What happens when 1% of Bitcoin owners control 99% of the BTC supply?

Bitcoin first started on January 3, 2009 when Satoshi Nakamoto mined the Genesis block, creating the first currency. In the years since, some wallet addresses have accumulated a significant portion of the supply.

According to the Blockchain Council, more than 19.71 million Bitcoins (BTC) have been awarded to miners. According to Nakamoto's white paper, only 21 million are available, meaning most bitcoins are in circulation.

Data from BitInfoCharts shows that about 1.86% of wallet addresses – over one million – currently hold more than 90% of the total BTC in circulation. Some of these individuals or entities, known as whales, hold large amounts of crypto.

Caroline Bowler, CEO of Australian crypto exchange BTC Markets, told Cointelegraph that any concentration of BTC ownership among smaller addresses presents both problems and benefits.

“On the one hand, it raises concerns about market manipulation, centralization and liquidity constraints,” she said.

“On the other hand, it gives these large owners greater market influence, strategic advantages and unique opportunities.”

Bowler highlights the importance of continued efforts to promote decentralization of the crypto-focused ecosystem and address potential risks associated with decentralized resource allocation to enhance market stability for the broader BTC ecosystem.

Nakamoto's original BTC white paper proposed a decentralized system for peer-to-peer transactions without going through a financial institution or intermediary. His aim was to take back financial control from the elites.

According to data from Explosive Topics, only 46 million BTC wallets hold at least $1 in value. Less than half of these wallets have more than $100 worth of crypto.

Data from BitInfoCharts shows that only four wallets hold between 100,000 and 1 million BTC, totaling 688,681 BTC. The next 100 largest holders have a total of 2,464,633 BTC. These 104 addresses are about 15.98% of the total supply.

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Bowler hypothesizes that if the entire supply of BTC was accumulated by a small group of whales, it would change the entire ecosystem.

“100% of the Bitcoin volume in a few addresses will fundamentally change the dynamics of the Bitcoin ecosystem,” she said.

“It centralizes regulation, undermines the core principles of decentralization, and leads to market manipulation, mistrust and regulatory oversight.”

At the same time, Bowler said that these theoretical owners could have unprecedented power over the BTC network and its future. She believes the outcome will damage BTC's reputation and drive users to decentralized alternatives.

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“If 100% of Bitcoin is in the hands of a few, interest and development in the network will likely fade,” she said.

“Bitcoin's point is that it's universal with businesses and popular with ordinary people. If it loses that popular touch, an alternative may come along.”

Unprecedented market control, however, is not much.

Philip Lord, president of crypto payment app Oobit, told Cointelegraph that if a small number of addresses owned the majority of BTC, these whales would have more control over the market, but they still could not change the Bitcoin network or protocol.

“This centralization can affect the market, because these addresses can affect the price of Bitcoin in large transactions,” he said.

However, owning such a large block of Bitcoin does not inherently provide direct control over the protocol or the ability to modify its code.

Whales have had a huge impact on the volatility of the BTC market, with their massive holdings giving them the power to swing supply and demand. As a result, traders and other people in the space monitor any transaction made by the whale.

As whales increase their BTC holdings, their value will rise, but selling a portion of their holdings could lead to a crash.

Lord says that there is a difference between BTC as a secret and the Bitcoin network that serves as the decentralized infrastructure of the project.

While individuals can own BTC as a token, the Bitcoin network operates on decentralized architectural principles.

Geeta thinks the protocol or code can be changed, but he wants a decentralized consensus process, not controlling the majority of BTC. Changes are proposed through Bitcoin Improvement Proposals (BIPs), which the community then discusses and reviews.

“For the change to take effect, there must be broad support from miners, developers and node operators,” Geeta said.

“Once sufficient consensus is reached, the changes will be incorporated into the new version of the Bitcoin software, which users can choose to accept. If the majority accepts the new version, the changes will become part of the Bitcoin protocol.

The governance model is based on community consensus.

Jonathan Hargreaves, head of business development at Web3 ecosystem Elastos, which developed the Bitcoin layer-2 solution, told Cointelegraph that any concentration of wealth among the 1 percent is a central concern of the global economy.

According to the information published by Oxfam International, which is based in the United Kingdom, 81 billionaires own more than 50% of the world's wealth.

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If BTC goes that way, Hargreaves said, “concentration could lead to centralization.” That could change the “Bitcoin Fundamentals,” which aim to turn the social contract into a global consensus.

I don't think the size of BTC gives more control over the network, though, and the only additional benefit is wealth.

“Bitcoin and decentralized currencies initially promised to be more inclusive, but this goal has not been achieved as expected,” Hargreaves said.

“However, Bitcoin's governance model does not give holders the power to change its core strategies. Key principles such as the 21 million cent limit and non-inflation are immutable, so the benefits of this 1% are limited to the potential for wealth creation.

Some aspects of the BTC code have been modified or removed in the past. Operation ConnectNet (OP_CAT), which allowed users to combine two datasets into a single transaction script, was disabled by Nakamoto in 2010 due to security concerns.

Hargreaves management model is based on community consensus, which includes developers, node operators, miners, core development team and technicians, which is similar to the usual open source projects.

“The concentration of ownership itself may not pose a direct threat, but financial centralization may erode these principles over time,” Hargreaves said.

“However, there is a perception that these community stakeholders, including Nakamoto, will resist attempts to influence or buy into the consensus. So, I don't see owning 100% BTC as a risk any more than trying to buy the Bitcoin network.

There is nothing stopping whales from grabbing all the Bitcoin.

Sasha Ivanov, the founder of the Waves Tech ecosystem, said that at this stage there are no methods “to provide fair distribution and prevent the traditional Pareto distribution of wealth”, in which the top owners have all BTC.

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Whaling addresses think that having a higher supply of assets gives them material benefits because they indirectly control the price and participate in market manipulation.

“Big owners have the financial ability to steer the development in the direction they want,” he said.

“It could lead to the complete centralization of Bitcoin, as society has no way to resist financial incentives and is completely driven by the vision of a large group of owners.”