Most Cryptocurrency Transactions Have No Economic Value: Report

  • Nearly two-thirds of Bitcoin (BTC) transactions have no economic value, crypto analysis shows.
  • Researchers say publicly available cryptocurrency transaction logs do not show the “full picture.”

Coinmetrics, a crypto asset analytics and data service provider, recently reported that approximately two-thirds of daily Bitcoin (BTC) transactions do not involve trading the cryptocurrency or paying for products and services.

The open-source data company revealed the transaction volume on Bitcoin’s network mainly consists of crypto traders moving funds from one wallet or exchange to another. Per the firm, most other transactions involve spoofing, market manipulation, and mining pools transferring the cryptocurrency to their members.

The data service also said there have been times when up to 98% of transactions on Cardano’s (ADA) blockchain did not have economic value. Meanwhile Elementus Inc., another crypto data provider, claimed over 45 percent of daily transactions on Ethereum’s network are either spam or do not have economic value.

Charlie Morris, chief investment officer at Newscape Capital Group Ltd, was quoted as saying:

If this space is not a joke but serious, then people need to more. You’d want to know the facts. If institutional money is going to come into Bitcoin, they’ve got to understand what they are buying.

Charlie Morris

Morris, who manages $300 million in investment portfolios, aims to bring more transparency to crypto-related transactions by helping firms develop blockchain analytics software such as Elementus and Cryptocomposite.

Blockchain Data Lacks Clarity

Elementus CEO Max Galka, a former trader at Credit Suisse Group AG, revealed his company will be working with financial organizations to launch a crypto data service this year. He added:

You are sort of looking at a tiny piece of the blockchain through a keyhole, and you are not seeing the big picture. It’s really hard to understand the context around it. What we do is we allow you to get the full picture.

Max Galka

Notably, a number of market experts argue that the “full” picture may be very different from what’s available on blockchain explorers. Analysts also argue that being hard to identify who’s behind cryptocurrency transactions may pose serious issues if said transactions are associated with illicit activities.

Lucas Nuzzi, director of technology at Digital Asset Research, a company that focuses on providing “independent, rigorous, credible cryptocurrency” data, stated that “creating addresses in these networks is free, and transaction fees at this point are sufficiently low to enable a single user to send small balance through hundreds of transactions."

Making Transactions Untraceable

This, researchers say helps people to transfer digital currency between accounts in a manner that makes it hard to trace transactions. In fact, Coinmetrics’ research shows one user was behind nearly 90% of the transactions on the Ethereum network between February 2017 and February 2018.

Researchers think mixers, entities that move cryptocurrency between numerous accounts, may be custodians or exchanges who might be trying to make it hard for hackers to steal funds. These could also be malicious organizations or individuals attempting to make transactions untraceable, in order to orchestrate illegal activities, Coinmetrics states.

Nic Carter, co-founder of Coinmetrics, believes the value of real economic transactions on the Bitcoin blockchain is of around $2 billion per day and of approximately $700 million on the Ethereum network.

50% of Bitcoin Wealth Held by Just 1,800 Wallets

Neil Dennis

The distribution of bitcoin and cryptocurrency wealth is more concentrated than global wealth - and always has been - according to new research.

Blockchain monitoring platform PARISQ says that bitcoin is almost 50 times more concentrated in the hands of the few than global wealth. Ether's distribution, meanwhile, is 300 times more concentrated.

This means, according ot research shared with CryptoGlobe, that to enter the top 50% of bitcoin wealth, a person would need to own 347 bitcoins - worth at current prices $3.6 million. This 50% of bitcoin wealth is controlled by 0.023% of wallet addresses. By comparison, 50.1% of global wealth is controlled by 1% of the world's population.

PARSIQ dataSource: PARISQ

PARISQ's research shows that 1,805 wallet addresses control half of all bitcoins in circulation. Expanded to the top five cryptocurrencies by market capitalization, just 6,457 individual wallets addresses control all assets.

Whale Wallets

The largest such holders of cryptocurrency - particuarly bitcoin - are know colloquially as "whales", and with such concentrated holdings of assets by relatively few investors raises the danger of price volatility should any whale decide to sell a large slice of their holdings.

Such large transactions are often completed undercover - perhaps by special arrangement with crypto exchanges - so that prices remain relatively stable. It is the goal of any trader, however, to buy low and sell high, and it remains totally within the whale's power to manipulate the market in its favour. Such strategies are the staple diets of hedge funds.

It is thought the major holders of this concentration of bitcoin and crypto wealth are founders, early adopters and institutions such as hedge funds and investment houses.

Indeed, PARISQ's co-founder Andre Kalinowski said:

Cryptocurrencies were created with the desire to create a more egalitarian society away from government manipulation and centralized control. However, the latest research has found that cryptocurrency wealth is controlled by a small number of early adopter and exchange-owned whale wallets.

Monitoring Manipulation

Among the top five cryptocurrencies by market cap, XRP is the most concentrated, with just 14 wallets controlling 50% of the market. Ether comes next with 50% of all digital tokens held by 346 wallets.

The research found that much hadn't changed in years. Kalinowski added that although mass media interest during the crypto-market's peak between December 2017-February 2018 brought significant interest from retail investors, very little has changed under the surface. The whales still hold cryptocurrencies long-term and still have the ability to move the markets. He concluded:

The fact is, the transparency that’s part of the DNA of cryptocurrencies has been clouded by the size and complexity involved in analysing these cryptocurrencies. It’s time to open up the blockchain to everyone, to encourage fairer wealth distribution, or at least ensure the whales are more accountable through better monitoring.