How many people really own bitcoins - and why does it matter?

Monday 10 February 2014

Bitcoins, in case you hadn’t noticed, are quite a big deal at the moment. A lot of people are talking about them, there’s a lot of noise in the media and a whole lot of momentum building behind them on the web. But a while back I got to wondering: how many people actually own bitcoins?

The answer to that question has some big implications. For starters, it tells us how ‘real’ the buzz is: is it just down to a handful of vocal enthusiasts, or does it represent a limited but rapidly-growing popular movement? That, in turn, gives us some kind of indication how much bitcoin might develop over the course of the next year and beyond. It tells us what proportion of the population have bought into the idea, and therefore what proportion are left who might come on board in the future. And that, of course, gives some kind of indication about what we can expect in terms of appreciation in value, levels of future use, business prospects, and so on. Last week, I looked at some of those questions in passing, in a post called five predictions for 2014. Next week, I’ll be using the answers to the question in this post to put some flesh on the bones of that basic prediction of future value rises. (And let me tell you, there’s some serious wishful thinking going on out there.)

Back to how many people own bitcoins – or at least, own them in any meaningful amounts. Having dug around on the web for information, it turns out that there’s plenty of speculation about this, too. Lots of suggestions, some of which are based on reasonable assumptions and mathematical modelling, and some which are just plucked from the air. This graph shows the number of unique addresses used at a given time - which you might think was a fair proxy. But this forum thread from six months ago - which comes up with a range of answers from just a few thousand to 2 million - demonstrates some of the problems in guesstimating the real total, even with that information.

Fortunately, getting to the bottom of the matter is simpler than it might seem.

Bitcoin, remember, is based on complete transparency. Every transaction that has ever occurred is stored in the blockchain, copied time and time again on myriad computers around the world. That’s how it works – it’s one of the reasons why bitcoin is such a game-changer. It also means that all the information you need is there for the taking, if you know how to access and interpret it.

It turns out that a helpful chap called John Ratcliff has created a very handy utility to do just that. You can find it here, along with some of the results of his work (taken about a month ago, but still current enough to be useful) which I’ll unpack below. Thank you, John, for a fantastic resource.

So who owns how many bitcoins?
First things first, around 31 million transactions have taken place in bitcoin’s history. That seemed a little low to me to begin with, but it starts to look more reasonable in the light of other findings.

More than 25 million addresses have been referenced in those 31 million transactions. The total number of addresses, of course, gives an upper limit for the number of possible bitcoin users. Naturally, not every address ever referenced is still in use. In fact, it turns out that less than 10 percent actually have any bitcoins in – fewer than 2.5 million.

So that means an absolute maximum of around 2.5 million people own bitcoins right now. But approximately half of these addresses have very, very small amounts of bitcoin in – what is termed ‘dust’, or less than one millibit (0.001 btc). The total balance of all of those 1.2 million addresses is only 121 bitcoins, which means they each hold an average of just 0.0001 btc. In dollar terms and at current values, these 1.2 million ‘dust’ addresses hold a maximum of $0.80 and an average of $0.08.

Why do so many addresses hold next to nothing? One theory is that back in 2011 a denial of service attack was launched against the bitcoin network by ‘spamming’ it with small transactions. Remember, in 2011 the value of the amounts in question would be a miniscule fraction of the $0.08 dollars each they represent today. Whoever did it, I bet they wish they could have their money back now...

In any case, that leaves us with a balance of around 1.2 million addresses that have a meaningful quantity of bitcoins in – and the vast majority of these, almost one million, hold less than a full bitcoin. The total of this million-or-so accounts is just 87,000 btc.

The rest of the world’s bitcoin wealth is distributed among the remaining 250,000-odd addresses. Just 97 addresses have a balance over 10,000 btc, and two addresses more than 100,000. It’s fair to assume that one of these belongs to Satoshi Nakamoto. He (or they) is sitting on a fortune of around $1 billion US at current prices, and has been for a while. Incidentally, it might be relevant that around half of the bitcoins in the world, 5.5 million, are sitting in addresses that haven’t been touched in over 2 years, and many of them over 3 years. We can’t know how many of these represent deep cold storage, and how many are down to forgotten private keys.

How many individuals is that?
The short answer is a maximum of 1.2 million. Of course, many people have several addresses, and some have dozens of addresses. Even the average bitcoin user will probably have an address associated with an exchange, one that operates as a current account, one as cold storage, and so on, and so on. Not all of those will have coins in at any given time. Many have tiny amounts that the owner has forgotten about. So whilst it’s hard to say, I’d estimate that between half and three quarters of a million people is reasonable ballpark range. It’s worth remembering that this is a snapshot of the blockchain. There may be other people who have owned bitcoins in the last week or month, and can be classed as active bitcoiners, but who didn’t own any right at that moment.

Just 500,000 people own bitcoins. That figure could easily grow by 100-fold, or even 1,000-fold, in the medium-term future, if bitcoin is widely adopted as an internet currency, let alone the default online medium of exchange.

That gives just some indication of how far the cryptocurrency still has to go – something I’ll be looking at over the next week or two in more detail.


By Brandon Hurst

Preview image courtesy Antana under creative commons licence

Brandon Hurst

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