Mathew 13:12, Bitcoin Style: The Rich Get Richer

Mathew 13:12, Bitcoin Style: The Rich Get Richer

[heading]Mathew 13:12, Bitcoin Style: The Rich Get Richer[/heading]

The rich are only getting richer in Bitcoin, as the Mathew effect is clearly demonstrated via the public ledger. But, is this a bad thing?

The public Bitcoin ledger gave Daniel Kondor and others at Eotvos Lorand University in Hungary an idea to download the complete list of transactions and reconstruct the entire financial history of each account in the Bitcoin market.

With this data, they have recreated the flow of digital cash through the network and studied the resulting patterns of wealth creation and accumulation.


 

“We believe that this is the first opportunity to investigate the movement of currency in such detail.”

The recreation of the network consisted of each node representing a Bitcoin address. The team drew links between two nodes if there was but one transaction between them.

chappelleKondor and pals recreated the network so that each node represents a BitCoin address and drew a link between two nodes if there was at least one transaction between them. They then analyzed the way the network evolved for the past nearly five years.

The evolution clearly occured in two phases, according to Kondor and others. Pre-2011, the system was used by enthusiasts and the bitcoins had no real world value.  There was little activity during this time and the network structure varied greatly.

With the significant media coverage of 2011, Bitcoin attracted more and more users, and became more attractive after exchanges became more and more useful. In this second phase, bitcoins became like real world currency.The network grew by preferential attachment in the second phase, according to Kondor. A node, for instance, with a large number of links is likely to attract more links than a node with only a few links.This is a well known effect in network science. Economists refer to it as the Matthew effect after the biblical observation that the rich get richer.

The Mathew effect happens in many networks. Popular websites are likely to grow more rapidly than less popular ones. Similar processes are thought to occur in real world economies where the rich get rich.Pablomeme

So, the Mathew effect can be clearly demonstrated in the Bitcoin network, as not only are popular nodes attracting more links, but their wealth is also growing quicker than less popular nodes.

“The ability to attract new connections and to gain wealth is fundamentally related,” they say. “The “rich get richer” phenomenon is indeed present in the system.”

Kondor and his team speculate that the Bitcoin network could be valuable for econophysicists wishing to evaluate and refine their models. There is no other system of currency in which it is possible to study what goes on in such detail.

Is this a bad thing? Presuming that Bitcoin wallets receive increasing amounts of transactions, it must mean they’re doing something right? Hardworkers, legitimate businesses and the like could be the reason for the Mathew Effect in Bitcoin.

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