Scientists Examine Bitcoin From 2009-2013, Label Network an Oligarchy?

Is the Bitcoin Network an Oligarchy? New Report Says Yes, Hidden Owner & Concentrated Wealth At The Top

The bitcoin network should be considered an oligarchy, according to a new paper published in The European Physical Journal B (EBJ B).

The paper was produced by Leonardo Ermann from the National Commission for Atomic Energy in Buenos Aires, Argentina, in partnership with colleagues from the University of Toulouse in France. The team examined the structure of the bitcoin network, including the transactions that took place between 2009 and 2013.

“The team’s findings reveal that bitcoin owners are close to an oligarchy with hidden communities whose members are highly interconnected.”

To complete their findings, the team constructed a blueprint of the network – a so-called “Google matrix”. This matrix was used to calculate characteristics of the network like PageRank. The authors also used CheiRank to measure influence.

Together, PageRank and CheiRank were used to highlight the influence of incoming transactions between bitcoin users and the influence of outgoing transactions between bitcoin users.

“Based on such data,” the paper explains, “they identify an unusual circle-type structure within the range of transactions between bitcoin owners. Until now, such a structure has never been reported for real networks. This means that there are hidden communities of nodes linking the currency owners through a long series of transactions.”

The paper goes onto explain that based on the distribution of wealth across the bitcoin network, the network could be considered an oligarchy:

“Based on another characteristic of the network of transactions, the authors have also found that the main portion of the network’s wealth is distributed between a small fraction of users.”

In addition to PageRank and CheiRank, the authors used things like the Gini coefficient – typically used to study inequality within societies and countries – to demonstrate inequality in the bitcoin network.

“We find that the spectrum has an unusual circle-type structure which we attribute to existing hidden communities of nodes linked between their members. We show that the Gini coefficient of the transactions for the whole period is close to unity showing that the main part of wealth of the network is captured by a small fraction of users.”

Based on their analysis of the structure of the bitcoin network, the authors conclude that the bitcoin network is an oligarchy. In an oligarchy, power is concentrated in the hands of an elite few. Oxford Dictionary defines oligarchy as “a small group of people having control of a country or organization.”

There’s one important caveat with this study: the authors analyzed bitcoin network data from January 2009 (the very beginning of the bitcoin network) to April 2013. This can be considered the early days of bitcoin. Bitcoin reached a peak price of $230 in April 2013, although for most of this period, the price of 1 BTC was less than $15. Ultimately, this was long before the mass adoption of bitcoin that we saw in 2017.

The paper is entitled, “Google matrix of the bitcoin network.” It was published on June 22, 2018, although the original draft was first submitted in November 2017. You can view the paper here.