Bitcoin gini coefficient is increasing

[franklin2058]

"Bitcoin has gained widespread attention globally in 2013 and is the first online currency based on a peer to peer network without any central authority or third parties. Its market capitalization reached US$ 8.5 billion in December 2013. However, despite its popularity some issues like network security (thefts), anonymity (privacy) and wealth distribution (inequality) have plagued it. Of considerable importance is the last issue of unequal wealth distribution as it may create a huge socio-economic burden for the society. A group of researchers estimated that the GINI coefficient for the network was at an all time high of 0.985 in Jan 2013 and that the rich were getting richer as the network grew. In the present work it has been strived to determine how the GINI actually increases or decreased depending upon the wealth distribution. For doing this a raw transaction of data of more than 36 million transactions has been sourced and a list of all users and their wealth in the network has been computed. The final results are very alarming as GINI has increased to 0.997 by the end of 2013 and the market share of top 10 holders alone has reached 6.6% of the entire market. Therefore, the rich have actually got richer and steps should be taken to curb such a wealth accumulation model in the network."

It seems bad news for bitcoin price.

https://link.springer.com/chapter/10.1007/978-981-13-0755-3_15

[deisik]

"Bitcoin has gained widespread attention globally in 2013 and is the first online currency based on a peer to peer network without any central authority or third parties. Its market capitalization reached US$ 8.5 billion in December 2013. However, despite its popularity some issues like network security (thefts), anonymity (privacy) and wealth distribution (inequality) have plagued it. Of considerable importance is the last issue of unequal wealth distribution as it may create a huge socio-economic burden for the society. A group of researchers estimated that the GINI coefficient for the network was at an all time high of 0.985 in Jan 2013 and that the rich were getting richer as the network grew. In the present work it has been strived to determine how the GINI actually increases or decreased depending upon the wealth distribution. For doing this a raw transaction of data of more than 36 million transactions has been sourced and a list of all users and their wealth in the network has been computed. The final results are very alarming as GINI has increased to 0.997 by the end of 2013 and the market share of top 10 holders alone has reached 6.6% of the entire market. Therefore, the rich have actually got richer and steps should be taken to curb such a wealth accumulation model in the network."

It seems bad news for bitcoin price

And how are they going to curb that?

Right, there's no way. Though it doesn't necessarily look bad for Bitcoin price, at least not in the sort term. If anything, it could potentially increase volatility levels as liquidity goes down (when some of the whales decides to cash out). But other than that, we have altcoins which pick up when Bitcoin leaves, so it is kind of dynamic equilibrium. If Bitcoin loses some ground, the free space gets instantly occupied by other cryptocurrencies. The throne is never empty (GoT)

[timerland]

My question is, so what? I don't see a point in trying to measure gini coefficient whatsoever.

Bitcoin is not a nation, nor is the gini coefficient in this instance a fair representation of net worth of individuals who use bitcoin. Just because you may hold a small amount of bitcoin in a particular address doesn't necessarily mean that your total net worth has to be less than those who hold more BTC than you. All this says about you is that your propensity of investing in BTC may be higher, that's all.

If you do this same thing with something like gold, I think you'll find similar results.

Besides, you're not taking into account factors such as centralized exchanges having majority of the coins in cold storage addresses, which contributes to this stark contrast. This is simply not accurate.

[odolvlobo]

Addresses are not people, and they are not correlated. The biggest addresses belong to custodians who hold bitcoins for millions of people.

As a result, the GINI coefficient is not a measurement of wealth distribution, but is actually a measurement of the preference to hold bitcoins in custodial accounts.

Ironically, that still means that a high GINI coefficient is truly a bad news for Bitcoin, but for a different reason.

[kissme09]

We cannot prevent this because all whales can accumulate Bitcoin through exchanges or traders. In particular, exchanges are chosen by investors as a safe place to keep assets. So the exchanges that are becoming whales are actually the most influential in the market. I am worried that exchanges will soon link together to use all assets of all investors to control the entire market in the future.

[TheCoinGrabber]

"Curb"? And who's gonna do that?

I do understand why it sound troubling to people but almost all of us knew this can happen when we got in. We should just be realistic that we can remain temporary bagholders for quite some time whenever the large "shareholders" decide to dump their coins.

[deisik]

Besides, you're not taking into account factors such as centralized exchanges having majority of the coins in cold storage addresses, which contributes to this stark contrast. This is simply not accurate

It may be inaccurate for the purposes stated (i.e. wealth distribution)

But it is still accurate enough to make a reasonable conclusion or inference that there is little to no real use of Bitcoin, I mean relative to the amount of coins held by large institutions and whales. Really, if there were world-scale application and adoption, we would see quite a different picture, with most bitcoins being distributed among a lot of small wallets. But we don't see such a picture, even from a distance. That's likely the reason why it is truly a bad news (even though such a judgment actually depends on your point of view)

[timerland]

Besides, you're not taking into account factors such as centralized exchanges having majority of the coins in cold storage addresses, which contributes to this stark contrast. This is simply not accurate

It may be inaccurate for the purposes stated (i.e. wealth distribution)

But it is still accurate enough to make a reasonable conclusion or inference that there is little to no real use of Bitcoin, I mean relative to the amount of coins held by large institutions and whales. Really, if there were world-scale application and adoption, we would see quite a different picture, with most bitcoins being distributed among a lot of small wallets. But we don't see such a picture, even from a distance. That's likely the reason why it is truly a bad news (even though such a judgment actually depends on your point of view)

I still somewhat disagree with this statement.

With people utilizing hosted wallets, and payment protocols such as Bitpay, there will be some degree of centralization when it comes to the distribution of bitcoins naturally, since the nature of these services demand that people trust them with their coins at a central location. Even though this is to the detriment of the user, this is what is practically happening.

Furthermore, while there may be a certain degree of correlation between real world utility and equality of distribution, I don't think that there is a strong link. Especially when you consider the fact that BTC's utility doesn't necessarily stem from small transactions, but rather, from serving a store of value and a means to transfer wealth out of countries with strict capital controls, etc., all of which can involve larger sums of BTC, that can be stored on central platforms once again.

But I agree in the fact that BTC is currently still being mainly used speculation still, and that there's still ways to go before this is not the case. I just think it's over-simplistic to directly correlate a high gini coefficient to lack of real world usage, imo.

[mu_enrico]

Addresses are not people, and they are not correlated. The biggest addresses belong to custodians who hold bitcoins for millions of people.

As a result, the GINI coefficient is not a measurement of wealth distribution, but is actually a measurement of the preference to hold bitcoins in custodial accounts.

I agree 100% with @odolvlobo, and I want to add some additional note. Addresses are not people, so the method of calculating the Gini coefficient in BTC is wrong. Since one person could use "unlimited addresses" with HD wallet, or conversely, thousands of people could gather their fund in a single custodial wallet.

IMO it is impossible to compute a valid Gini coefficient in the BTC nation since the researcher would need full KYC data in BTC addresses.

[ichai]

We cannot prevent this because all whales can accumulate Bitcoin through exchanges or traders. In particular, exchanges are chosen by investors as a safe place to keep assets. So the exchanges that are becoming whales are actually the most influential in the market. I am worried that exchanges will soon link together to use all assets of all investors to control the entire market in the future.

I disagree with your opinion. Most whales often store their money in highly secure wallets like Coinbase, MEWconnect, cold wallet like Trezor, Ledger and they never leave much money on exchange.
because any exchange has a vulnerability in the security system and it is very easy to hack.

[deisik]

With people utilizing hosted wallets, and payment protocols such as Bitpay, there will be some degree of centralization when it comes to the distribution of bitcoins naturally, since the nature of these services demand that people trust them with their coins at a central location. Even though this is to the detriment of the user, this is what is practically happening

But what would these payment processors be doing with the coins they receive?

If we had real adoption, we would have a two-way street, i.e. people would be receiving bitcoins from them in the same amount (give or take) as they are sending their coins to these services. To put differently, you implicitly (and incorrectly) assume that when adoption comes for real, things will remain the same elsewhere. But that's a false assumption as adoption as a means of payment means more circulation per definition

Furthermore, while there may be a certain degree of correlation between real world utility and equality of distribution, I don't think that there is a strong link. Especially when you consider the fact that BTC's utility doesn't necessarily stem from small transactions, but rather, from serving a store of value and a means to transfer wealth out of countries with strict capital controls, etc., all of which can involve larger sums of BTC, that can be stored on central platforms once again

If Bitcoin is mostly used as a store of value and wealth transfer vehicle, it is not as much used as a means of payment. So the link is in fact stronger than you think. More bitcoins in circulation means more uniform distribution. In other words, it is kind of accounting identity that you can't get around

[exstasie]

"The final results are very alarming as GINI has increased to 0.997 by the end of 2013 and the market share of top 10 holders alone has reached 6.6% of the entire market. Therefore, the rich have actually got richer and steps should be taken to curb such a wealth accumulation model in the network."

It seems bad news for bitcoin price.

https://link.springer.com/chapter/10.1007/978-981-13-0755-3_15

You sure about that? I think it might be the opposite.

Large holders are accumulating. They have an interest in withholding supply from the market, not selling for small time gains. That means would-be investors fighting for a smaller and smaller pool of coins. That means higher prices.

[MadeinCoin]

We cannot prevent this because all whales can accumulate Bitcoin through exchanges or traders. In particular, exchanges are chosen by investors as a safe place to keep assets. So the exchanges that are becoming whales are actually the most influential in the market. I am worried that exchanges will soon link together to use all assets of all investors to control the entire market in the future.

I don't think exchanges will do anything like that, maybe in the future there will be more manipulation done by exchanges, where they manipulate the volume of coins to enrich themselves.

I disagree with your opinion. Most whales often store their money in highly secure wallets like Coinbase, MEWconnect, cold wallet like Trezor, Ledger and they never leave much money on exchange.
because any exchange has a vulnerability in the security system and it is very easy to hack.

That's right, I think only stupid whales save their money on exchanges. It is very susceptible to experiencing hacking in exchange, not even a few cases of bitcoin theft, lucky if the exchange would compensate like last month's binance.

[deisik]

"The final results are very alarming as GINI has increased to 0.997 by the end of 2013 and the market share of top 10 holders alone has reached 6.6% of the entire market. Therefore, the rich have actually got richer and steps should be taken to curb such a wealth accumulation model in the network."

It seems bad news for bitcoin price.

https://link.springer.com/chapter/10.1007/978-981-13-0755-3_15

You sure about that? I think it might be the opposite.

Large holders are accumulating. They have an interest in withholding supply from the market, not selling for small time gains. That means would-be investors fighting for a smaller and smaller pool of coins. That means higher prices

In fact, it means something different

And more dangerous than the higher prices. Withholding supply from the market means there is less liquidity in the market (that goes without proving), and while it does push the prices up somewhat, it also pushes up volatility. But the surge in volatility (percentage-wise) will definitely exceed the rise in price, up to a point where all trading becomes meaningless as orderbooks stop providing any reliable information as to where the price currently is. The market disintegrates and ultimately dies. That's the reason why accumulating beyond a certain percentage of the market supply does more harm than good to the market in question

[magneto]

"Bitcoin has gained widespread attention globally in 2013 and is the first online currency based on a peer to peer network without any central authority or third parties. Its market capitalization reached US$ 8.5 billion in December 2013. However, despite its popularity some issues like network security (thefts), anonymity (privacy) and wealth distribution (inequality) have plagued it. Of considerable importance is the last issue of unequal wealth distribution as it may create a huge socio-economic burden for the society. A group of researchers estimated that the GINI coefficient for the network was at an all time high of 0.985 in Jan 2013 and that the rich were getting richer as the network grew. In the present work it has been strived to determine how the GINI actually increases or decreased depending upon the wealth distribution. For doing this a raw transaction of data of more than 36 million transactions has been sourced and a list of all users and their wealth in the network has been computed. The final results are very alarming as GINI has increased to 0.997 by the end of 2013 and the market share of top 10 holders alone has reached 6.6% of the entire market. Therefore, the rich have actually got richer and steps should be taken to curb such a wealth accumulation model in the network."

It seems bad news for bitcoin price.

https://link.springer.com/chapter/10.1007/978-981-13-0755-3_15

It could be true. It wouldn't be surprising if one of the contributing factors is the fact that there were a lot of investors who panic dumped at the bottom of the bear market, that essentially transferred BTC to the hands of the elites who recognise the cycles within the market, leading to an increase in inequality of distribution.

There are some in this thread that say that this stat doesn't matter at all in reflecting distribution inequality, while others that say it does effectively. The truth is probably somewhere in between. At the very least it does show a problem with people's blind trust with centralised platforms to hold their coins.

But I'm just wondering, could you give examples of BTC's "network security" and "anonymity" being under fire in recent years? I couldn't think of any major developments that would hurt BTC in these regards.

[DigitalGemToken]

Yeah a wider gini coefficient or that the rich is getting richer is definitely not good for the Bitcoin network.

However, I think the main reason why people buy Bitcoin is because it is a hedge against uncertainty and hedge against inflation.

Every country is printing mass amounts of money and Bitcoin's supply is capped by code.

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[k1ng0fBTC]

"Bitcoin has gained widespread attention globally in 2013 and is the first online currency based on a peer to peer network without any central authority or third parties. Its market capitalization reached US$ 8.5 billion in December 2013. However, despite its popularity some issues like network security (thefts), anonymity (privacy) and wealth distribution (inequality) have plagued it. Of considerable importance is the last issue of unequal wealth distribution as it may create a huge socio-economic burden for the society. A group of researchers estimated that the GINI coefficient for the network was at an all time high of 0.985 in Jan 2013 and that the rich were getting richer as the network grew. In the present work it has been strived to determine how the GINI actually increases or decreased depending upon the wealth distribution. For doing this a raw transaction of data of more than 36 million transactions has been sourced and a list of all users and their wealth in the network has been computed. The final results are very alarming as GINI has increased to 0.997 by the end of 2013 and the market share of top 10 holders alone has reached 6.6% of the entire market. Therefore, the rich have actually got richer and steps should be taken to curb such a wealth accumulation model in the network."

It seems bad news for bitcoin price.

https://link.springer.com/chapter/10.1007/978-981-13-0755-3_15

Well there are lots of rich people that are getting rich daily through Bitcoin and there are also poor people that has managed to become average/rich through this Bitcoin as well. It's all about what you do and how smart you are, you will always find a way. But generally, everything makes the rich to be richer, because they already have the money and they can decide to be pumping one coin to another and making the poor investors to fall victims, while they themselves become extra rich. The thing is that anyone who is going into cryptocurrency should have it in mind that cryptocurrency is a very risky thing to be part of. If you manage to earn anything from it, you should find elsewhere to invest it, something that is not very risky.

[darewaller]

This is the most hilarious thing I have ever read for a long long time. Bitcoin is dangerous and the rich gets richer with BITCOIN? That is better than any stand up I have ever watched. Has these guys ever checked the real economy where the rich get richer where poor is screwed over?

In bitcoin if the rich wants to get rich they need to either hold (in which case the poor gets richer as well) or they need to buy which goes to show you how much it will affect the poor persons bitcoin go up as well as rich persons bitcoins go up. There is absolutely no way of knowing what type of person will buy or hold but as long as nobody loses money there is no way of anyone getting more poor in the end, yes rich my collect more bitcoins but while they are buying they are helping out a poor getting money for its bitcoins.

[hatshepsut93]

Bitcoin is not a country, why would anyone care about this supposed inequality? People get crazy rich by investing in Bitcoin, are the authors suggesting that they should steal the wealth of Bitcoin whales on top of that, or what? Satoshi made Bitcoin's supply diminishing to facilitate long-term growth, early adopters got rewarded for risking, in fact it would be unfair to reward all adopters equally because the risk was not equal.