Rich Get Richer Phenomenon in Bitcoin
https://arxiv.org/pdf/1308.3892.pdf
This paper uses the publicly available transaction data of Bitcoin to build an econophysics model that analyzes degree distributions of nodes in the network. Bitcoin is a relatively novel system of currency that differs from traditional currency systems in that it is completely decentralized. The transaction history of each piece of bitcoin is public and is constantly being verified. This allows for an unprecedented study of individual transactions which are usually kept private in traditional currency systems. This allowed the authors of this study to analyze both the temporal dynamics of the network as well as wealth distribution of individual nodes.
The authors have discovered that preferential treatment is what drives the network, which we discussed in class as the “rich get richer” phenomenon. In the case of Bitcoin, the authors find that the wealth of well-connected nodes increases faster than nodes with fewer connections. There was also a positive correlation between the wealth and the degree of a node. Therefore the network follows a power-law distribution and there is a strong correlation between being able to gain connections and accrue more wealth. This paper is one of the first to study microscopic financial network dynamics, made possible by the public keys of the Bitcoin system. Future econophysics models can use the BTC data to create more robust analyses that scrutinize how individual transactions create larger network effects.