Can you help me refute a contrarian?

[vuduchyld]

Hey folks, I just got an e-mail from a contrarian friend of mine.  He's a pretty bright guy--young, educated, tends to view things through an old-fashioned lens.

Some of these facts, I knew.  Some I didn't, and in fact, I'm still not sure if I buy them.  He linked me to a Forbes article from January 2014 that he was quoting, but the author of that article didn't cite her sources, so I'm not sure how to verify or debunk.  Maybe some of y'all can shed some light.

--There are (or were in January) approximately 12,000,000 bitcoins mined
--47 people own 29% of the coins. 
--930 people own 50% of the coins.
--approximately 10,000 people own 75% of the coins
--approximately 1,000,000 own the rest
--90% of bitcoins are currently hoarded and not circulated

IF this is all true (and I would REALLY love to find out that this is not the case), such a concentrated ownership is truly disconcerting.  It seems to violate some of the spirit of what I see on this board, suggesting a movement of the people by the people and for the people.  That is really wicked consolidation.  One could (and I would) easily argue that concentration of the distribution of wealth in our world leads to a lot of problems related to power, politics, and equality of even opportunities.  IF this is true, bitcoin is even more consolidated than other stores of value.  And the 90% hoarded figure is even more disconcerting.  Sure, some of the smaller players are buying strictly as a store of value.  But price manipulation by a mere 47 people could be really significant. 

By the way, if there are 12,000,000 mined coins and 9,000,000 are spoken for by 10,000 people, that means there are only 3,000,000 other coins owned by 1,000,000 people....an average of 3 btc per holder.  It's just interesting to note that of the people on this board or in the general population, odds are pretty strong that they are in the vast majority of 99% who own an average of 3 btc.  No wonder people seem so invested in justifying valuations in the stratosphere.  If you have 3 btc, it is going to take quite a spike to really change your world long-term. 

So...help?  Are these distribution stats true or not?  If so, I'm afraid it will be impossible to refute my contrarian friend, but what arguments would you make?  I'll probably hold my btc for a strategic exit point, knowing that the market is subject to really easy manipulation.  I wouldn't buy more than I could afford to ride down to zero, anyway, but I will definitely be more cautious.

[gentlemand]

Have a read here - https://bitcointalk.org/index.php?topic=316297.0

And here - http://letstalkbitcoin.com/blog/post/rise-of-the-zombie-bitcoins

It's very hard to tell who owns what in what numbers. We'll never know.

Some of the largest active wallets may be owned by groups. Many of the biggest wallets came from a time when it was relatively easy to mine huge numbers and the private keys are quite possibly lost.

In this day and age if you had a vast number it would be far safer to split them between multiple wallets.

[Peter R]

--There are (or were in January) approximately 12,000,000 bitcoins mined
--47 people own 29% of the coins.  
--930 people own 50% of the coins.
--approximately 10,000 people own 75% of the coins
--approximately 1,000,000 own the rest
--90% of bitcoins are currently hoarded and not circulated

Wealth tends to follow Pareto distributions and bitcoin is certainly no exception.  It is impossible to know the true wealth distribution for bitcoin (by individual, not by address), but the estimates from the article you referred to (and a bunch of other articles at the time) were taken from Risto's work here on our forum: https://bitcointalk.org/index.php?topic=316297.0

I'm not sure where the "90% currently hoarded" comes from, but using blockchain.info's estimated TX volume data, the velocity of money for bitcoin is approximately 3.  As this includes both payments for goods and services and transfers of funds (it's not possible to separate them based on blockchain data alone), most economists would consider this an upper bound to the "velocity of money" term from the Quantity Theory of Money perspective.  

[Ibian]

If it bothers you that others have more money than you, then there is really nothing that can be done to help you.

[BitchicksHusband]

Hey folks, I just got an e-mail from a contrarian friend of mine.  He's a pretty bright guy--young, educated, tends to view things through an old-fashioned lens.

Some of these facts, I knew.  Some I didn't, and in fact, I'm still not sure if I buy them.  He linked me to a Forbes article from January 2014 that he was quoting, but the author of that article didn't cite her sources, so I'm not sure how to verify or debunk.  Maybe some of y'all can shed some light.

--There are (or were in January) approximately 12,000,000 bitcoins mined
--47 people own 29% of the coins. 
--930 people own 50% of the coins.
--approximately 10,000 people own 75% of the coins
--approximately 1,000,000 own the rest
--90% of bitcoins are currently hoarded and not circulated

IF this is all true (and I would REALLY love to find out that this is not the case), such a concentrated ownership is truly disconcerting.  It seems to violate some of the spirit of what I see on this board, suggesting a movement of the people by the people and for the people.  That is really wicked consolidation.  One could (and I would) easily argue that concentration of the distribution of wealth in our world leads to a lot of problems related to power, politics, and equality of even opportunities.  IF this is true, bitcoin is even more consolidated than other stores of value.  And the 90% hoarded figure is even more disconcerting.  Sure, some of the smaller players are buying strictly as a store of value.  But price manipulation by a mere 47 people could be really significant. 

By the way, if there are 12,000,000 mined coins and 9,000,000 are spoken for by 10,000 people, that means there are only 3,000,000 other coins owned by 1,000,000 people....an average of 3 btc per holder.  It's just interesting to note that of the people on this board or in the general population, odds are pretty strong that they are in the vast majority of 99% who own an average of 3 btc.  No wonder people seem so invested in justifying valuations in the stratosphere.  If you have 3 btc, it is going to take quite a spike to really change your world long-term. 

So...help?  Are these distribution stats true or not?  If so, I'm afraid it will be impossible to refute my contrarian friend, but what arguments would you make?  I'll probably hold my btc for a strategic exit point, knowing that the market is subject to really easy manipulation.  I wouldn't buy more than I could afford to ride down to zero, anyway, but I will definitely be more cautious.

I'm not sure we can help you refute your friend for the simple reason that I believe he is right.

[wachtwoord]

Just look outside the Bitcoin economy. Distribution is less symmetrical there:

http://www.zerohedge.com/news/2013-06-02/its-1-world-who-owns-what-223-trillion-global-wealth

[piramida]

I would say to your contrarian friend that there are 8 billion people on this planet, that makes 2000 bits (or 0.002 bitcoins) per living person if distributed equally; if distributed how actual wealth always is (exponential falloff), he will see that the tail of people with 10 bits or less would be several billion people long. So he can either cut that long line while he still can, or take a place at the end with other contrarians, simple

Yes, bitcoin maybe distributed less uniformly than traditional wealth at this point, but it is normal at the growth stage. From inception, when 1 man had 100% of wealth, to now, we travelled a long way.

[ThatDGuy]

Just look outside the Bitcoin economy. Distribution is less symmetrical there:

http://www.zerohedge.com/news/2013-06-02/its-1-world-who-owns-what-223-trillion-global-wealth

Nice link - here's the pyramid image with the global breakdown of wealth from that article:

[BTCtrader71]

I'll probably hold my btc for a strategic exit point, knowing that the market is subject to really easy manipulation.  I wouldn't buy more than I could afford to ride down to zero, anyway, but I will definitely be more cautious.

Assume that the 1000 or so people who own 50% of all coins got together and decided to take control over the market. And assume they had the ability to do so. Do you really fear that they would conspire to destroy their investment? Or would they instead do everything in their power to protect the value of their investment? Like, for example, invest in the infrastructure that gives bitcoin its value in the first place?

[BTCtrader71]

--There are (or were in January) approximately 12,000,000 bitcoins mined
--47 people own 29% of the coins. 
--930 people own 50% of the coins.
--approximately 10,000 people own 75% of the coins
--approximately 1,000,000 own the rest
--90% of bitcoins are currently hoarded and not circulated

Your friend would probably be SHOCKED to learn that once upon a time, one person (Satoshi) owned ONE HUNDRED PERCENT OF ALL COINS. (That was the instant after he mined the first block.)

So .... you could tell your friend that the distribution of coins is slowly diffusing throughout all of humanity, like a drop of ink in a bucket of water, like so:

At any given point in time, X number of people own Y% of all coins.

Once upon a time, one person (Satoshi) owned 100% of all coins.

Five years later, 930 people own 50% of all coins.

And so on. If you keep Y constant, X is going to increase, and increase, and increase as a function of time.

Why should this process of diffusion ever stop?

[Torque]

Just tell your friend he's right to be alarmed, and to not buy any bitcoin.  But you buy bitcoin.  A lot of it.  And hold it for 2 years or more.

Then revisit your supposedly smart friend in 2 years, and ask "Hey, remember that bitcoin that you didn't buy two years ago because you were too worried about the distribution?  Well it's now 60X the price of what it was then back then.  And btw, I did buy some then.  But you're so smart for not buying any, as the distribution is still not good.  Much better than it was then, but still not good."

 

Also, I can guarantee you that unlike our current fiat world, the top bitcoin holders in the world are probably some of the truest, most deserving, most libertarian folks you'll likely to ever meet.  Well, until the greedy, corporate, banker, politician pig elite come along to buy up what bitcoin is available with their fiat millions.  Hopefully those top BTC holders won't sell out to the greedy pig elite.

[Beliathon]

If it bothers you that others have more money than you, then there is really nothing that can be done to help you.

Not true at all.

[criptix]

[...]

Why should this process of diffusion ever stop?

if the 0,01% decide to wipe out the rest of the 99,99% and replace them with intelligent robots.

[BTCtrader71]

[...]

Why should this process of diffusion ever stop?

if the 0,01% decide to wipe out the rest of the 99,99% and replace them with intelligent robots.

That's more likely under a fiat system than a bitcoin-based system. The fiat system assumes the existence of armed enforcers of the monetary system (army, police). Bitcoin does not.

[Ibian]

If it bothers you that others have more money than you, then there is really nothing that can be done to help you.

Not true at all.

A druggie with no concrete ideas. Not very interesting, back to watching Gantz. Never trust someone who doesn't allow comments.

[vuduchyld]

gentlemand, thanks for the links!  The zombie link was fascinating.  Will read more in depth later and will also forward in my reply.

Peter R, great info.  One thing that immediately comes to mind is that in the T/M formula, I'm wondering if the mining counts as a T.  Just intuitively, I would suspect that BTC would have a much lower velocity than most currencies, but obviously, I could be completely wrong.  Definitely will do some further research and this helps.

ghdp, are you referring to rpitiella, who started the thread referenced by gentlemand?  That's my guess.

watchwoord and ThatDGuy, I'm so on board with what you're saying.  It's part of the appeal of BTC, for sure.  But I'm not sure the non-BTC community actually is less symmetrical at the top.  If 0.6% own 36% of the wealth, that's ugly, but we're talking about a similar number, 29%, possibly being owned by  0.03% of the BTC community, which is about 20 times more concentrated.  That, of course, may or may not be accurate, given some of the other info above.  Moving down, 43% of the wealth is owned by around 8% of the population (round numbers).  50% of BTC is owned by still a lot less than 1% of the BTC world.  I will definitely go back and read that entire thread, though, because there may be something I missed.

piramida, I actually agree with what you're saying, at least in theory, and at least to some degree.  That's why I hold some BTC.  

BTCTrader71, I don't suspect they would conspire to destroy the market, but there is a prisoners' dilemma type of issue.  At what point IS it worth it to them because the rewards are so great?  One could say they are relying on a "greater fool" theory.  So far it's working.  At some point, their calculus could change, and then what happens?  Of course, your point about dispersion over time is a good one, and well made.  It may look different in five more years, even if roughly half of the total coins are already mined.  

Torque, I am definitely holding.  Unlike many on the board, I am doing so without defined expectations of hitting 3000 or 10,000 or 1,000,000 USD.  I like the anonymity, the decentralization, and the utility.  I'm not completely sold on it as a store of value, but we'll see.  I'm 46, which is probably older than average on the board, and I'm guessing I probably have had time to accumulate more assets, as well.  I believe in diverse holdings, and BTC is part of that diversity for me.  I must admit, though, that I'm not so comfortable if part of the value is dependent on the human qualities of the big holders.  That ish can change in a hurry.  But like BCT71 indicates, the makeup of the distribution will change, too.  Eventually, I hope it won't matter who the people are.  

Great replies all, even if I didn't mention you!  Thank you for the being generous with your time to enlighten a new forum member!



 

[InwardContour]

As the price of bitcoin rises the holders of a lot of bitcoin will have an incentive to sell their bitcoin which will cause bitcoin to be more widely held.

It should also be noted that these numbers are distorted by Satochi's estimated 1 million bitcoin. If you were to back out these coins then bitcoin would show as being more distributed.

[BTCtrader71]

BTCTrader71, I don't suspect they would conspire to destroy the market, but there is a prisoners' dilemma type of issue.  At what point IS it worth it to them because the rewards are so great?  One could say they are relying on a "greater fool" theory.  So far it's working.  At some point, their calculus could change, and then what happens?

I'm familiar with prisoners' dilemma but I don't see how it applies in this case. I venture to guess that most early investors are strong believers in the technology behind bitcoin, and believe it is not a self-limited bubble -- otherwise, why invest in it? It would be too risky. They do not see bitcoin investors (or users) as a bunch of fools and do not envision some inevitable time when all the fools are going to jump ship. Bitcoin (or crypto in general) is a technology that has inherent uses that persist even if its value as a currency is zero. (There are a myriad of examples -- smart property, colored coins, voting systems, identification systems, proof of copyright, many more I have never even thought of). People pay money for other pieces of software because they are useful tools. Bitcoin is the same.

Suppose you owned 25% of all coins right now, personally. And suppose you were very persuasive and had the ears of the other ~1000 and together, you owned 50%. What conspiracy could you possibly dream up that would make you more money than HODLing some of your bitcoin, and growing the bitcoin ecosystem with the rest? That's exactly what a lot of the big investors are doing. (For the sake of argument, let's exclude from consideration buying an army and marching on everybody -- or buying a politician, which in my mind fits into the same category. IOW, let's exlude business as usual under the existing fiat system.)

[Mikez]

In this day and age if you had a vast number it would be far safer to split them between multiple wallets.

This. We shouldn't treat addresses as individuals. Multiple addresses can belong to one person, or several individuals may stand behind just one address.
And boy, do we have plenty of addresses .

[Wary]

If 0.6% own 36% of the wealth, that's ugly

Is it ugly that 36% of world records are made by 0.6% of athletes? (Real numbers may differ, but the principle stays).
Is it ugly that 36% of bestsellers are written by 0.6% of writers?
Is it ugly that 36% of greatest scientific discoveries are made by 0.6% of scientists?

Creating and maintaining wealth requires talents, just as sport or art or science. And distribution of talents in this area is just an uneven as it is in all other areas. Because of this if you let people keep wealth they created, some people will be much richer that others. You have to choose - you want freedom or equality. If you looking for equality, bitcoinland is not the place to look for it. Because bitcoin is all about letting people keep their money.