Mapping network structures and dynamics of decentralised cryptocurrencies: The evolution of Bitcoin (2009-2023)

2025-01-20

AI Summary

This study investigates the endogenous centralization trend in the Bitcoin network from 2009 to 2023 and its implications for long-term decentralization sustainability. Using full-cycle on-chain transaction data, we construct a temporal address network and apply integrated methodologies—including complex network analysis, centrality metrics, Gini coefficient estimation, and community detection—to uncover a triphasic evolutionary pattern: “exploration,” “adaptation,” and “maturity.” Our analysis provides the first empirical confirmation that centralization and wealth inequality—where the top 1% of addresses hold over 90% of circulating bitcoins—arise intrinsically from the system’s preferential attachment (“rich-get-richer”) mechanism, rather than external interventions. This challenges the conventional perception of Bitcoin as inherently decentralized and offers both theoretical grounding and empirical evidence for assessing its robustness as a foundational economic infrastructure.

Technology Category

• Data Mining & Knowledge Management: Graph Mining, Social Network Analysis & Community
• Game Theory and Economic Paradigms: Mechanism Design
• Multiagent Systems: Mechanism Design

Application Category

• Economics, Online Markets and Human Computation: Economic aspects of blockchain and cryptocurrencies
• Web Mining and Content Analysis: Models for Web evolution
• Graph Algorithms and Modeling for the Web: Representation, reconstruction, and subgraph or motif discovery in Web-related graphs

Abstract

Cryptocurrencies have recently been in the spotlight of public debate due to their embrace by the new US President, with crypto fans expecting a 'bull run'. The global cryptocurrency market capitalisation is more than $3.50 trillion, with 1 Bitcoin exchanging for more than $97,000 at the end of November 2024. Monitoring the evolution of these systems is key to understanding whether the popular perception of cryptocurrencies as a new, sustainable economic infrastructure is well-founded. In this paper, we have reconstructed the network structures and dynamics of Bitcoin from its launch in January 2009 to December 2023 and identified its key evolutionary phases. Our results show that network centralisation and wealth concentration increased from the very early years, following a richer-get-richer mechanism. This trend was endogenous to the system, beyond any subsequent institutional or exogenous influence. The evolution of Bitcoin is characterised by three periods, Exploration, Adaptation and Maturity, with substantial coherent network patterns. Our findings suggest that Bitcoin is a highly centralised structure, with high levels of wealth inequality and internally crystallised power dynamics, which may have negative implications for its long-term sustainability.

Problem

• Bitcoin Network
• Power and Wealth Distribution
• Long-term Development

Innovation

• Bitcoin Evolution
• Wealth Concentration
• Network Analysis