Bitcoin has been one of the hottest investments on the world in recent years, doubling in value once again in the month of May alone. However, despite its roots in technology and its focus on transparency, it seems bitcoin is demonstrating the same wealth-concentrating patterns that other global currencies experience.
Bitcoin’s fresh all-time highs have been accompanied by headlines about how $100 of bitcoin in 2010 is now worth $75 million. Unfortunately, it seems as if the vast majority of that wealth creation is going into the pockets of a very small number of people.
Wealth Distribution Study
Because the history of all bitcoin transactions has been logged and is publicly available, researchers at the Eotvos Lorand University in Hungary were able to study the financial history of every bitcoin account holder in order to model bitcoin wealth creation over time.
The study found clear evidence of a phenomenon known as the Matthew Effect, which many economists believe is the driver of the 80:20 distribution of global wealth (in which 80 percent of the wealth is controlled by 20 percent of the population). The researchers found that bitcoin accounts which linked to the most other accounts tended to grow more quickly than others.
“The ability to attract new connections and to gain wealth is fundamentally related,” the researchers said. “The ‘rich get richer’ phenomenon is indeed present in the system.”
The end result is highlighted in the surprising graphic below.
As of 2014, the top 0.7 percent of bitcoin accounts held 55 percent of the total bitcoin available, according to WhoIsHostingThis. By contrast, the bottom 70 percent of accounts held…
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