Who Owns All the Bitcoin?

least all who believe in bitcoin. Bitcoin is often mentioned as a means to improve financial inclusion or to allow people who are oppressed by their governments to maintain or reclaim a sense of freedom. In Bitcoin, everyone's equal, or so the theory goes, But does that theory match the reality of the ecosystem. What we did was a systematic origin study of bitcoin, telling the story of how this came to be in a very very specific period. That's

data scientists Alyssa Blackburn. On today's episode, Alyssa and Dr Aras Lieberman Eden, an Associate professor of molecular and human genetics at Baylor College of Medicine, join me to discuss their research into who controlled bitcoin from the very earliest days. Alyssa Era's what a pleasure to have you. Thank you so much for joining the pod today. Thank you for

having a son. I don't often get to, you know, talk to folks doing the type of research that you all have been doing, and I get to talk to them even less frequently when it comes to, you know, applying that research into the wild world of bitcoin. So let's jump right in. Tell me a little bit more about your paper and your findings and why you have found this to be such a captivating line of inquiry. Often times in crypto you hear from kind of two

camps of people. The first are kind of classic economists who do these first principal analyzes um and there's a variety of outcomes in that. You have people saying, maybe it's I don't really like this term, but like kind of a scam, kind of a Ponzi scheme. There's not a there's not a there there. And the second group tends to be from people who are long on crypto, crypto enthusiasts, and there's nothing necessarily wrong with that, but both of these are kind of like a priori analyses.

We are scientists, We are setting the phenomenon of crypto and trying to characterize the space, trying to study the dynamics of the space and the incentive structure in the space. So it's a different kind of analysis that we do, and we do not invest in this space as a group as scientists, So I kind of want to differentiate our work here from kind of other conversations that kind

of get said about this. So what we did was what we sought to do was a systematic origin study of bitcoin, telling the story of how this came to be in a very very specific period. We kind of referred to this as the incipient period of bitcoin, is book ended by the launch and when Bitcoin reached price periority with the US dollar. In retrospect, this at the time, this is not at all foregone conclusion. This is true.

It was a truly incredible story to us. It's one of the most exciting stories of the interface of kind of economics and technology. And what we wanted to do was paining a very detailed data driven picture of what this looked like, who was involved, what did it look like, what are the dynamics like, what is the motivation for this space, what can we learn from this? And then what can we kind of translate and can we make

this a serious academic story. Can we get beyond kind of this like niche crypto conversation and kind of have it in a wider, academic, rigorous space. And what did you find? First of all, is we did a lot of address linking in this space. We used methods that may be called DAI leakage fingerprinting to kind of link these addresses together. And there are a couple assumptions that we were able to make in this very very early period that made this process just specific to kind of

this time horizon. So we were able to recapitulate a lot of the early actors. And then once we had these users, we were able to do analyses. We were able to see how the community changed over time, We were able to trace transactions through the network. We were able to see what the reality of the system was like in contrast to what conversations about the system was like, and to kind of explore the gap between those two things.

The significance of address linking is the following. Right. If you look at you know, the Bitcoin blockchain designed to be afford identity masking I a pseudonymity. It's the individual records relate to addresses pseudonyms. Now, of course, an address is not a very interesting thing to study on some level, and addresses no incentives and address makes no decisions, etcetera, etcetera.

If you want to study the sociology of bitcoin, if you want to study the economics at bitcoint, you have to be able to translate from the space of addresses, from collections of addresses to people and the choices that people are making and the ways in which people are interacting with one another. So that's the role that address linking plays in this study. The address linking is not there for the purpose of like, gotcha, you know, I

figured out who you are. In fact, you know, the goal is study was not at all two docks anyone, right, it's orthogonal is is of no interest to us. But the goal of the address linking is to translate the blockchain into terms that make it possible to ask questions about sociology and economics and game theory and all kinds of scientific phenomena that bitpoint can be, but all kinds

of scientific phenomena that bitcoin can illuminate. And Lissa, one of the things that you kind of talk about is the like the necessity of persistence in trying to get or arrive at those kinds of you know, like insights of sociological conclusions that Auras is describing. Can you say just a little bit more about how that worked? Sure? Sure. So the reality is humans are responsible for coin movements on the blockchain. Humans tend to do things differently than computers.

Humans like round numbers, humans like consolidating their gains. There are these little pieces of data um we call them data leakage. Some blockchain forens experiment call them like fingerprinting. But there are certain behaviors that give insight as to who is moving the coins. And if you put these all these little pieces of data together, what you get

our links between addresses. And when you have multiple links of different types of leakage from different data sources in aggregate, what you can do is put together clusters of addresses with a high level of accuracy. And so what that means in practices you basically figured out who the first sixty four miners were that were responsible. Yes, it means we put together the very early mining the agents who

mind a lot of coin um. The number sixty four comes from what is called the Satoshi coefficient, where it's the number required for a majority attack to be greater than So I want to clarrate that that sixty four is over twenty five months, and frequently, at any given moment in time, actually a very far far smaller number are actually the number of people actively mining and maintaining the network at any given point in time. It was

a very small community. What was the most interesting perhaps like behavioral elements of this community, or maybe something that neither of you were expecting to find. So one one thing that we frequently point out in the paper is we do not find evidence of people attacking the chain.

And one Sutoshi originally described this currency in the initial emails to the cryptographic Lesser, in the initial white paper, on the original bitcoin website and frequently on the forums as not relying in a third party, is being decentralized and trustless, and is being anonymous. And some opinions on the perceived anonymity of bitcoin have changed over time. I mean probably people who are very very familiar with the Bitcoin protocol now would not describe as anonymous, They would

described as studonymous. But Bitcoin was designed at least partially to have these pseudonyms to effectuate some level of privacy. Bitcoin was also designed to not rely on a third party. But what we find frequently, because you have these very large minors, not many mining at one time, there's frequently in a minor that's functioning as the trusted arbiter of the network. We find about five blocks minduring this period our mind and majority streets where one minor does in

fact have a majority control of the network. So what I'm hearing you say is that is the literal opposite of the idea of decentralization when there isn't supposed to be a single centralized entity that's making those kinds of coals. Yes, exactly. And what I want to focus on here is the gap between the computational ideals and how this was described and the actual state of the system, because it's it's a little bit easy to say, now, well this is a ten year old data set. What are you telling

me about the block chain today? And what I want to highlight is the tension in that gap. I only studied these two years. I cannot tell you like a blanket statement about the system today, and I'm not going to, but I will say that at this time that decentralized

trousis mechanism was not functioning. Yeah, I mean, I think it's It's also worth noting, right that like today we think, oh, bitcoint, it's worth a trillion dollars, and if it's not worth a trillion dollars, you know, there's a bit of a temptation to be like, oh, you know, before it was worth a trillion dollars, it kind of wasn't worth anything. Look, you know, there's no doubt that the value of you know, bitcoin and it's importance have changed greatly over the last

ten years. There's no doubt that the state of that community has changed greatly over the last ten years. At the same time, it's worth noting that by the end of the period that we examined, this twenty five months long period, uh, bitcoin is a functioning currency. Right the end of the twenty five month long period, at this point, Quiki Leaks has already invested in bitcoint to get around the payment blockade, the financial blockade that was enacted against

it by the government in the world. It's after the Electronic Frontier Foundation is starting to solicit donations in bitcoin um. It's after bitcoin transactions start. There's a market price for bitcoin that's a dollar. Um. It is coincident with the launch of the Silk Road, you know, which became, you know, a massive online black market denominated in bitcoin. So it was at this point was it what it is today? It was not, But was it functioning as a currency. Yes.

We'll be right back with more from Melissa Blackburn and Dr Eras Lieberman Eden. I also want to point out the importance of studying the difference between the sort of ideals that you're hoping a cryptocurrency can achieve and the reality of what it does achieve, which and be quite different. Not every cryptocurrencies as long in the tooth as Bitcoin, right, if you look at other cryptocurrencies, you know, you look at Luna terra ust that that's an example of a

cryptocurrency that's only a couple of years old. In that period of time, it became clear that there were significant you know, and especially recently, it's become very clear that there were significant deviations between the ideals what people said their intentions were, and you know, the reality of how that community worked, the reality of you know, even the

attention of the founder and founders of that community. I think a measured response to This is not to say that the sky is falling and distant applies, you know, wader catastrophe for bitcoin. That wouldn't be a measured response, but also wouldn't be a measured response to say that that this period, because it was ten years ago, can't teach us valuable lessons for bitcoin and for other cryptocurrency communities.

We kind of used the term a little bit informally internally of like stress testing and cryptocurrency eco system And I mean, Bitcoin is far in a way the most popular with the highest market cap, but the reality is there a lot of young, you know, crypto ecosystems that perhaps have not been as tested as thoroughly, and they're likewise maybe a gap between how they're being described how the founders may describe them in the actual state of

the system. And I think it's kind of important to go into this kind of space with some degree of healthy skepticism. Also, in your description of you know, your attempts to even get to the point of being able to ask questions, you describe some challenges that you encountered, like getting kicked off of your university network because they

thought that you were mining mining crypto. If if there are other academics out there who are hopefully listening to this podcast and thinking, I too would be very interested in engaging in some deep dives into the stuff. What's one thing that you would tell them that's interesting. I mean, frankly, the data is all public. I'm mean, if you have enough compute power, you have like a graph database, anybody can honestly get started. It's public data, or at least

the parts that I mean, we we assessed. But what you said actually made me think of something else. And in those frustrations that are kind of like bureaucratic in nature, it made me think of kind of the information asymmetry out there between people who are very very familiar with bitcoin and the client and the protocol and those who are less familiar with the client the protocol but may

still even be in the crypto space. And I think that's something that we are trying to address kind of that junction and like have a better seal there between kind of taking this space seriously as an academic an incredibly rich sociological data set, and not necessarily require you to be a bitcoin software developer in order to kind of engage in conversations here, but in terms of getting involved in this case, I mean, I think there's just

a significant startup costs in terms of information. It's it's hard to simply begin. You have to know how this works, you have to know the use cases of it. I mean, and I think academics are free to reach out to us, actually if there's kind of interest in this area where we're happy to have those types of conversations. It can be tricky for academics to do this sort of work. Like a great example is you start looking at this data set. It's you know, it's it's a large data

set and you want to analyze it. So good, good thing is your academic you have these big computer clusters and resources available through the university. So Lissa starts to analyze the data, and you know, within short order she's thrown off the cluster and band because they see, you know, the word bitcoin is sort of associated with her code, and they say, oh, you must be and you're using

all this compute, you must be bitcoin mining. Alyssa was never able to prevail on them that she could possibly have any other interest in bitcoin other than to mind it. So then we were actually in worse shape now because you have this based and massive data set, and you don't have access to all the clusters usually used. So who actually got a computer dedicated to this, which we called hail Mary since we thought the odds were perhaps

against us. So there are challenges. Look, there's challenges to

approach this from from the academic sector. But I also want to highlight that for the reasons that a Lista pointed at the beginning, right, you know, you have a lot of people with a lot of really strong views, but there's a real need for folks who you know, don't have financial interest in the matter, who are working the public interests and the way that scientists do taking data and looking at the data and digesting the data and drawing lessons from that data in the public interest.

And so I actually think that this is an extraordinary opportunity for scientists. Says hail Mary is still running. Hail Mary was actually cannibalized into one of our other clusters, but in theory she's she's in note in one of our other conversational clusters. Now we're going to probably need to ye, I don't know if you have any proposals or your listeners a proposals as to what to name that machine. But we're looking okay, great, I will, we will.

This is our first question to our audience. What should these two scientists game their next computer for their next research project. Send us your answers to Crypto at Bloomberg. What is it computing computer faces that I feel like that one's played out? Yeah, that's yeah. Sorry, sorry, I'm

dating myself. Well amazing. Thank you both for you know, sharing your your time and your research interest and just giving our our listeners the opportunity to hear a little bit more of like the technical on their pinnings and as you describe the gap that exists between theory and reality that is, you know, so often overlooked or at least less well understood. Thank you so much for having a son and giving us a chance to talk about

our work a little bit. Thanks so much. You can find Alyssa on LinkedIn and on her website, and you can find Eras on Twitter. He is at Eras a terras that is e er easy, a t e R easy, don't forget. If you have suggestions for what they should name their next computer, send us a note to Crypto at Bloomberg dot net. On the next episode of Bloomberg

Crypto every day around the world. The reporters and editors who work on Crypto Bloomberg wake up often at the crack of dawn and start figuring out how we'll tackle the biggest and most important news events of the day. Crypto is a twenty four seven asset class. It doesn't stop trading and it doesn't take holidays, so it's our job to assess both the big trends and the small moments, and to figure out how those translate into stories and

of course, podcast episodes. On the next episode, you'll get to meet three of Bloomberg's Crypto editors, folks who are making decisions all day long about how we approached this asset class. You'll hear from Beth Williams and Dave Litka, who are both based in New York, and from Philip Blagerkranzo, who's based in Zurich. I'm Stacy Marie Ishmael, and this is Bloomberg Crypto, a daily podcast from Bloomberg and I

Heart Radio. For more shows from I Heart Radio, visit the i heart Radio app, Apple Podcasts, or wherever you get your podcasts. Email your questions, comments, or suggestions for the show to Crypto at Bloomberg dot net and you'll find us on Twitter at Crypto. The supervising producer of Bloomberg Crypto is Vicky very Galina. Our senior producer is Janet Babin. Our producer is Sharon Burriro, Associate producer is

Ty Butler. Desta wonder Ad is our engineer. Original music by Leo Sidrin all Ash and as app