Bitcoin Transaction System and “Rich Gets Richer” Phenomenon
https://journals.plos.org/plosone/article?id=10.1371/journal.pone.0086197
In this research article “Do the Rich Get Richer? An Empirical Analysis of the Bitcoin Transaction Network” published in 2014, the authors represent the complex Bitcoin system as networks. Bitcoin is a digital currency traded online and the whole system is decentralized without an overseeing authority. The unit of the currency is one bitcoin (BTC). Each user (also seen as a node) is given a Bitcoin address, which consists of a pair of public and private keys, and the full list of previous transactions will be stored into each node to ensure the security of the system, according to the article.
In order to better study the Bitcoin system, the researchers downloaded the complete list of transactions with each node representing a Bitcoin address. There will be a direct link created between two nodes if there was at least one transaction between them. The number of nodes and links will keep increasing if new nodes are added. Up to the time this article was out, there were 13086528 nodes and 44032115 links existed.
After a series of complex and detailed calculations, the researchers conclude that “6.28% of the addresses possesses the 93.72% of the total wealth in the Bitcoin system,” which corresponds to the “rich get richer” principle we covered in class. And the distribution in the graph shows that it is modeled with the power-law.
Based on the article, we can see how the mechanism of the Bitcoin system works as a network and relates to the topics we talked about in class. Even though Bitcoin is a digital currency, its wealth distribution still falls in the conclusion of the “rich get richer phenomenon”. Thus, it just seems more possible that a person’s increase in wealth will be directly proportional to the wealth of that person.