Cryptocurrencies rose to fame while talking about decentralization, but a new analysis by Token Analyst for Yahoo Finance UK claims otherwise.
It suggests that of the top 50 currencies by trading volume*, the top 20 wallets hold an average of 78% of all coins.
This shows how centralized token holdings are which appears to counter the decentralized vision these projects aim to achieve.
Is Decentralization a Myth?
A select few may have more control over a decentralized network than the average crypto enthusiast may imagine.
Across the top 50 currencies by trading volume, the top 20 wallets get an undue power over the rest of the community as they hold an average of 78% of all coins.
In 16 cases, the 20 biggest wallets were holding over 90% of the total token supply, revealing how centralization works in the background of decentralized crypto networks.
Interestingly, a majority of the coins were issued to fund new companies that will use the tokens in their projects. However, Token Analyst’s Jai Prasad said that many of these projects did not even need crypto technology for their ideas to begin with.
However, it must be noted that one crypto wallet, like at a cryptocurrency exchange, could hold the tokens of many people, as Yahoo Finance reported:
Token Analyst’s Prasad said that the figures were likely boosted by the fact that many crypto investors hold their tokens on crypto exchanges, rather than opening their own wallets. That means the digital wallets of exchanges will be swelled by the holdings of many of their customers.
More Details From the Token Analyst Study
Token Analyst pointed to a high degree of centralization in token distribution across the top 50 ERC20 standard tokens (tokens created on the Ethereum blockchain).
This included several high-end projects like Maker, Binance Coin, Augur, and 0x Protocol.
However, Prasad noted that the centralization in top 20 wallets could be a result of people holding their coins with crypto exchanges.
He noted that this is a bad sign for the industry as people are likely speculating on prices rather than buying tokens to use on their respective networks.
“If 20 addresses (including the token team and exchanges) own 80% of the tokens, this tells me a few things: 1. Pre-sale investors got in early at large discounts; 2. No one is interested in using the network, and the tokens are used purely for speculation, and 3. future governance (crypto buzzword) will be at the beck and call of few.”
Prasad continued to say that ICOs provide token holders a promise of participation in the governance of the network.
If a few wallets hold most of the total supply, changes could be forced on the network. If the characteristics of being permissionless and censorship-resistant networks are absent, then we “probably don’t need a crypto network, to begin with,” he claims.