Bitcoin (BTC) is arguably the revolutionary driver behind what we know to be cryptocurrency today. The decentralized monetary system that’s sweeping the globe was started with Bitcoin at its core. However, what if I told you that BTC isn’t necessarily a decentralized system? What if I told you that BTC is actually very centralized, and that there’s a study to prove it. While this may challenge everything you believe to be true about Bitcoin and other cryptocurrencies, it is true. Bitcoin, and others, like Ethereum, are indeed centralized.
Centralization Found Its Way Into A System Designed To Combat It
Centralization is an interesting topic. At the end of the day, fiat currencies are all centralized by what we know to be central banks. These are the banks charged with regulating and stabilizing global fiat currencies. However, many believe that the centralized nature of currency is a negative, not a positive. After all, many believe that central banks have caused many of the economic hardships the world has recently faced.
This led to the bet for decentralization, with BTC at its core. Bitcoin, built on a decentralized blockchain couldn’t be manipulated. Without the centralization, BTC would move with the general principles of any other asset on the market. At least, that was the goal. Nonetheless, a recent study shows that centralization has indeed found its way to the cryptocurrency.
Hacking Proved That Bitcoin Is “Very Centralized”
A recent study by a firm known as Hacking, proved that Bitcoin is indeed centralized. In fact, the study used information gathered between 2015 and 2017 that showed that there is a controlling authority over both Bitcoin and Ethereum.
According to the study, the top four BTC mining operations and the top three ETH mining operations control more than 50% of the world’s hash rate. As a result, these entities are the central authority that controls the blockchains of both systems. So, ultimately, with so few mining entities in control of these blockchains, these systems are centralized by these entities.
Furthermore, the study found that around 56% of Bitcoin’s nodes could be identified as data centers. While this isn’t the case for Ethereum, which has 28% of nodes identified to be data centers, it is another bit of proof that both BTC and ETH are centralized systems.
What Does This Mean?
At the end of the day, the fact that both BTC and ETH are centralized through very few controlling entities changes the game when it comes to what we believe to be true with regard to cryptocurrency. After all, what would happen if these entities decided to stop mining BTC and ETH all of the sudden, or if these entities sold everything they mined over the course of weeks in one big block? This would lead to wide swings and manipulation by these entities. At the end of the day, this means that the BTC and ETH systems aren’t quite as free of manipulation as we thought they were!
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