Whales have become regular members of the Bitcoin [BTC] market, often moving larger quantities of the top cryptocurrency between exchanges, and piquing the interest of the community. While these large-scale transfers spur market sentiment and at time hints at suspicious activity, the other end of the spectrum often goes unnoticed, the wallets with relatively meager Bitcoin.
A recent report from the cryptocurrency analytics firm, Longhash pointed to a notable divergence of Bitcoin addresses that show amass small quantities of the cryptocurrency, causing a bottleneck of sorts. The report, citing data from BitInfoCharts, detailed that over 18 million BTC addresses held over $1 but less than $100 of the top cryptocurrency.
Longhash stated that the reason for this bottleneck of sorts was the digital assets’ “transaction fees,”
“As the result of current transaction fees, however, these users may be hesitant to send payments with Bitcoin.”
In reference to the above only one-third of the above figure, or 6.1million address held between $100 and $1,000 worth of Bitcoins. The total number of addresses drops by over 62 percent when looking at the addresses holding between $1,000 to $10,000 of BTC, which are about 2.29 million in number.
On the other end of the chart, only 541,959 addresses hold over $10,000 worth of BTC. Analyzing this disparity of Bitcoins held between the arrays of addresses, the report stated,
“While this distribution may be a positive sign that Bitcoin is not just for the wealthy, high transaction fees could pose an obstacle for small holders.”
The report added that the transactions fees recorded earlier this year was quite low, implying that Bitcoin could be used as an ‘effective, daily payment tool.’ However, with the hike in the fees mid-year, the cost of a transaction being processed in the next block is as high as $2.54.
On the importance of the transactions fee balance in relation to the overall picture of Bitcoin, the report read,
“Transaction fees serve as an incentive for miners to play a functional role in Bitcoin’s governance. They are determined by factors such as how congested the Bitcoin blockchain is at the time the transaction is taking place.”
Given the fixed fee structure of Bitcoin the economies of scale are skewed, as on one hand, the whale movement will result in meager transactions fees while on the other small transactions are too costly in reference to the fees amassed to implement the same. Hence the transaction structure, in itself, provides an incentive to hoard and send large sums of Bitcoins and discourages to small, unkempt reserves, acknowledging the above 18 million addresses that record under less than $100 of BTC.
In light of the conundrum between transactions fee and the address distribution, the report concluded,
“While it may be encouraging to see so many small Bitcoin holders, high transaction fees could mean that many are unlikely to spend their BTC at the current point in time. The sheer number of small Bitcoin holders illustrates the need for scaling solutions that combat the asset’s intermittently high transaction fees.”
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Bitcoin is an enterprise; its users are comparable to traditional shareholders, claims Goldmoney Founder
Bitcoin was conceived in the backdrop of banks bailouts and the 2008 financial crisis. The recession and the loss of faith in banking, financial institutions gave Bitcoin a platform to rescue the ones affected, giving them hope for a better financial system without the hassle of corrupt institutions. With the rise of Bitcoin’s fame, both in the darknet and in the mainstream, questions about its regulations had to arise.
The question was put to rest when the SEC/CFTC ruled Bitcoin as a commodity and taxed it. However, Goldmoney’s Roy Sebag brought this discussion up again recently in his tweet thread, where he said that Bitcoin as an enterprise is working towards its good, comparing its users to traditional “shareholders” among other things, while concluding that Bitcoin is a security. He tweeted,
“Is Bitcoin a security? <10 years old so regulators haven’t even had enough time to truly learn how it works (think Napster or Kazaa in early days). Miners are clearly issuing coins and responsible for governance, an absence of formal relations among them is irrelevant….”
In successive tweets, Sebag attributed miners with the role of “stewarding” the so-called enterprise. In return, these miners get paid in “direct fees” or in “share appreciation.” In Bitcoin’s case, it is the mining reward, which is “BTC”. Similarly, buyers are compared to “shareholders” with a common interest in the enterprise, i.e. profit. Sebag added,
“Coins trade at exchanges. The common enterprise is designed for the price appreciation of coin.”
Bitcoin could face a shutdown by the government, just like it did with big players in file sharing, said Sebag, who added that Bitcoin could also be interpreted as a security under the “34 act of the SEC.” The Goldmoney Founder concluded that “this realization rests on the belief that neither Bitcoin nor any common enterprise is truly decentralized.”
However, his inputs weren’t very well-received by many in the crypto-community. Casa’s CTO Jameson Lopp refuted Roy Sebag’s ideas, tweeting,
“Roy will believe what he wants to believe, though if he’s not actually participating in Bitcoin then his beliefs are irrelevant to its consensus formation.”
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