Is the Bitcoin network an oligarchy?
New study of Bitcoin transactions reveals hidden owner communities and a high concentration of wealth spread among a few people and this is the exact definition of an oligarchy.
Cryptocurrencies like Bitcoin can be analyzed because every transaction is traceable. This means that they are an interesting system for physicists to study. In an article published in EPJ B, Leonardo Ermann of the National Atomic Energy Commission in Buenos Aires, Argentina, and colleagues at the University of Toulouse, France, examined the structure of the community of Bitcoin owners by examining the transactions of this cryptocurrency between 2009 and 2013.
The team’s results reveal that Bitcoin owners are close to an oligarchy with hidden communities whose members are strongly interconnected. This research has implications for our understanding of these emerging cryptocurrency communities in our society.
Because the usual banking transactions are generally deeply hidden from the public eye. They could also be useful to computer scientists, economists and politicians who might understand better to manipulate them. As part of their study, the authors construct a map of this network, known as the Google Matrix.
This helps calculate key network characteristics, such as PageRank, known to highlight the Google search engine, which highlights the influence of inbound transactions between individual Bitcoin owners. The author also draws on CheiRank, which highlights the influence of outbound transactions between owners.
Based on this data, they identify an unusual circle-like structure in the range of transactions between Bitcoin owners. So far, such a structure has never been reported for real networks. This means that there are hidden communities of nodes connecting currency owners through a long series of transactions.
Based on another characteristic of the transaction network, the authors also found that the bulk of the network’s wealth is distributed among a small fraction of users.