Do the Rich Get Richer? An Empirical Analysis of the Bitcoin Transaction Network
These researchers capitalized on the open nature of Bitcoin exchanges to analyze individuals’ transactions and the overall trend of rich-get-richer. Because every Bitcoin transaction must be publicly announced, it was possible to track the exchange of wealth over long periods of time. The researchers decided to split the lifetime of Bitcoins into distinct phases based on trends they observed. The first phase was a period of time immediately following the inception of the idea of Bitcoins, and is characterized by fluctuations in network characteristics. The second phase came to be as Bitcoin gained in popularity and began to be accepted as a form of currency. This time period exhibited stable market characteristics, and the power-law in and out degree distribution we’ve seen in class in the rich-get-richer scenario.
To analyze the network for trends between time and wealth of individuals, data was analyzed over the entire lifetime of Bitcoin usage. It was found that the wealth distribution is very heterogeneous over the entirety of the lifetime of the trading system, and, during frequent exchanges, forms a stable exponential distribution. Through further analysis, the researchers “identified a scaling relation between the degree and wealth associated to individual nodes,” meaning the number of connections (particularly new connections) and increasing wealth are correlated.
In class we looked at a simple model of the rich-get-richer scheme and noticed a similar trend to the one stated above. When new pages are generated, they must form a link to a previous page, and as the number of links pointing to a particular page increases, so does the likelihood that the next generated page will also point to it. Though the analysis of Bitcoin transactions goes far beyond the level of complexity we used in class, the basic principles of power-law distributions and accumulation of wealth among the active and already wealthy nodes are readily recognized.
http://journals.plos.org/plosone/article?id=10.1371/journal.pone.0086197