Is crypto really as decentralised as the tech industry says?

Cryptocurrencies promised to take power out of the hands of traditional financial powers and pass it back to the many. But so far, this hasn’t panned out. Should we aim for greater decentralised crypto technology?

“We’re going to take all the money from the bank and move it to a system that acts in your best interest,” said Alex Mashinsky, co-founder and CEO at Celsius Network, adding “this is about creating the next revolution. And moving all of us, billions of people, from the centralised world to the decentralised world.”

Much is made of the decentralised nature of cryptocurrency. Crypto advocates argue that, due to the decentralised nature of the blockchain, it is less subject to external control than traditional currencies and assets, and therefore gives greater autonomy to its users.

But while cryptocurrency has the potential to decentralise financial control away from institutions and into the hands of individuals, the question is – will it?

It may, in fact, merely be centralising control into different (and fewer) hands.

One percent of households own 50.1 percent of the world’s wealth – but 0.01 percent of Bitcoin holders own 27 percent of the supply.

Debunking the decentralised myth

We know that global wealth inequality is rising, and traditional forms of wealth are highly concentrated, with the top 1 percent of households globally owning 50.1 percent of the world’s wealth.

However the NBER (National Bureau of Economic Research) found that, when it comes to Bitcoin (which is still larger than all other cryptocurrencies combined) the top 10 percent of miners control 90 percent of the mining capacity. On top of this, 0.1 percent — or about 50 miners — control 50 percent of mining capacity.

This concentration of control has additional risks in cryptocurrency because a small pool of miners owning 51 percent of the ledger would give them total control over it and the ability to alter previously verified records.

As of January 2022, 18.9 million bitcoins have been issued to roughly 114 million people. The top 1,000 investors control about 3 million bitcoins, and the top 10,000 investors own around 5 million bitcoins.

Put differently, 0.01 percent of Bitcoin holders control 27 percent of the supply. For comparison, in the United States, the top 1 percent of households hold roughly a third of all wealth, according to the Federal Reserve.

What’s more, while identifying the net-worth of the world’s wealthiest individuals is tricky, at least analysts can avail of public records. Noting the owners of bitcoin wealth is more difficult due to its decentralisation.

“Did you ever meet the CEO of Bitcoin? No. Did you ever meet the CEO of Aetherium? That’s full decentralisation,” said Alex. That’s what the technology should be aiming for.

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Main image of crypto user checking on prices: Tech Daily/Unsplash