Bitcoin in the spotlight – The Cryptonomist

A new in-depth study on Bitcoin led by a consortium of Texan universities was recently published. 

The report by several Texan universities on Bitcoin

The report focuses in particular on the early years of Bitcoin, and was published under the title “Cooperation among an anonymous group protected Bitcoin during failures of decentralization” on the website of Aiden Lab, the Centre for Human Genome Architecture at Baylor College of Medicine at Rice University in Houston, Texas. 

The authors of the study are Alyssa Blackburn, Christoph Huber, Yossi Eliaz, Muhammad S. Shamim, David Weisz, Goutham Seshadri, Kevin Kim, Shengqi Hang and Erez Lieberman Aiden, a group of scholars from the Center for Genome Architecture, the Department of Molecular and Human Genetics and the Medical Scientist Training Program at Baylor College of Medicine, the Center for Theoretical Biological Physics and the Department of Computer Science at Rice University, the Department of Physics at the University of Houston, and the Institute for Markets and Strategy at the Vienna University of Economics and Business. 

Using a procedure that would link addresses on Bitcoin’s blockchain with a sensitivity and specificity greater than 99%, the study revealed that between the time of Bitcoin’s actual launch, 3 January 2009, and the time when BTC’s price reached $1, 2 September 2011, most of the Bitcoin were mined by only 64 traders.

Actually, it was already widely known that in the very early years of its existence only very few people used Bitcoin, and even fewer mined it. At the time, there was only one software, called Bitcoin, which acted as both wallet and miner, so virtually all active users mined. 

Since 50 BTC were initially allocated to anyone who managed to mine a block, at the rate of about one new block every 10 minutes, and since there were no pools, those very few users were allocated almost 7 million BTC by the protocol. 

The study reveals that this resulted in such extensive centralization of resources that almost all active BTC addresses today can be connected to these initial addresses by a chain of up to six transactions. 

The error found in the report

However, the report makes a mistake when it states that this way attackers could exploit a 51% attack to spend the same BTC multiple times, because owning a large part of the BTC does not affect the functioning of the protocol that prevents double spending. 

The analysts who conducted the study reveal that the initial 64 operators always chose to cooperate in the past, so its initial success was based on cooperation between a small group of altruistic founders, and not on real decentralization. 

As to the fact that Bitcoin was initially a thing for the few there was never really any doubt, but since Bitcoin is not based on Proof-of-Stake, but on Proof-of-Work, the concentration of tokens has no impact on mining, i.e. the process of validating transactions. Therefore, there is no risk of a 51% attack because of this. 

On the other hand, among the analysts who carried out this study, there seems to be none who are really experts in cryptocurrencies. On the contrary, most of them come from the world of medicine, or medical research, an environment that has absolutely nothing to do with cryptocurrencies. 

There is only one from the world of computer science, and only one from the world of economics, so it is not hard to imagine that they made a big mistake by confusing PoS with PoW. 

However, apart from the gross error regarding the possibility of a current attack on Bitcoin’s blockchain, what they discovered about the first two and a half years corresponds to what many bitcoiners have always imagined.