Bitcoin Is Truly Decentralized – Coin Metrics Research

CONTENT

  • Coin Metrics Analysts Analyze Key Criteria for Decentralization of the MTC Network.

  • They looked at indicators of wealth distribution, hashing power and market share of crypto exchanges..

  • Study results provide grounds for cautious optimism.

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Bitcoin was created as the promise of some kind of magical internet money, free from any centralized control. Coin Metrics was figuring out if he kept that promise

The entire concept of Bitcoin as the world’s first cryptocurrency was originally inspired by the ideals of decentralization. Bitcoin (BTC) emerged as a digital currency that lives on the network, does not recognize state borders, and is not subject to either banks or governments. It offered users anonymity and unprecedented freedom from control..

Analyst firm Coin Metrics has conducted a study to see if the Bitcoin blockchain is truly decentralized. To do this, the experts considered a number of key criteria, including the level of concentration of miners and exchanges, as well as the distribution of bitcoins among network participants. As a result, they came to the conclusion that in the MTC blockchain the basic principles of decentralization are indeed observed in practice..

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Distribution of wealth

Coin Metrics analyzed how large the population of whales, or ultra-rich users, is on the Bitcoin network. As shown by the data in the public domain on the blockchain, since the creation of the BTC network in 2008, the distribution of coins among holders has become more even..

The number of addresses storing relatively small amounts continues to grow, increasing their share of the total supply of coins. According to analysts, most accounts are represented by “little people” whose wallets contain less than $ 100 bitcoins..

30-day moving average of active bitcoin addresses

Source: CoinMetrics

Computing power

Another important parameter is the distribution of hashing power required by miners to confirm transactions on the bitcoin network. Decentralization is a fundamental factor here, since a miner or mining pool that controls more than 51% of the hash power potentially gains control over the entire network and can manipulate users’ wallets..

However, according to Coin Metrics, Bitcoin mining is an “evolving decentralized ecosystem.” Computing power in it is distributed among several leading crypto exchanges, including Binance, OKEx and Huobi, as well as a number of mining pools..

In addition, analysts add, even a well-resourced pool can face difficulties trying to carry out a 51% attack, since it is funded by its clients, and miners can simply leave the pool if the operator suddenly decides to attack the network..

Bitcoin hash rate, 30-day moving average

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Bitcoin Is Truly Decentralized - Coin Metrics Research

Source: CoinMetrics

Monopoly exchanges

And, finally, the researchers studied how matters stand with the problem of monopoly in the segment of cryptocurrency exchanges. They are the link between retail clients and the crypto market, so their importance and impact on the network should not be underestimated..

In addition, most major exchanges offer custody services to users and thus control huge amounts of money. Excessive centralization in this area is fraught with systemic risks for the market in the event of bankruptcy of any exchange, warn in Coin Metrics.

Overall, the experts felt that the market was dominated by several exchanges such as Coinbase, Huobi, Binance and OKEx. However, according to the Herfindahl-Hirschman Index (HHI), the crypto market is still not monopolistic..

Monthly distribution of trading volumes in the spot market, BTC / USD

Source: CoinMetrics

In general, the Coin Metrics summed up, the research results cannot be called exhaustive, but they give grounds for “cautious optimism”.

Disclaimer

All information contained on our website is published in good faith and objectivity, and for informational purposes only. The reader is solely responsible for any actions he takes based on the information received on our website..

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Bitcoin Is Truly Decentralized - Coin Metrics Research
Bitcoin Is Truly Decentralized - Coin Metrics Research

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Bitcoin Is Truly Decentralized - Coin Metrics Research
Bitcoin Is Truly Decentralized - Coin Metrics Research

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