900 People Own Half of All Bitcoins: Is Bitcoin a High-tech Pyramid Scheme?

December 12, 2013

It apparently doesn’t take long for the rich to get richer, even when a barely-born virtual currency like Bitcoin.

Reporting on findings by Risto Pietilä, a Finnish entrepreneur and frequenter of Bitcointalk,org, Business Insider has revealed that 47 individuals own 28.9% of the estimated 12 million existing Bitcoins, and another 880 people own 21.5%. That adds up to 927 people controlling over half of all Bitcoins, with close to a quarter of the pie belonging to 1 million people.

This uneven distribution of wealth calls to mind the Occupy protests of recent years. Occupy adherents criticize the fact that the top 1% of the world’s income earners saw their wealth nearly triple in the past 30 years, while the American housing crisis destroyed the prospects of the working poor, and the middle class became an endangered species.

Pietilä’s revelations of Bitcoin ownership raise suspicions over whether Bitcoin isn’t just a carefully-constructed pyramid scheme, with the 99% once again enabling the runaway financial dominance of a select few.

Bitcoin is structured such that it rewards early adopters. To generate a Bitcoin for yourself, you install software on your machine to become a Bitcoin “miner.” Your computer’s processing power is then devoted to smashing numbers together until it discovers inputs that satisfy a complex mathematical algorithm. Once your computer finds a solution (much like Jed Clampett striking oil in his hillbilly swamp land), you receive a Bitcoin for your computer’s efforts.

As more algorithms are satisfied and more Bitcoins are generated, the computational requirements grow increasingly more demanding, and more processing power is required to crunch the numbers to generate a Bitcoin. Therefore, early adopters had an easier time generating Bitcoins, while the rest of us stragglers will have a harder go of it. We are passengers in the last wagons to roll up to the Klondike.

It’s worth asking whether the current buzz about Bitcoin isn’t being carefully orchestrated behind the scenes by the Bitcoin illuminati, in an effort to drive up the currency’s value. With governments like Canada and China declaring Bitcoin a commodity rather than a recognized currency, the value of the computer-generated filthy lucre relies largely on the confidence of the people who own it, or who want to own it. The more small fry there are who buy Bitcoins or add them to their Christmas wish list, the richer those 900-odd majority owners become.

This may be a rare opportunity for activists to completely devalue the currency and take those wealthy majority owners down a peg. Unlike centralized government-issued “real” currency, if Bitcoin goes down, the rest of us don’t go down with it. Imagine that the Occupy movement had the power to completely strip the 1% of their wealth, simply by declaring that their money has no value. Mansions would topple, garages full of imported cars would go up in flames, and cosmetically-altered faces would melt like that Nazi’s at the end of Raiders of the Lost Ark. The 99% would be immune from the fallout because we had never traded in Bitcoin to begin with.

Before you run out and install a Bitcoin miner to generate a few fractional Satoshis, consider that you may be enabling the continued wealth of a small handful of early adopters, who have invented and invested in the platform for the very purpose of getting rich from your effort, and your faith.