Statistics tell the truth, but can easily be made to mislead.
Just how concentrated is BTC ownership?
I'd like to dissect a recent news article about #bitcoin by #diar magazine online to highlight how deceptive a rather simple topic on bitcoin and cryptocurrency in general can be.
I will also dispel and educate anyone reading this on why this story is really a non story.
wallets vs addresses
This seems to be a perennial issue in the media about cryptocurrencies. The terminology of addresses and wallets. Let's break down the difference and see why this matters.
Addresses (or keys)
The term address in the bitcoin world can be interchanged with the term “key”.
It is a unique alphanumeric string (capital and lowercase letters and numbers) which identifies an “account” on the bitcoin blockchain.
I use the term account because it is the easiest metaphor that can be applied (for those that know little to nothing about cryptocurrencies) to a single bitcoin user. If you hold any bitcoin, it must be in tied to a key.
The key has 2 parts, the private and public key. The difference is simple:
The public key is for depositing funds or checking all transactions on that key.
The private key is for spending the funds.
Yes, this means that to receive bitcoin, you have to share the public key with the payer, and now they can see ALL transactions into and out of that key!
Wallets
A bitcoin wallet is a piece of software that is designed for users of bitcoin. They can do many different things for a bitcoin user. Some basic functions are:
- check the balances of your keys
- create pull (you get paid) and publish push (you pay someone else) transactions
- generate new keys for transactions
- etc….
Also there is no information about “wallets” per say on the bitcoin blockchain. There is only information about individual keys.
So to sum up here, wallets contain 1 or more bitcoin keys. Wallets are software tools meant to manage one of more keys with coins in them ( a better way to say this would be coins bound to them)
Data analytics on the bitcoin blockchains is a rapidly growing industry and the pseudoanonymity that bitcoin offered in its original version has been to a great extent stripped away.
But the important point here is that analytics can only look at individual keys on the bitcoin blockchain.
With this in mind it becomes clearer that extrapolating a headline like:
Circulating Bitcoin Majority Remain Sequestered to Investment Wallets
from bitcoin blockchain data analytics may be erroneous.
Some other facts about bitcoin keys:
- It is impossible to tell if a key with coins attached to it belongs to a whale hodler, custodial fund manager, or is a “dead” key. I.e. the private key has been lost rendering the coins attached to it are gone and never to enter circulation again. The crypto term for this is burnt.
- Bitcoin crumbs is a term used for keys that contain such a small amount of bitcoin that most wallet software will not allow you to easily create a transaction moving the remaining bitcoin from that key, simply because the amount is lower than the estimated transaction fee. To data analytics, this key exists with funds, albeit very little funds.
- Using the public key, anyone can know all the transactions to and from that key by simply searching the bitcoin blockchain using one of the miriad blockchain explorers out there online. This is quite the opposite of a privacy based system such as Monero. These searches also identify the keys associated with deposits and withdrawals of coins. Entire histories of transactions can be constructed to investigate funds movements. Not really the kind of money criminals would want to use contrary to the media misinformation campaign about bitcoin. <a href="http://www.theopenledger.com/9-most-famous-bitcoin-addresses/>An interesting site!</a> lists some famous keys that you can go and investigate for yourself. </li> <li>There are a lot of unique keys in the bitcoin system. REALLY a lot. A bitcoin key, analogous to a bank account number is handled by the bitcoin system in the opposite way as a bank does. If you open a bank account, they will check the system and issue you with a bank account number which they know is unique in their system. This is contrasted in bitcoin. Anyone can create a bitcoin key. It is super simple to do. The bitcoin system simply assumes that because there is such a MASSIVE amount of unique numbers, the chances of duplication are virtually ZERO.</li> <li>I mentioned that anyone with a public key can see all transaction to and from that key. Not so ideal, but bitcoin combats this by offering this HUGE number of keys. The correct, or intended way to use the bitcoin system is to consider keys as disposable. I.e. use only one time. Most wallet software handles this in the background for you.</li> </ul> <p>I could keep on going here but I think I have made the point about how, to a novice, the idea of wallets and keys and addresses can be misleading.</p> <p>I have spend more digital ink here than the article itself outlining the hazards of clinical statistical blockchain analysis, and the erroneous macro conclusions that can arise from it.<br> <br><br><br><br><br> Bitcoin is a whole new way to think about the storing and transacting of value. We have lived in the dark ages for so long with our incumbent financial monoliths. They engineered a system that has resisted the technological leaps and bounds our other societal structures have undergone with the digital age.</p> <p>This resistance has pent up a significant amount of pressure. This pressure is being released in one go by the advent of public decentralised blockchains. Off course there is going to be a huge lag in the uptake of the general public to this new way of thinking about and interact with one of the most important parts of our lives - money.</p> <p>Money is the most honest form of communication we have. The control of it by an elite cabal of banks and government organs has stifled human society for too long. Time to let it lose!</p> <p>I get goosebumps just imagining what humanity will do when released from these shackles.</p>