Blockchain analytics firm Chainalysis in a recent study revealed that of the 460 million Bitcoin addresses on the Blockchain, only 172 million are “economically relevant.”
“Out of the 172 million economically relevant addresses, Chainalysis has identified 147 million, or 86%, as belonging to named services, such as an exchange or a darknet market,” stated the analytics firm.
— Chainalysis (@chainalysis) December 19, 2018
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The New York-headquartered firm analyzed all Bitcoin addresses created so far and found that only 25 million address actually hold any amount of Bitcoin.
“At Chainalysis, we have identified that 86% of these [addresses] belong to a named service. The remaining addresses are largely used to facilitate payments, meaning that just 20% of transaction value on the Bitcoin network is an economic transfer, moving bitcoin between two different parties,” Chainalysis noted.
Cryptography in Action
Bitcoin’s core cryptography makes the transactions more complicated as compared to digital fiat transactions. If a seller with 10 Bitcoins in their wallet wants to sell one, the person has to empty his or her address of all ten bitcoins but will receive nine back in change. Though the effective value of the transaction is worth only one Bitcoin, the blockchain will register a transaction value of 10 Bitcoins.
This creates a lot of ‘connective tissue’ addresses which hold Bitcoin for a short period of time, usually less than a day.
“They are typically single use and hold bitcoin for only a short time. For instance, three-quarters have held bitcoin for less than a day. The majority of these addresses are either change addresses or ‘connective tissue,’ meaning they hold bitcoin for a short time to facilitate payments between people and services,” stated Chainalysis.
Last year, when Bitcoin reached its peak, Chainalysis reported that around 4 million Bitcoins, then valued at $37 billion, were lost forever. Another study, earlier this year, revealed that only 1 percent of Bitcoin holders, otherwise known as ‘sharks,’ is holding more than 34 percent of the value of the network.