"What are your thoughts on the fact that only fifteen million Bitcoin addresses hold more than $1 [of bitcoin],
and less than five million hold more than $100 worth?"
I have been seeing these statistics a lot.
The implication here is that wealth is very unequally distributed within Bitcoin.
"Five addresses alone hold billions of dollars!" "Most addresses have very small amounts!"
Well, here is [the truth]: addresses are not people.
Despite this being obviously true, if you have done any research in this space, people still try to shoehorn...
these kinds of statistics to demonstrate [something],
that by [counting] the number of addresses and the amounts in them, they can draw a conclusion --
or, since it would be wrong to draw conclusions, implying [various] things -- in a very weasel way.
Implying that this means wealth is concentrated, conclusions about the number of people who do 'x' or 'y.'
Here is why that is wrong: if you look at an organization like Coinbase, one of the largest exchanges, though...
this applies to all of the exchanges [running] custodial accounts...
They have twelve to fourteen million customers. Do you think they have fourteen million addresses?
They do not. The vast majority of their funds are kept in a handful of addresses in cold storage.
A company may only have a hundred and fifty bitcoin addresses holding the wealth of fourteen million users.
That looks like an enormous concentration of wealth, but it doesn't belong to just a hundred and fifty users;
it belongs to fourteen million users, even though it is concentrated in the hundred and fifty addresses.
Meanwhile, on the exact opposite end of the spectrum, how many addresses does a power use have,
who spends bitcoin on a daily basis, with a hardware wallet that uses a different address per transaction...
and generates change addresses, maybe with both SegWit and [legacy] addresses,
across multiple wallets (a warm mobile wallet for operational expenses vs. a cold storage wallet)?
What would that user look like on the blockchain? Well, I am one of those [power users]. I can tell you.
Over the past five years, I have probably used twenty thousand bitcoin addresses.
At any point in time, my wallets may have two, three, or five hundred bitcoin addresses...
with change and various small quantities less than a dollar each, maybe one to three dollars.
[To a naïve journalist], that activity looks like a bunch of people who have very little bitcoin.
And so they say "Fifteen million Bitcoin addresses hold less than one dollar."
Well, I have a whole bunch of Bitcoin addresses with less than a dollar in them.
You cannot make these conclusions [about wealth distribution] from statistics that divide or cluster...
addresses and values [to individual people]; you will [likely] draw the wrong conclusion every time.
'Honey-Podge' points out, "The question wasn't really about concentration of wealth."
"It was about how most people don't own their coins. Isn't that very dangerous to the network,
if there was a hack [of the custodial wallet]?" Yes. Okay.
If that was the point of the question, I am sorry that I misunderstood it.
For weeks now, I have seen those statistics being used to make some point about wealth distribution.
Yes, you can use that data to show how custodial exchanges concentrate wealth in a few addresses.
And yes, that is dangerous if there is a hack.
Let me rephrase that. You asked, "Isn't that very dangerous to the network if there was a hack?"
It is not an "if," it is a "when." It is not dangerous to the network, but a lot of people will lose money.
I think Bitcoin has shown great resilience, even with big hacks.
Even if there is a hack, the money will get re-distributed back into the economy eventually.
The network doesn't suffer, although a lot of people will lose their money.
It is very dangerous when there is a hack. It is not [a question of] 'if.'