Bitcoin is largely controlled by a small group of investors and miners
techspot.com
techspot.com
https://www.bloomberg.com/news/articles/2021-10-25/bitcoin-s...
which is itself reporting on this paper from the NBER:
https://www.nber.org/system/files/working_papers/w29396/w293...
"We first document that 90% of transaction volume on the Bitcoin blockchain is not tied to economically meaningful activities but is the byproduct of the Bitcoin protocol design as well as the preference of many participants for anonymity."
"We show that the Bitcoin mining capacity is highly concentrated and has been for the last five years. The top 10% of miners control 90% and just 0.1% (about 50 miners) control close to 50% of mining capacity. Furthermore, this concentration of mining capacity is counter cyclical and varies with the Bitcoin price."
"We show that the balances held at intermediaries have been steadily increasing since 2014. By the end of 2020 it is equal to 5.5 million bitcoins, roughly one-third of Bitcoin in circulation. In contrast, individual investors collectively control 8.5 million bitcoins by the end of 2020. The individual holdings are still highly concentrated: the top 1000 investors control about 3 million BTC and the top 10,000 investors own around 5 million bitcoins."
I haven't read the methods yet, but the idea that the authors were able to do this analysis is fascinating.
This is incorrect. Replace "miners" with "mining pools" and they're closer to the mark. What's happened is that the block construction (done by the pool operator) and the PoW (done by miners) are mostly decoupled. Some miners will run everything themselves, but they're not represented in those numbers. (There are some things that can change here in stratum2, the new protocol used for coordinating mining pool s, but whatever)
Sure, pool operators can abuse their power. But as the paper shows, hash power is liquid; miners do move between pools for various reasons.
While there is a bit of a systemic risk there, it's not necessarily as bad as it might seem.
IMO the biggest risk here is censorship; and we saw how responsive miners are to things like that earlier this year with the whole "OFAC-compliant" debacle.
It is correct. They are talking about miners not mining pools.
One thing I’m noting is that they exclude ~70% of miners and assign ~30% as exchange miners (note that those two figures only coincidentally add up to 100%). One possible methodology error I can see (and again, further digging would have to be done to verify) is that exchanges often pool their user wallets together; it could be that for some exchange(s), they mistakenly lump together several users as one. Since their claimed concentration is very high, it should be feasible to look at the top 50-100 to cross-check.
Would be awesome to get more research like this.
Overall it’s an insightful article and the authors show great understanding.
So, the much-vaunted "mathematical guarantee" that only 21m BTC will ever be mined depends on the benevolence of those 50 miners not to fiddle with the code base. Makes perfect sense to trust those honourable individuals more than the central bankers in control of fiat. /s
That is not the issue caused by this concentration of mining power.
What mechanisms do those 50 miners have to coordinate amongst each other, starting with how do they identify each other, communicate with each other, then overcome Prisoner's Dilemma in negotiating with each other?
Miners can't change the protocol of the entire network.
The only malevolent thing they could do is perform a 51% attack if they all colluded together. And even that wouldn't achieve much, so there's not much incentive to do it. All they can do is a double spend. They would've been better off spending that energy on mining blocks to be rewarded with the Bitcoin subsidy.
Sure, it's unlikely. But not impossible. Just as runaway inflation in a reasonably managed fiat currency is not impossible. Just unlikely. (And, yes, hyper inflation has happened historically. Similarly, rewriting of the immutable Ethereum chain and BTC forks have happened historically.)
I.e. isn't the BTC I have parked at Coinbase is in the same wallet as many of their other customers' BTC, and shows up on the blockchain as one owner by this analysis?
If said investor abused his leverage to manipulate the stock value to dump his holding on unwitting buyers prior to making it tank, he would be facing a prison sentence.
In BTC that would be just another uneventful day.
Edit-This would also provide people who want to cash a large amount of crypto to cash an incentive to prop up the value during their transaction period.
Edit2-latest I can find, it was about $6.6 trillion dollars worth of daily forex activity back in 2019. Also note, this is cited as the biggest market in the world by trading volume. https://www.bis.org/statistics/rpfx19_fx.htm
It's more likely that the developers has leverage that could be abused, but then their own holdings would tank, so unlikely to happen.
There are a lot of similarities for sure between Tesla stock and BTC in terms of price versus traditional measures of value (based on current income and enterprise value), not to mention the volatility.
There is not as much price discovery when a handful of owners own more than 50% of stock or crypto and are easily diamond handing. The price discovery is only happening on the portion that's actively trading which can distort the market price. I bet in the early days of BTC there were a lot of tricks like the Jason Fried/DHH Basecamp unicorn example[1].
As they eventually lose interest/need to pass assets to the kids, when they start unloading, there will be price drops as there were once Bill Gates started unloading MSFT stock. Part of the challenge that Steve Ballmer faced (other than lackluster leadership) was the headwinds and downward pressure created by BillG's retirement related unloading of MSFT stock.
[1] https://signalvnoise.com/posts/1941-press-release-37signals-...
People sell at some point. I'd argue it's incredibly hard to diamond hand for early holders, that is why there are more stories of people selling their coin for cheap rather than diamond hands.
If everyone stopped buying BTC and only held BTC and bought another crypto currency, BTC would go to zero since no one would be putting money in. Similar to a pyramid scheme, once there is no new money it collapses.
On the other hand, if investors decided to never buy MSFT again and sold their stock the price could go down a lot, but it couldn't go to zero because that would make the dividend yield go to infinity. If MSFT went down to $20/share it would yield over 10% a year, and it is absurd to think that no one would want to get 10% a year return.
Obviously companies can and do go bankrupt, but for this comparison I'm comparing successful crypto to successful companies.
"no one can control" means:
1. you can't get bail-outs from phishing/fraud/mistakes (there are card companies/banks that actually provide this service)
2. combined with anonymity, means more wiggle-room for tax-evasion/black-market... (though if you look carefully, you'll have to 'financially-dance' a lot to get actual anonymity in bitcoin... all transactions are logged, right?)
Poor people can't get in and fat cats dominate so the more you zoom out the more you're right.
Their work is nonsense. They assume address=single investor, which is not the case. That large address that has hundreds of thousands of bitcoin on it? It could be a whale, sure. It could also be Bitfinex's cold storage wallet representing tens of thousands of individual investors.
What do you think a similar metric would look like for the US dollar, when you consider the $600 trillion-plus derivatives markets?
Is there any reason to think bitcoin is that much different from ownership ratios of other financial assets?
Say all you want about the efficacy of the above measures, they are absolutely not perfect. But it's completely different to bitcoin where none of the above applies, and often the opposite occurs.
Regulated by them, so in practice not all that regulated
Specific examples: UK capital gains tax is lower than income taxes. This means if you are born in to a wealthy family and given a £1MM index fund, you will pay less yearly tax on your capital gains while chilling at home all day than someone with a £50K job working hard and contributing to society
We can generate top 50 lists of the more-regulated wealth, but there is also significant wealth hiding with little accountability.
I understand the need to try to dismiss this problem, specially from those who have a dog in the race, but the dream of having a magical pseudo-currency that solves all problems and unexplainably makes everyone richer and richer just falls out flat if there are actually men behind the curtain manipulating it's value to screw everyone over in order to benefit themselves.
That's not what's exciting about bitcoin. What's exciting is that it is the first digital, global money that isn't protected by the proof of violence of the state. The US dollar is the world reserve currency because the United States is the best in the world at deploying destructive power, and the British and French currency before that when they were at the height of their power.
It's a neutral currency that every nation state on the planet can be ok with, because the system is completely agnostic to who the participants are. The only thing it requires is that you have hash power and internet connectivity. Nation states will have proportional power in the system based on their respective abilities to deploy energy and compute power to the security of the network.
Your argument is a bit naive and this sentence I quoted is the one that shows the reason. Proof of Work is a energy intensive activity, not to mention the specialized tech it requires.
Access to energy today is more than ever a sign of the power (including military power) of a nation, so much that energy itself could be regarded as the ultimate currency [1]. Who has more energy is richer. In short that is because nations with abundance of energy enable all sort of activities. In nations in which energy is scarce, opportunities are constrained by the cost of energy.
Because energy in the world is still a relatively scarce resource, powerful nations control natural resources needed to produce energy in any way they can. The obvious example is oil, but also land itself can be seen as a means to produce energy: think of the space needed for solar.
So in the end when talking about Bitcoin we are back at square one. Even if it was the only currency of the world, it would still be controlled by those with more power.
In short: Bitcoin is governed by spending energy and CPU -> ability to produce energy and CPU -> control over means of production of energy and CPU -> international strength ensuring control over natural resources and IP.
You say this as if it was a good thing. But is it? Look at it from the other direction: it's a tremendous optimization. Imagine a world of Bitcoin, where someone comes and proposes: "Look, we can all keep spending almost all of the world's energy production on scaling basic trade, or... we can just agree that I'll beat up anyone not playing ball, and we can put all that energy to productive use - like farming, medicine, construction, entertainment, science". Does it sound like a bad deal now?
Also, the only reason there isn't much threats of violence[0] associated with Bitcoin yet is because cryptocurrencies are tiny. Barely anyone in the real economy cares about crypto[1]. If, by some scary miracle of a trickster god, the economy starts caring for real, cryptocurrencies will get quickly integrated into the mainstream by regulatory means - and regulations are backed by proof of violence. And almost everyone will want that, too, because people will be tired of getting robbed or cheated out of their money. You can't correct an act of violence without another act of violence[2].
(It's not even that hard to rein in Bitcoin. All it would take is for the US govt to announce which chain is considered legitimate by them for the purpose of paying taxes, and that the rest is considered counterfeit money.)
--
[0] - Criminal activity notwithstanding.
[1] - No, noises made by large banks about running their own blockchains isn't caring - it's just exploring new potential areas of growth and profit.
[2] - At least if we generalize "violence" enough, to encompass credible threats of violence. If me stealing your money at gunpoint is an act of violence, then so is the court ordering me to give it back under threat of forcing me into prison.
I completely agree that the US govt and all super powers before it have made many mistakes, and shed much blood.
But the world isn't a utopian bubble free of conflict. The US military doesn't bestow value to the dollar because it goes around nuking every country in sight...it bestows value because it this huge potential of force keeps more peace than we would otherwise have. It's the same rationale for why a 51% attack on bitcoin is so unlikely: those with the ability to attack, also have the most to lose. Mutually assured destruction was not a new concept that started and ended with the cold war. It's fundamentally game theoretic and is why cooperative strategies are so powerful.
If you take into consideration all of the atrocities of the past 50 years, even the truly horrific scars on the US military industrial complex, this has been the most peaceful and prosperous period in all of humanity by a large margin. Could it be better? Of course, and we should strive for that.
But the same underlying reasons that the dollar is considered safe are the same forces that allow bitcoin to be successful. The fact that the world has come together and cooperated on a massive information sharing network called the internet is an example of something that, ignoring the tech advancements, would have been unfathomable mere centuries ago.
Orrrrr.... because its value is backed by the world's largest economy?
The problem is a deep misunderstanding of currency. The structure of currency is a tool humans use to exert and identify power within groups. The idea that a decentralized currency will change human nature or goals to control miss the forrest for the trees.
We are animals the violence, control and waning and waxing dominance is the only predictable outcome.
It's a speculative instrument, and its value is propped up by Tether, which pretty much everyone agrees is incredibly fraudulent.
I really like the idea of trying to build at least some part of society on top of mathematics instead of the laws of physics, but I am not really convinced that cryptocurrencies are an example or that this is even possible. The entire Bitcoin system is still made up of humans and hardware, there are still a lot of ways in which the laws of physics could overrule mathematics. Being distributed admittedly makes this harder but I think it is far from to point of being really effective.
States won't give up their currencies because that would put all of them in the position of, say, Liberia, rather than the position of the US, EU or China who can literally print money to pay.
And even if all state currencies vanished over night, this would change nothing for individuals because the vast majority of wealth is claimed by a minority of individuals and the only thing guaranteeing their claim is the exact monopoly of violence of the state that also backs its currency.
You don't have a private yacht because the state guarantees the value of your money with violence against foreign nation state actors. You have a private yacht because the state will ruthlessly punish anyone other than itself trying to take it away from you.
The state may be holding a gun to your head to be able to take away what's yours at any time, but it also holds a gun to everyone else's head to prevent them from taking it first. This is why the extremely rich spend so much time, money and energy influencing politics. Not because they want to dismantle the state, but because they want to keep it from using the gun against them while still keeping it pointed at everyone else.
Without a state threatening violence to protect your claims on "private property" you'd literally have to raise your own private army to defend it. This is why leftists call anarcho-capitalism "feudalism with extra steps".
You can't use it anywhere as currency! I guess you can buy weed with it online, but that's about it
[0] https://hbr.org/2021/05/how-much-energy-does-bitcoin-actuall...
No, not really. At all. You're trying to make it sound like everyone is just an anarchist activist trying to fight the power, when in reality it's just people scrambling to make a quick buck.
Let's be real and put it in perspective: do you feel that people such as the Winklevoss twins give a damn about theoretical concepts such as "proof of violence by the state"?
To everyone I’ve misjudged who genuinely enjoys the theory being crypto: I’m sorry.
I never heard that claim from crypto supporters, only from critics.
Yes, there is a lot of small scale shenanigans with crypto currencies, but Bitcoin has become very hard to manipulate due to the sheer size of the market.
> Yes, there is a lot of small scale shenanigans with crypto currencies, but (...).
There are no buts. Either the market is manipulated, or it isn't. You already acknowledged it is manipulated, but somehow the degree of difficulty to pull it off is of any relevance? Why do you feel this matters?
Meanwhile, here's an interesting read.
https://www.bloomberg.com/news/articles/2021-01-14/research-...
That is not what cryptocurrency enthusiasts believe.
I understand that you have to explain to yourself why others are dumber than you, even though they made crazy amounts of gains.
But maybe in the end, we just see something that you refuse to see.
I'm assuming you see an infinite supply of greater fools.
The article does not support the claim that the top investors and miners are engaging in cryptocurrency manipulation with bitcoin.
"Our brand new environmentally-inefficient, difficult-to-regulate, needlessly-complicated, easy-to-surveil currency also falls prey to the same financial consolidation outcomes of every other traditional currency" is not really the strong defense of Bitcoin that people seem to think it is. And "Bitcoin isn't established by state violence" doesn't work when states/corporations control most of the supply and have outsized control over the protocol. This kind of consolidation undermines Bitcoin's value as an experimental/democratic currency.
From the article:
> These observations led the NBER to conclude that despite the attention Bitcoin has received over the past few years, the ecosystem is still dominated by a concentration of key players, making the ecosystem susceptible to systemic risk like a 51 percent attack, where a group of miners could take control of the majority of the network.
If someone is legitimately, honestly trying to pitch Bitcoin as a democratizing currency, then seeing outcomes like this should be worrying to them. The regular dismissal that traditional currencies have the same problems makes it hard to take Bitcoin proponents seriously when they talk about societal benefits that the coin purportedly provides.
There's a disconnect here between the theory that Bitcoin allows equal participation by anyone in the network, and the reality that even the resources required to start participating in the network can be tightly regulated and are often controlled and manipulated through centralized state/corporate apparatus. And hand-wavy dismissals of that problem don't do the currency any favors. Why adopt a new currency that still has multiple downsides, if the upsides are constantly being waved away as unimportant by even the currency's own proponents?
I would expect much wealth concentration if the emission had been purely linear with a fixed block reward, taking MUCH longer to get down to a small yearly supply inflation (100 years to get to 1%). Such a SLOW emission would focus on the use as a currency rather than "store of value".
It likely would have made Bitcoin's environmental impact much smaller as well, without speculators pushing up the price.
You would end up with the same situation as now, just with some name swapped.
[0] https://bitcoinmagazine.com/culture/bitcoin-independence-day...
Miners can, but it’s costly. By a majority mining empty blocks on the chain they wish users to switch away from they make that chain useless. However, they need to sacrifice profit on some other chain (by not mining on that) to do so.
As the article shows, BTC's user side of the equation is actually controlled by a small group of investors. Thus, users like you and me have absolutely zero control or influence over the value of BTC, and are vulnerable to the manipulation done by this small group of investors.
We already saw BTC's value tank to half in a matter of days. How do you explain that as being something that meets the users' best interests?
This is not about money invested but about social consensus over which version of software is the bitcoin.
Let's not forget that bitcoin's monetary policy is fixed. Everyone earns coins the same way as everyone else: by mining or buying. No printing of new money for example. Central banks are far bigger whales than bitcoin's given their ability to print new money on a whim.
__Developers:__
* Profit motive: Paid salaries / bounties / donations by users, business that build off the Blockchain, miners, and appreciation from their BTC holdings
* The consequence of all the core developers going rogue would be the price of BTC collapsing, salaries or donations no longer getting paid by either or all of the above groups
__Miners:__
* Profit motive: Appreciation of BTC holdings, income derrived from doing their job by validating transactions and appending them to the blockchain for the block reward and transaction fees
* Rogue miners can't exert much force on the system until they get close to 50% of the hashing power.
* A collective of miners (e.g. a mining pool) can negatively impact the ecosystem by buying developers, or messing with transactions. This would result in a large cost by way of their holdings losing value and no longer being able to derrive as much income from mining.
__Users:__
* Profit motive: Transacting and speculating with BTC gives it value. If a significant group of users dislike a developer's proposed changes or feels they are corrupt, they can make their voice heard which can force the miners and other developers to weigh in resolve the issue. If this does not happen, then the loss of confidence in Bitcoin can result in a fork (the troublemakers leaving the chain, or the majority / active users moving to a new coin and leaving the troublemakers behind).
No one party in the above can force any issue on the other two stakeholders, and doing so against all economic incentives will typically cause enough damage that none of the other actors would likely go along with such an act.
For example, the main active developers could get bought off and push out a client with 10GB transaction blocks. Assuming the miners also get bought off, the users can choose not to use such cyrpto and sell their coins while they can still get a decent value for them. The miners and developers would be king of their fiefdom, which means very little. This is only possible though if you treat the miners and developers each as a single entity. This is far from the case though.
Do you believe all states to be corrupt?
Developers: Profit from being a user, as well as from the power to drive additional demand by improving the ecosystem (make it easier to use, more powerful or more efficient), and lastly by way of bounty/salary/donation based on how well they are achieving #2.
Miners: Arbitrage between cost of electricity and price of crypto, transaction fees mined, block reward, and finally from being a user.
The funny money some exchanges offer to make moving fiat easier or faster between other exchanges is pretty irrelevant. As long as tether is not committing massive fraud by minting billions to buy crypto on a fraudulent basis, it doesn’t matter what token people use to move their fiat. Tether could explode tomorrow or in decades from now, but I don’t see them bringing down crypto longterm, just like I don’t see an Elon tweet having the potential for long term impact.
I would certainly never touch Tether, and anyone who does is taking a not insignificant risk of getting burnt if there is no-one willing to buy their tether when they want to sell (Tethers are not and have not been redeemable for dollars from Tether corp for a long time).
Users running software nodes validates the blocks, limiting what miners can do. Miners can be pushed to change the rules with methods like a 'User Activated Soft Fork'. The proof of work algorithm can even be changed, rendering all the ASIC hardware of the mining industry worthless.
Major governments in wealthy countries have done an excellent job of managing currency. It's far more stable than cryptocurrencies, and the stability has improved as knowledge of economics has improved. They went through two massive economic calamities in 13 years (the Great Recession and the Coronavirus Pandemic) with almost no economic instability.
Cryptocurrency seems to me to be a far greater threat to economic stability and for corruption and undemocratic seizure of power.
Are all governments inherently corrupt in your mind?
Calling 10,000 unaffiliated people "a small group" by comparison is kind of disingenuous.
1. https://oxfamilibrary.openrepository.com/bitstream/handle/10...
Quite the opposite: fiat is what allows wealth to be built.
Under (e.g.) the Gold Standard, those who owned the gold controlled the wealth as the amount of gold was fixed and finite. If you wanted to expand the economy and needed "money" to do so, you had to literally dig up more gold. The finite amount was a limit on how economic activity could happen. And those in control of the gold could dictate terms (e.g., interest rates on loans) on its use.
And while Bitcoin can perhaps be sliced more finely (satoshis) than gold (ounces/grams), the principal is the same: there's a finite amount.
Meanwhile, in a credit-based fiat currency system, any bank can create money on demand by issuing loans. Need more liquidity to help an economy (keep) grow(ing)? Just encourage more loans.
Wat
(In a BTC world they wouldn't hold much BTC either, if they do that'd be a pretty bad outcome since wealth would be moved to a none productive asset)
Here are the first two google searches:
https://www.forbes.com/sites/martinrivers/2021/06/15/how-bit...
https://www.businessinsider.com/this-is-how-bitcoin-can-end-...
I've experienced hyperinflation first hand some 25 years ago - it's not fun. I protected myself somewhat by buying (and then gradually selling) dollars, but that won't work if the dollar starts circling down the shitter, which it might.
Going into foreign currencies is also not ideal because they are not legal tender, so you'll have to exit into your local currency, and to protect _themselves_ against inflation the currency exchanges pretty dramatically increase the spread, so you lose some money converting back and forth. BTC is not legal tender either, but it could be used "under the table" in lieu of cash if shit hits the fan, much like silver, gold, or ammo.
With a modicum of lawmaking it could also be used for payments between companies, which in hyper-inflationary economy based on fiat currencies make inflation even worse, because there's a latency between the time the company gets supplies and the time it ships product, and the company must be able to afford the new batch of supplies, so they eyeball what the prices will be, say, 2 weeks from now and set their prices accordingly (and sandbag on top of that as well). Do this 10 times through the supply chain and you get eye watering prices for final product on the shelves. BTC would fix that. It did not exist at the time, so people would barter instead, but that's pretty horrible, since you don't always have the stuff the other side needs, so you end up with horrendous chains of exchanges which fall through from time to time, causing a cascade of problems.
TL;DR: BTC could come in handy when printer goes brrrr.
Further lower income folks tend to have a disproportionate amount of their net worth in debt instruments, and debt holders win in an inflationary environment.
> TL;DR: BTC could come in handy when printer goes brrrr.
That's not generally speaking what causes hyperinflation. It's caused by the population rejecting the currency.
And there are only so many "assets" you'll be able to buy if there's a run on assets - their prices launch into the stratosphere immediately in this situation, and then they just disappear. Besides, people of moderate means spend a large chunk of their disposable income/savings on necessities: gas, housing, groceries, car repair, healthcare, all of which are going to also launch into the stratosphere in this scenario. Some of them you can cut down on, others not so much. What will happen to the stocks (which most people on this site feel "protected" by owning) I don't even know.
[1] https://en.numista.com/catalogue/photos/transnistrie/5eb1ed1...
[2] https://dic.academic.ru/pictures/wiki/files/66/Banknote_5000...
The hype is all about how it’s distributed and nobody controls it, when in practice it’s not much different from conventional money except that those with power are even more hidden.
So far the only things of note that Bitcoin has achieved is having a considerable impact on global warming and making it near impossible for mere mortals to buy GPUs at reasonable prices.
Even if any of the touted advantages were to finally materialize now, it wouldn't have been worth it.
Graphics cards were definitely bought in stupid amounts for this purpose.
Maybe not for Bitcoin anymore, since there is specialized hardware now, but it doesn't really matter which proof-of-watts-per-hour cryptocurrency we're talking about. They're all shit and the planet would be better off without them.
Only people who are rationally mining bitcoin with GPUs are those who don't pay for their own power.
Hashes per watt efficiency has risen very fast.
Bitcoin holders have no say in this. Bitcoin miners have no say in this.
This has been thoroughly proven in the bitcoin block size wars. The miners where in favor of an increase, but this meant nothing as the nodes where not, and a change in the protocol requires the nodes to adopt it.
Not entirely true. If holders decide to sell massively and buy into a fork they perceive as "a better bitcoin", this surely has influence.
Because of network effect and inertia, the bar is very high for a contentious fork to take over, but if push comes to shove, holders selling massively to buy into the contentious fork does carry some weight.
Also, spinning up a ton and a half of "nodes" on some random cloud isn't that expensive these days (in terms of what you can gain in gaining the system), yet no one has done it so far.
That number sounds trivial for even a very wealthy private individual to get them each in a vulnerable position.
For example, how many are in China or the U.S.’s reach? Because that means literally two people, Xi and POTUS, could round them up and effect a change. (Not saying they would. But a damning vulnerability for a libertarian ideal.)
Incentives are actually an important part of the equation. Why would a wealthy individual or government spend billions of dollars to do a 51% attack? There's basically no incentive to do so. The best they could achieve is to censor transactions for a while until the Bitcoin community decides to fork to a slightly different PoW algorithm.
China has banned cryptocurrencies [1]. So there is precedent. (Until recently, I believed nobody had an incentive to mess with cryptocurrencies. They're too niche and too attractive as a revenue source.)
> best they could achieve is to censor transactions for a while until the Bitcoin community decides to fork to a slightly different PoW algorithm
In the scenario that close to 50% of Bitcoin miners and a similar fraction of Bitcoins become possibly (though not irrefutably) state controlled, you're claiming it would be trivial to just fork them away? Who makes that decision? If those people can just uncoin wallets of their choosing, why bother with a cryptocurrency in the first place?
[1] https://www.nytimes.com/2021/09/24/business/china-cryptocurr...
China's ban on crypto had very little effect on Bitcoin although a large share of the Bitcoin mining used to be located in China.
> In the scenario that close to 50% of Bitcoin miners and a similar fraction of Bitcoins become possibly (though not irrefutably) state controlled, you're claiming it would be trivial to just fork them away? Who makes that decision? If those people can just uncoin wallets of their choosing, why bother with a cryptocurrency in the first place?
First, let me preface by saying that I find this scenario very unlikely. China might have had the ability to do it at some point but no longer now that all the miners have left. USA now has the largest share of the mining power but it can't just suddenly seize all miners to perform a 51% attack due to the way government works. At minimum, a law would have to be passed and the miners would have already left the country by the time it did. Finally, the US does not even have 51% of the hash rate (about 35% currently).
But let's say it does happen. The vast majority of the community (exchanges, merchants, users, etc.) would likely move to a hard fork with a slightly changed PoW algorithm that would render all those seized miners obsolete. Governments and wealthy individuals know about this possibility which gives them even less of an incentive to pursue a costly 51% attack.
We still don't live in a dictatorship, the President alone can't do this.
One can imagine scenarios where the President would have the power, motivation and even duty to do this, e.g. in times of war or other exigent circumstances. Point is, this sort of concentration opens up Bitcoin to concrete routes of attack which were previously purely hypothetical.
Actually, that's exactly what Xi (or the CCP, if you like) did[0] a month ago.
[0] https://www.reuters.com/world/china/china-central-bank-vows-...
That's not what it means.
Decentralization simply means that there is no central power that can make unilateral decisions about the system like a government can with its currency.
This explicit decentralization of power is what people are excited about, because it means any change to the system requires a supermajority of consent and there are no central points of attack that power hungry fascists can target and take over.
Centralization can be incredibly efficient, but also incredibly fragile.
Bitcoin is the anti fragile monetary system.
That's it.
It also doesn't really matter if the person fucking with a resource is a state or an extremely rich individual or a company, except for ideological reasons. Diamonds (even natural ones) are fairly abundant and largely worthless but that doesn't stop De Beers from selling them at ridiculously inflated prices because they hold enough of a monopoly to be able to create artificial scarcity (and spend a lot of money on marketing to distinguish their "product" from the cheaper but higher quality artificial alternative).
That crypto currencies aren't subject to the power hierarchies of the institutions you name in the exact same way as state-backed currencies doesn't mean they are not impacted by real world power hierarchies at all -- nor at least less so. Literally the only thing guaranteeing the "value" of anything is (state) violence. The reason you can charge ten bucks for a fancy cup of coffee is that if I drink without paying, you can call the cops.
There are an estimated 40 trillion dollars in circulation alone. The US government debt is currently close to 30 trillion dollars.
The world's richest person has an estimated value of around 180 billion dollars, less than 1% of the US debt alone. I'm talking about projected value, not cash.
In contrast, it was already reported that a mere 100 individuals control around 13% of BTC's coins, and 1000 users control around 40%.
https://www.businessinsider.com/bitcoin-whales-the-key-facts...
Suddenly, Bitcoin does not sound so centralized in comparison...
If 100 people control 13% of Bitcoin, then the question is how much Dollar top 100,000 people hold.
(1) PoW hardware or staked coins, in PoW and PoS Sybil control mechanisms, respectively, do give their owners the power to issue new currency and collect transaction fees, but it is an open market where all capital earns the same percentage return, and thereby does not exacerbate wealth inequality.
Deflation does however accrue economic rent to currency holders, so is an economic inefficiency. Fortunately in a decentralized economy, multiple currencies can co-exist and seamlessly operate in parallel, allowing the growth of the total money supply to keep pace with the demand for currency.
There is ofcourse also the moral argument for inflation: society pays you because you it values what you sold or did. That valuable service is not going to be worth as much 50 years into the future, so inflation is the cost imposed on withholding that money from public circulation for your private benefit of being able to decide 50 years later what you do with that money for a thing you did back then.
The wealthy love inflation since it's just going to pump their assets and redistribute money from the poor into their pockets.
It also negatively affects earners of the currency.
When your salary is constantly getting devalued, employers effectively get to constantly cut your salary while saying with straight face that they haven't done anything.
Now, everyone on this forum is well educated and valuable enough to be able to regularly negotiate salary increases. It's poor and uneducated people who get most taken advantaged by it.
Just look at how minimum wage is a never ending fight.
Inflation gives employers and the holders of capital the high ground fighting to maintain the status quo of wages and forces the poor and desperate to take time out of their personal lives to fight for more pay.
The problem is that these “large holders of currency” are the poorest people. Rich people have their wealth invested in various assets, e.g. stocks, bonds, land. The poorest people live paycheck to paycheck and can’t possibly invest in anything.
As the Bitcoin inflation rate falls, transaction fees will rise.
(1) https://www.theblockcrypto.com/data/on-chain-metrics/bitcoin...
> top 1,000 individual investors accounted for about three million of the 8.5 million Bitcoins controlled by the top 10,000 investors
I beleive same stats are available for stock markets. I wonder what numbers are there.
https://awealthofcommonsense.com/2021/10/ownership-inequalit...
Which means that bitcoin is not fringe and should be taken seriously
Which means that bitcoin investors are not basement dwellers selling tulips, but your average fellow citizen.
So please no more bitcoin investor bashing
https://mobile.twitter.com/n3ocortex/status/1356673243734822...
1. If you are saying that investors separate from miners have "control" over Bitcoin, then you are strictly talking about the price and not the protocol. Investors (who are not miners, so no point in mentioning them) have zero influence over the Bitcoin protocol on a technical level. Perhaps you could make a separate argument about manipulating the community.
2. Barring the previous misnomer, miners alone do not control the Bitcoin protocol. Miners in combination with full nodes (running a full node requires a relatively tiny investment compared to mining) control the future of the Bitcoin protocol. Miners may choose to go down a certain protocol or ledger altering fork, but if even a small amount of full nodes go a different direction and users/holders follow the full nodes, then the path the full nodes chose will "win out," or at least survive.
If you want to talk about investors controlling crypto currencies at any scale, then look towards proof of stake. Otherwise you are conflating price control and protocol control.
This is evidenced by the fact that almost no one these days actually runs a local wallet. The number of logical nodes has decreased while the number of wallets has dramatically increased.
Thousands of people are doing it and these sorts of things make it easy to do:
One thing the article or some people interpreting the article miss is that miners actually don't control the future of bitcoin as much as they think. From 2017 we actually know that the people running the nodes have more power then the big miners - because the biggest miners back then were not able to push the protocol changes (like block size) through - because nodes just didnt validate/accept those new blocks. So in the end the end user decides.
This is true for changes to the protocol or code, it is not true for doing fraudulent transactions within the current protocol version. So colluding miners can have impact in that realm I'd say.
> Prices could be high, but mostly they weren’t. Although it’s true that the most expensive tulips of all cost around 5,000 guilders (the price of a well-appointed house), I was able to identify only 37 people who spent more than 300 guilders on bulbs, around the yearly wage of a master craftsman. Many tulips were far cheaper. With one or two exceptions, these top buyers came from the wealthy merchant class and were well able to afford the bulbs. Far from every chimneysweep or weaver being involved in the trade, the numbers were relatively small, mainly from the merchant and skilled artisan class – and many of the buyers and sellers were connected to each other by family, religion, or neighbourhood. Sellers mainly sold to people they knew.
> When the crash came, it was not because of naive and uninformed people entering the market, but probably through fears of oversupply and the unsustainability of the great price rise in the first five weeks of 1637. None of the bulbs were actually available – they were all planted in the ground – and no money would be exchanged until the bulbs could be handed over in May or June. So those who lost money in the February crash did so only notionally: they might not get paid later. Anyone who had both bought and sold a tulip on paper since the summer of 1636 had lost nothing. Only those waiting for payment were in trouble, and they were people able to bear the loss.
> No one drowned themselves in canals. I found not a single bankrupt in these years who could be identified as someone dealt the fatal financial blow by tulip mania. If tulip buyers and sellers appear in the bankruptcy records, it’s because they were buying houses and goods of other people who had gone bankrupt for some reason – they still had plenty of money to spend. The Dutch economy was left completely unaffected. The “government” (not a very useful term for the federal Dutch Republic) did not shut down the trade, and indeed reacted slowly and hesitantly to demands from some traders and city councils to resolve disputes. The provincial court of Holland suggested that people talk it out among themselves and try to stay out of the courts: no government regulation here.
[0]: https://theconversation.com/tulip-mania-the-classic-story-of...
they can print more bitcoins into existence? they can fake a transaction? they can undo a transaction? they can steal from other wallets?
Basically, the first to mine a block has control over the history since the previously mined block. Because they have superior mining capability, they are more likely to be first to mine a block. They are also able to refuse to accept others blocks, which could effectively fork the blockchain, causing a split head, which results in other other issues.
EDIT: just reread, and theres 2 aspects to control. Theres the mining aspect (which i mention above) and then there is the market manipulation aspect (which is to do with pump/dump - unrelated to above).
In this particular instance, it means "they have more than me".
The relevant comparison here is to other currencies, not to organizations in general, and to the ability and incentive of these controllers to influence the trajectory of the currency.
Two points:
1. 10,000 people controlling 33% is dramatically less control and centralization than the Federal Reserve, which ultimately has about 10 powerful people.
2. These 10,000 people have very little ability and even less incentive to affect the price of Bitcoin. Again, unlike the Fed, which can print money at will and increase inflation.
That's the theory.
In practice, there's always this aspect to consider (attributed to a Rothschild familly member in the 19th century):
"Permit me to issue and control the money of a nation, and I care not who makes its laws"
https://www.amazon.com/Creature-Jekyll-Island-Federal-Reserv...
How to mitigate that? It is IMO understudied area of economics because economists prefer thinking of "value" of anything as a scalar, not as random variable. In cases where it isn't possible they just conveniently assume normal/gaussian random distribution. (See @nntaleb)
Transfer payments.
Historically made under the threat of violence by a populist king or warlord. Who, in almost all cases where the transfer payments continued, was swiftly replaced by a republic. Bitcoin turns the clock back to the feudal reality of land-owning nobles. We just made the cost of defending the land vanishing.
You can't "control" a currency as widely used as the USD. The Fed (and other countries, and large enough institutions) can try to influence it. The chair of the Fed doesn't just wake up one morning and say "you know, I think I'll do X to the value of the USD."
US monetary policy in the very simplest sense is controlled by a small group (governors of the fed) but those people are nominated by the president, appointed by congress. We know who they are, and they do not operate in an isolation chamber. The president can remove them, though not without potential economic and political repercussions. Their actions have to pass muster with a lot of people - for example, investors on the stock market, other countries (ex: China holds a foreign reserve of over a trillion dollars. That is a fairly sizeable lever. But using that lever, again, has repercussions.)
The people who control Bitcoin and do the majority of the mining aren't even known. We have no idea how many of them there really are (as pointed out in the article, one person could have an unlimited number of addresses.) There are effectively no repercussions for their actions other than the value of BTC changing. We have no idea if they are colluding. There's nothing whatsoever anyone can do to influence them from taking action that are not in the best interests of stability, the currency, the people using the currency, etc.
Someone mentioned recently that a couple of years ago, some people coordinated enough between themselves that they were able to force a rollback of the blockchain...
https://www.thehoopsnews.com/wp-content/uploads/2015/06/Zimb...
Whereas increasing the supply of USD boils down to a single database "update" statement. I'm exaggerating for dramatic effect, obviously, but not by all that much.
in fact most of the alt coins are the same way. and its super obvious that its being manipulated by those with the largest amounts.
the market is too immature. the financial gene pool is too shallow.
If they only have the altcoin then all they can do is sell. Its not like they can manipulate the price upwards unless they have additional assets.
For some market participants they have multiple pools of capital. But the mere existence of consolidated ownership doesn't mean its manipulated because that alone doesn't make sense?
Curious if you could articulate the process you imagined. I've seen your version of events mentioned alot on twitter, discord, telegram and similar threads, but its just like the reductive "must be money laundering" comment also often seen, how does that work exactly?
Wait until you hear about the proportions in other industries that have a far more direct impact on the real world than Internet funny money does.
At current market price, $60,000, bitcoin costs $19.7 billion USD.
Or, 13x Tesla’s famous investment. You’d need a Tesla sized investment every month for a year just to balance sell pressure from miners. This is without any existing investor cashing out.
And this scales linearly with market price. People often talk of BTC to $1 million.
900 * 365 * $1,000,000 = $328, 500,000
Almost $1 billion per day. The 900 will change to 450 in about 3 years after the next halving, but until then that’s the cost formula.
Madness if you ask me. Bitcoin is a heavily negative sum game. You can only take out what others put in, and miners have to take out their share as well, a negative dividend.
That's 6.5 years at a 900 per day rate.
Then 450, 225, 112.25 etc
They could very well be HODLErs buying at a huge discount.
Actually, I’m not. If a Bitcoin is worth $60,000, then in an efficient market miners will spend just under $60,000 to get it.
Will some choose to keep the Bitcoin? Certainly. But, they still have to pay the bills. To do so they have a few options:
* Raise money from private investors or on the public markets. RIOT and MARA have done this. They pay their bills by selling shares.
* Loans. There are many ways for miners to put the Bitcoin up as collateral and get a loan, keeping the bitcoin
It turns out it doesn’t matter if the miners sell or not: both methods above involve getting an influx of money, either from equity or from lenders. All that matters for the analysis above is whether the market is efficient.
If the market isn’t efficient, and Bitcoin costs $20,000-$30,000 to mine, then my analysis falls apart. And you and I should start bitcoin mining companies to boot.
> They could very well be HODLErs buying at a huge discount.
See comment about efficient market above. There’s no discount. You could work a job, earn $60,000 and buy 1 bitcoin.
Or, you could take the $60,000, buy $60,000 worth of ASIC and coal and burn through it to mine 1 Bitcoin on average.
It works out the same, if market efficient
(If you're planning to hodl, you can hodl either by mining or by buying on the open market, so an efficient market should ensure the cost of each is roughly equal.)
Bitcoin volume in the past 24 hours was actually $36 BN.
https://www.frontiersin.org/articles/10.3389/fbloc.2020.5654...
Anyway, we won. The attributes in the title look like the ones that describe a currency to me!
Never mind that doing so would destroy the value of the cap/opex invested.
But yea... bitcoin is dead, again.
"Bitcoin is centralized, but that's OK because the central authorities can be trusted to do the right thing" isn't exactly a compelling argument. Especially when decentralization is supposed to be one of Bitcoin's major selling points.
The fact that those efforts have failed, despite them being the largest miner, is pretty strong evidence that Bitcoin is not under the control of any small group of people.
There also is no "central authority" since anyone can become a validator. Bitmain, while absolutely huge producer of hardware and a miner, is not the only manufacturer of the hardware.
Even better, there is a giant financial incentive to build the best miner [1].
[1] https://www.cnbc.com/2021/10/15/square-ceo-jack-dorsey-says-...
By this reasoning, there is no central authority in the dollar system since anyone could become chair of the federal reserve. The odds for an individual without specific hardware to actually mine (and then becoming a validator) a single block are extremely thin. (Granted it's more likely than becoming the chair of the Fed, but less likely than becoming the head of the central bank of Malta for a citizen of that country …)
We don't need to trust miners for bitcoin to work and if we do trust them, what is the downside to someone who is just validating transactions?
They built a better gold. People trust gold. They put the majority of it into vaults and trust the people who run those vaults. This is the best solution anyone has ever come up with to digitize gold. It doesn't tick all the boxes 100% and isn't perfect, but it sure does one single thing well.
The world revolves on financial transactions. I wish I could have said that I built something that can be validated by anyone at any time and then get people all over the world to freely invest insane amounts of capex/opex. All without a marketing budget or CEO. It has never been done before.
And I say that as a bitcoin and eth proponent and long time holder. I'm just saying, we should be careful before we jump to conclusions this is still experimental technology ( even encryption itself is still young, and implementation is very prone to error )
I'd also bet that bitcoind is probably the most deeply studied codebase on the planet.
The inevitable problem that I see is that they will be able to censor transactions, since transactions are not private. But they can't change the rules or the chain splits, so what else do you think people are trusting them not to do?
I won't deny that they do hold some power, but I don't think it is as complete as you claim. There is in effect counter-powers to the devs: miners and users.
Imagine a scenario where the guys who have commit access tot the repo decided to change the block size via a hard fork (much like what happened with bitcoin cash).
The next day, there would be a new github repo with the unforked original code, and there would be two Bitcoins sharing a common history up until the fork.
Some miners would switch to the new fork, some would stay on the original one.
Much like what happened with bcash, there would quickly be people selling the fork they don't believe in and buying the one they like.
Before long, the users (and the miners) would essentially do what amounts to a vote (some with mining power, others with buying and selling), and we would end up in a situation like the one we have today: BTC at $66000, BCASH at $600.
So, some power (like with the taproot upgrade, which ended up having actual consensus with miners and did not create a revolution with the users), not absolute power to decide what Bitcoin is and isn't.
r/bitcoin is and has been for a very long time an absolute cesspit, even before the censorship plays came about.
No one I know really interested/involved in Bitcoin goes there anymore.
When you drive on the highway, every single driver in the oncoming traffic is in control of a car that would kill you if they just decide to move their steering wheel into your direction. Luckily, there is little incentive for them to do so. So driving is relatively safe.
When you invest into Bitcoin, there might or might not be people who could devalue it to some degree. Luckily, those are the people with a substantial investment in the same asset you are invested in. So there is no incentive for them to do so.
When you invest in fiat currency, the incentive of the people in power are completely misaligned with the holders of that currency. The people in power gain more power by printing fiat that they then can spend.