New research suggests 23 million entities hold Bitcoin
Traditionally, mapping the number of bitcoin holders has relied on mapping the number of existing addresses. The Bitcoin network is designed to be an open ledger. This means that the entire transactional history of the network is publicly available. As a result, it is easy to determine the number of addresses that hold bitcoin, which has been utilized as a proxy for the number of bitcoin holders.
Past methodologies
However, this methodology is inherently flawed. First, there is no one-to-one connection between the number of addresses on the Bitcoin network and the number of users. One user can hold more than one bitcoin addresses.
Secondly, it is possible for a bitcoin address to hold funds from more than one individual. Exchange addresses, for instance, typically hold funds that belong to thousands of people. Due to these flaws, it is important to devise new methodologies that employ analytical tools that can provide a more accurate insight into the Bitcoin network.
To analyze the data from the Bitcoin ledger, researchers at Glassnode employed an amalgamation of “industry-standard heuristics, proprietary clustering algorithms, and advanced data science methods on top of raw on-chain data.” This approach has allowed the analytics firm to publish a report that estimates the actual number of bitcoin users as well as how these numbers change over time.
From addresses to entities
The Glassnode approach is able to resolve one of the factors that make the address approach false. The proprietary analytical tools developed by the firm are able to map multiple addresses to their single owner.
It is important to note that because the approach is unable to accurately map the number of people behind an address that holds funds belonging to multiple users, the report deliberately employs the term entity as opposed to individuals.
The report maps the Number of New Entities. This metric refers to the numerical value of the unique entities that appeared for the first time in a transaction in the Bitcoin network.
The Entities Net Growth metric is computed by calculating “ the difference between new entities and “disappearing” entities (entities with a zero balance that had a non–zero balance at the previous timestamp).”
Whales, in the Glassnode report, refer to unique entities holding at least 1,000 BTC. Active Entities are those which either received or sent funds. Further to this, Sending and Receiving entities are those which either only sent or received bitcoin respectively.
The Findings
The Glassnode approach involves clustering addresses into entities. Therefore, the number of new entities is much smaller than the number of new addresses in the network. “For instance, in 2019 the average number of new addresses added to the Bitcoin blockchain per day was over 355k. In comparison, the average number of new entities was only slightly above 100k, representing a ratio of ~28 percent,” the report states.
Through this data, the analysts were able to extrapolate their findings. For instance, the report found that at the beginning of 2018, there was an increased discrepancy between new addresses and new entities. What this means is that the new addresses being created were ‘change addresses’ as opposed to new users joining the network.
The analysis found that the number of entities holding bitcoin (BTC) is 23.1 million. The current number of non–zero addresses is ~28.4 million. This confirms the belief that entities will typically control more than one BTC address.
Another important finding is the net growth of entities on the Bitcoin network. The report states: “The daily net growth of entities is consistently positive: In Bitcoin’s history there have been only 21 days so far in which the net entity growth was negative.” This finding points to a healthy and consistent adoption of Bitcoin over the past 10 years despite its relatively volatile history.
As for whales, there are 75 entities that hold 10,000 or more BTC as of January 2020. Seven entities hold more than 100,000 BTC. All of these entities are exchanges. Specifically, “Coinbase (983,800 BTC), Huobi (369,100 BTC), Binance (240,700 BTC), Bitfinex (214,600 BTC), Bitstamp (165,400 BTC), Kraken (132,100 BTC), and Bittrex (118,100 BTC).” These exchanges in total hold 13 percent of the circulating bitcoin supply.
OhNoCrypto
via https://www.ohnocrypto.com
Alex Lielacher, Khareem Sudlow