Is the Bitcoin network an oligarchy?

July 2, 2018, Springer
Credit: CC0 Public Domain

Cryptocurrencies like Bitcoin can be analysed because every transaction is traceable. This means that they are an attractive system for physicists to study.

In a paper published in The European Physical Journal B, Leonardo Ermann from the National Commission for Atomic Energy in Buenos Aires, Argentina, and colleagues from the University of Toulouse, France, have examined the of the Bitcoin-owner community by looking at the transactions of this cryptocurrency 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. This research has implications for our understanding of these emerging cryptocurrency communities in our society—as usual bank transactions are typically deeply hidden from the public eye. They could also be helpful to computer scientists, economists and politicians who could better understand handle them.

As part of their study, the authors construct a blueprint of this —the so-called Google matrix. It helps them calculate key characteristics of the network, such as PageRank—known for underlining the Google search engine—which highlights the influence of ingoing transactions between individual Bitcoin owners. The author also rely on CheiRank, which highlights the influence of outgoing transactions between owners.

Based on such data, they identify an unusual circle-type structure within the range of transactions between Bitcoins 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.

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.

Explore further: Bitcoin and cryptocurrency for n00bs

More information: Leonardo Ermann et al, Google matrix of Bitcoin network, The European Physical Journal B (2018). DOI: 10.1140/epjb/e2018-80674-y

Related Stories

Bitcoin more vulnerable to attack than expected

April 23, 2018

Calculations by University of Twente researchers show that Bitcoin is more vulnerable to attack than people had always assumed. If some Bitcoin users were to form a group that controls 20 percent of the currency's computing ...

Central banker takes stab at bitcoin 'bubble'

February 6, 2018

The head of the Bank of International Settlements, the central bank for central banks, on Tuesday lambasted bitcoin as a speculative bubble and said authorities need to be ready to protect public trust in the financial system.

Bitcoin 'mining pool' promises to stay small

July 17, 2014

The largest group of bitcoin miners, which maintains and processes transactions in the digital currency, is promising to avoid majority control of the currency as a temporary measure to maintain the payment system's credibility.

Recommended for you

Hybrid device harvests both mechanical and magnetic energy

July 16, 2018

A new hybrid energy-harvesting device may one day replace the need for batteries in certain low-power electronics devices. The new device collects ambient wasted energy from both mechanical vibrations and magnetic fields ...

0 comments

Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.