A new study on Bitcoin raises questions about whether it is really as decentralized and anonymous as its biggest fans say it is. Of course, this new study will come as no surprise for crypto veterans.
Researchers from several universities recently looked at data from the early days of the top cryptocurrency. They found that, contrary to what Web3 supporters said, “wealth, income, and resources” were “highly centralized” during that time. On top of that, the methods used to parse and analyze the study’s data could sometimes “de-anonymize” users. This means that Bitcoin’s anonymity claims aren’t quite what they’re cracked up to be.
Even though the study hasn’t been published in a peer-reviewed journal yet, it has gotten a lot of support from well-known academics and technologists. For example, Jaron Lanier, a VR expert, and longtime Microsoft researcher wrote an op-ed on Tuesday supporting the study’s findings.
But when the researchers looked at the blockchain data from the early days of Bitcoin, they found that when it first started, it was less of a truly decentralized network and more of a system supported by a small minority.
To find out, researchers looked at mining activity between 2009 (when the currency was first introduced) and 2011 (when it was worth the same as the U.S. dollar).
“Mining”, in case you are unaware, is the process of performing a series of complex computations to “unlock” new coins as a reward for the “work”.
In contrast to the myth that Bitcoin “democratizes” finance, the study found that most of the early Bitcoin mining was done by only 64 owners. These 64 “agents” mined a total of 2,676,800 Bitcoin, which is worth about $81 billion at the time of writing.
The study reveals that even though Bitcoin was meant to be a decentralized network from the start, it was actually kept up by a small elite that controlled most of the “computational resources” that kept the community going. Researchers also found that it would have been easy for these early adopters to use financial attacks to take advantage of the network and make a lot of money.
However, these attacks would have hurt the reputation and future of Bitcoin. Instead, the first people to use the currency didn’t engage in this greedy and destructive behaviour. This kept the community around the currency alive.
The study gives Bitcoin a slightly different look, chipping away at the idea that digital currency is the free-flowing form of money that its fans say it is.
The study also found that Bitcoin is an anonymous as it is made out to be
Another problem is the supposed anonymity of crypto like Bitcoin. However, the new study shows that there are many ways to look at data that can now be used to almost completely figure out who is trading the currency.
Using some complicated data-sifting techniques to sort through data, the researchers could untangle the web of addresses and transactions linked to certain people who were very active in Bitcoin between 2009 and 2011.
The paper doesn’t say who these people are, except for Ross Ulbricht, also known as DreadPirateRoberts on the so-called Dark Web, who ran the famous Silk Road darknet market until his arrest in 2013, and Michael Mancil Brown, also known as “Dr. Evil,” a Tennessee man who tried to extort Mitt Romney in a strange Bitcoin-related plot in 2012.
De-anonymizing crypto users isn’t a new idea, but the public seems to be slowly waking up to the fact that police can now use blockchain analysis tools like those sold by Chainalysis.
Similar techniques to those used in the new study would also not be beyond the capability of Government bodies and Security Agencies.
