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Gini Coefficient Based Wealth Distribution in the Bitcoin Network: A Case Study

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Abstract

Bitcoin has gained widespread attention globally in 2013 and is the first online currency based on a peer to peer network without any central authority or third parties. Its market capitalization reached US$ 8.5 billion in December 2013. However, despite its popularity some issues like network security (thefts), anonymity (privacy) and wealth distribution (inequality) have plagued it. Of considerable importance is the last issue of unequal wealth distribution as it may create a huge socio-economic burden for the society. A group of researchers estimated that the GINI coefficient for the network was at an all time high of 0.985 in Jan 2013 and that the rich were getting richer as the network grew. In the present work it has been strived to determine how the GINI actually increases or decreased depending upon the wealth distribution. For doing this a raw transaction of data of more than 36 million transactions has been sourced and a list of all users and their wealth in the network has been computed. The final results are very alarming as GINI has increased to 0.997 by the end of 2013 and the market share of top 10 holders alone has reached 6.6% of the entire market. Therefore, the rich have actually got richer and steps should be taken to curb such a wealth accumulation model in the network.

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... Entropy has also been used to examine consensus decentralization in blockchains [Gomber et al., 2017, Kwon et al., 2019, Srinivasan, 2017. decentralization: consensus [Gochhayat et al., 2020], network [Gencer et al., 2018], governance [Pelt et al., 2020], and wealth [Gupta and Gupta, 2018]. However, we find a lack of research in the transaction aspects that closely characterize user behavior. ...
... Our research contributes to three strands of the literature: research evaluating blockchain ecosystems, especially the blockchain trilemma [Bakos et al., 2019, Gomber et al., 2017, Schär, 2020, Werner et al., 2021 and the measurement of blockchain decentralization [Abdulhakeem and Hu, 2021, Cong et al., 2020, Gochhayat et al., 2020, Gupta and Gupta, 2018, Lin et al., 2021, Srinivasan, 2017, blockchain-related SoK or surveys, and the market analysis of DeFi [Angeris et al., 2021, Chen et al., 2020, Harvey et al., 2021, Lehar and Parlour, 2021] (see Figure 1). ...
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