Bitcoin Forum

How the Bitcoin 1% manipulate the currency, deceive its user community, and make its future uncertain
From: http://blog.p2pfoundation.net/how-the-bitcoin-1-manipulate-the-currency-deceive-its-user-community-and-make-its-future-uncertain/2013/06/30
Excerpted from Stanislav Datskovskiy:

” One of the world’s greatest cryptographers, Adi Shamir, published the following analysis:

- “We discovered that almost all these large transactions were the descendants of a single large transaction involving 90,000 Bitcoins which took place on November 8th 2010, and that the subgraph of these transactions contains many strange looking chains and fork-merge structures, in which a large balance is either transferred within a few hours through hundreds of temporary intermediate accounts, or split into many small amounts which are sent to different accounts only in order to be recombined shortly afterwards into essentially the same amount in a new account.” (source: Dorit Ron and Adi Shamir, Quantitative Analysis of the Full Bitcoin Transaction Graph.”

Most bitcoins are, in fact, in the hands of a very few people. Are you surprised? I’m not.

We also learn that, of the approximately 9 million bitcoins which currently exist, less than 2 million actually circulate – that is, change hands with any appreciable frequency:

- “It is remarkable that 97% of all owners had fewer than 10 transactions each, while 75 owners use the network very often and are affiliated with at least 5,000 transactions.”

And it would appear that most of the non-circulating coins are in the hands of a very small number of people – who, one may reasonably suspect, were involved from with building and propagandising Bitcoin from its very beginning. So, who are the lords of Bitcoin?

…

The most damning fact revealed in the paper is not the extreme top-heaviness of the Bitcoin ownership pyramid, but rather the elaborate lengths to which the hoarders went in order to conceal their existence from “rank and file” users. Think of it! Hundreds of thousands of shill accounts, with vast rivers of wealth moving back and forth – for one purpose only: to deceive. None of it was done by accident.

…

Bitcoin turns out to be something other than the fully-decentralized, unkillable network which so many imagined it to be.

more: http://blog.p2pfoundation.net/how-the-bitcoin-1-manipulate-the-currency-deceive-its-user-community-and-make-its-future-uncertain/2013/06/30

Source (http://newswax.com/2012/10/bitcoin-has-a-kill-switch-and-how-to-disconnect-it/?wpmp_tp=2) article is dated October 26th 2012

It does make sense that 97% of people who hold bitcoins aren't able to do much with them.  Easy to mine, hard to spend has been the rule since the beginning.  Getting harder to mine, so many people are buying in as an investment. 

Without more context it's impossible to know why those 90k were divided like that.  It could very well be that someone was trying to hide their investment.  There are many other reasons it could happen, though.  Lots of other people with large holding too, did they do this?  Or just one person/group?

Thanks for the link! Very interesting.

I am not native with english, so maybe I got something wrong, but the list in the article with the biggest BTC-Holders  "A" to "S" - when you add their incomes together, you get more than 13 Mio ...

"Account" (BTC-Adress) =/ "Owner"

Also, lots of early coins didnt move because they are lost.

This paper cites lots of old and even back then questionworthy statements. I would give much credit to them.

With many people (foolishly) storing their bitcoins at exchanges rather than locally in their own wallets, the exchanges hold a large number of coins.   And even if those coins are flip flopping back and forth in trades to and from dollars, until they are withdrawn they don't show up in the blockchain.      And since all sane exchanges employ cold storage mechanisms, those coins will not move because withdrawal requests are served using coins recently received in the hot wallets.

But overall, I'ld agree that a very small subset of the population hold a relatively huge number of coins, and if bitcoin continues its ascent these people will benefit from those coins having insane gains.   That's just one of those things though, happens all around -- like those owning Apple stock over the past half decade, or gold versus a decade ago, etc.

This isn't a new analysis. Yes, there are some early adapters with large holdings. including Satoshi with upwards of 1 million BTC. But this just reads like another kind of hit piece against Bitcoin. Individuals with large holdings that might one day dump all their coins (and also destroy the value of their own coins in the process) does not constitute a "Kill Switch." The bitcoin network would still have all the same functionality, even if prices dipped for a period of time.

Compared to many of the alt-coins, the distribution of BTC is much higher. (Doesn't one person have something like 90% of PPCoin?) This is probably because the utility of BTC was dubious at the beginning. A lot of people admit to having mined coins and losing the keys. When 10K BTC was only worth the price of a pizza, misplacing even 1000 coins wouldn't be anything to sweat about.

To argue against the so-called Kill Switch, take a look at the Prisoner's Dilemma. If a group of individuals are each holding large stashes of bitcoin for an extended period (which that paper more or less proves), there is no reason to sell it all off unless they have reason to believe that the long term value will be lower. Because if they did, everyone would want to be the first to sell and get out at the highest price possible. But this doesn't happen. Therefore, it is reasonable to conclude that the large holders believe in the long-term value and don't propose a serious threat to the credibility of Bitcoin