During its 11 years of existence (since the first Bitcoin block was mined), BTC has been able to survive many “threats,” mainly because there’s no single entity controlling the world’s largest cryptocurrency network. As explained in a report from Coin Metrics, this trait, called decentralization, “encompasses a large number of loosely-coupled characteristics.”
For instance, the distribution of wealth is one of the key factors in any type of economy. The level of wealth distribution should determine the degree of economic influence that individuals or organizations might have. For digital assets, which have granted relatively large token allocations to the founders of such projects, it’s also “a severely underexplored” aspect of so-called decentralized cryptographic currencies, according to Coin Metrics.
The distribution of hashpower or the amount of computing power securing a digital currency network could be an even more crucial or important factor to consider when analyzing crypto platforms, Coin Metrics claims. Bitcoin “relies on decentralization at this level in order to meet its goals of sustaining a secure, censorship-resistant payments and savings system,” the report from Coin Metrics states.
“Bitcoin is also highly exposed to the market share distribution of exchanges, which exercise an outsized influence on the network’s economy. The distribution of volume on fiat-quoted spot pairs is particularly important, since these represent on- and off-ramps to and from the world at large.”
The report further notes that the presence of whales, or crypto investors with very large amounts of digital assets held in their wallets, remain a concern for “the viability of many cryptocurrencies.” According to Coin Metrics, an “unequal distribution of funds” may lead to a relatively small number of users exercising too much influence over a crypto-asset’s markets and its ongoing protocol development. This would “call into question the asset’s viability as a store of value or medium of exchange,” the report states.
It also mentions:
“Bitcoin still has whales, but since the network’s inception, its supply has become more evenly distributed, with smaller accounts comprising an increasing proportion of the aggregate supply…. addresses with smaller balances continue to represent the majority of accounts. In the face of a fluctuating dollar-denominated price, most addresses still control less than $100 worth of Bitcoin.”
Bitcoin’s decentralization also relies on the level of distribution of computing power, or hashpower, among BTC miners.
As explained by Coin Metrics:
“Bitcoin relies on miners to secure the network and add new blocks to the blockchain. These miners compete to find the next block by computing a large number of energy-intensive hashes, and often aggregate into loose coalitions known as mining pools.”
They also confirm that the amount of hashpower securing the BTC blockchain network has been able to increase “exponentially” throughout the cryptocurrency network’s history.
The report adds that the level of the distribution of hashpower is also important for a crypto network. That’s because a bad actor who controls over half of a cryptocurrency network’s hashpower may launch a 51%-attack and engage in double-spending or spending the same set of funds on more than one occasion. A malicious attacker with fewer resources may still be able to censor certain crypto transactions through “feather forks,” Coin Metrics explains.
The report further notes:
“An attacker would need to double-spend a large amount of money in order to make a 51%-attack profitable. In majority-hashpower ASIC-mined coins like Bitcoin, which require significant capital expenditure by miners, it would be difficult for a rational miner to perform a 51% attack, though these attacks are made somewhat more feasible by the presence of hashpower marketplaces.”
According to Coin Metrics’ analysis, Bitcoin’s (BTC) mining sector remains “competitive.” The report claims that BTC mining is now “a thriving, distributed ecosystem.”