modelled the distribution of Bitcoin Wealth ter a way that disregards Wallet and Address gegevens entirely.

  1. Power Law applies to Distribution of Bitcoin Wealth.
  2. Distribution of Bitcoin Wealth exactly mirrors that of Global Wealth.
  3. 25 million Bitcoin Owners.
  4. No lost Bitcoins.

Specimen Assumption 1: Power Law Distribution Applies

A Power Law is a functional relationship inbetween two quantities, where a switch te one quantity results ter a proportional relative switch ter the other quantity, independent of the initial size of those quantities: one quantity varies spil a power of another.

The economist Pareto faithful attention to this and conceived the 80/20 rule. Pareto showcased that 80% of the land te Italy wasgoed possessed by 20% of the population, he observed that about 20% of the peapods ter his garden contained 80% of the peas.

Our proefje assumes the Power Law because it applies to so much natural life. The Power Law applies to the distribution of financial income, and of financial wealth, and of sexual wealth measured ter number of vrouwen (whether that be of Alpha lions te the African Savannah or Alpha human masculines ter metropolitan cities), and of attention wealth measured ter Twitter Followers.

The distributions of a broad multitude of physical, biological, and man-made phenomena approximately go after a power law overheen a broad range of magnitudes: thesis include the sizes of craters on the moon and of solar flares, the foraging pattern of various species,the sizes of activity patterns of neuronal populations,the frequencies of words ter most languages, frequencies of family names, the species richness te clades of organisms,the sizes of power outages, criminal charges vanaf convict, volcanic eruptions,and many other quantities. Few empirical distributions getraind a power law for all their values, but rather go after a power law te the tail.

Power law distributions look like this:

Specimen Assumption Two: Distribution of Bitcoin Wealth mirrors that of Global Wealth, but with adjustment for concentrated mining prizes 2009–2011

Wij use this assumption because, actually, why would one not make this assumption? There is one valid protestation:

A a result I manhandled the specimen slightly to skew more ownership to the richest owners of Bitcoin than wasgoed implied by the financial wealth distribution.

Gratefully there is an excellent source of gegevens on the distribution of global wealth: The Credit Suisse Research Institute (CSRI) Global Wealth Report 2016 pages 22–27. And CSRI Global Wealth Databook 2016, Table 2–4 p. 94.

To be ter Top 1% te Global (Fiat) Wealth, you need $770,000 Televisiekanaal Wealth (Gross Wealth minus Debt).

Monster Assumption Three. There are 25 million Bitcoin Owners (January 2017)

I arrived at an estimate of 25 million owners (many wielding Dust-like amounts) from analysis of traffic to Bitcoin-related websites, and comparing that traffic to non-crypto business sites who publish their number of users. This analysis wasgoed done te January 2017. Traffic to Bitcoin sites is much greater now (September 2017) and so there are now more Bitcoin owners than 25 million. But I don’t have the time or inclination to check all those Alexa rankings again.

Bitcoin sites get enough traffic to imply 25 m. owners of BTC. For example, te January 2017 Blockchain.informatie wasgoed getting similar traffic to webmoney.ru which claimed 31 m. users.

Most popular Bitcoin sites (September 2017):

To get an idea of the volume of traffic to thesis Bitcoin sites, let’s look at the webpagina of Santander.co.uk, which is a (Spanish-owned) British canap which has reported that it has 14 million customers, almost all of whom use online banking.

Specimen Assumption Four: No Lost Bitcoins

I made this assumption purely to simplify the specimen. It would be simply to augment the proefje with an assumption of Lost coins being equal to a certain positive amount.

The Distribution of Ownership of Bitcoin

Having derived the distribution of Global Wealth, and the Global Ownership of Bitcoins numbers, I mapped the Wealth Distribution to derive a Bitcoin Distribution. I then skewed it a bit to make Bitcoin wealth distribution even less equitable than fiat wealth distribution to reflect prizes from early days of mining. (See how the ratio of Mean/Median is greater for the Bitcoin Distn. than the financial Distn.)

70% of Bitcoin Owners Own 2% of all Bitcoin. Who are they?

Examining the Bitcoin cumulative distribution, the richest 30% of all Bitcoin owners own 98.3% of all Bitcoins. So the poorest 70% of Bitcoin owners own less than 1.7 % of all Bitcoin. It takes merely 0.153 Bitcoins to be placed te the Top 30% richest Bitcoin owners. So who are thesis 17.Five million people who own less than 0.153 Bitcoin? (That is about $665 at current prices.)

I cannot be sure, but I suspect they are people use Bitcoin faucets. (Faucet is the American English word for tapkast.) They might build up them from Bitcoin Faucets like Bitco.te (.Ter is the Indian state domain).This webpagina claims to have more than 7 million registered users.

The Alexa rating for Bitco.te is consistent with this keuze. Indeed the traffic to this webpagina is greater than to any other Bitcoin webpagina excluding Coinmarketcap, Coinbase, Poloniex and Bittrex.

Bitco.ter is just one of thousands of such faucets. A Google search for Bitcoin faucet comes up with 473,000 results.

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Related movie: Bitcoin Beginners Guide – If I Had to Embark Overheen from ZERO!!!


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