According to a new research by Chainalysis Inc., there are just 376 wallets holding as much as one-third of all the Ether, the token that runs the Ethereum blockchain. This figure is surprising for a few reasons, namely that it calls into question the level of decentralisation of the coin, as well as what the tokens are being used for.
The cryptocurrency market is still a relatively small one, and in that there has often been cases where big wallets and Whales have had enough capital behind them to move and manipulate the market – especially for Bitcoin where Chainanalysis found that 448 people own 20 percent of all Bitcoin.
However, the fact that Ethereum is also prone to these Whales shows that the second biggest cryptocurrency by market cap and the pioneer of smart contract blockchains also might have a problem with distribution and decentralisation.
Uncovering these Ethereum Whales is interesting to note as Ether, unlike Bitcoin, has not got the same single function as a store of value and is intended to be used upon the smart contract platform. However, there are clearly still selected individuals who hold large stores of the currency.
This 30 percent of Ether being held by a small number of people detracts from the decentralised aspect of major cryptocurrencies like this, but it also leads to questions of market manipulation should these 376 wallets operate with intention in trading.
That being said, the research has shown that these wallets are mostly holding.
Kim Grauer, a senior economist at the company, said: “The majority of whales aren’t traders. They’re mostly holding.”
However, Chainalysis did look at the effect Ether whales have on its price, and found that when a whale moves Ether from a wallet to an exchange, there is a small but statistically significant effect on market volatility.
Looking for true decentralisation
There have been concerns in the past about Bitcoin and that much of its value belongs to a small fraction of the population that uses the cryptocurrency. There has been instances where Whales, or groups of high-value wallets have banded together to cause movements in the market on purpose. This has raised the eyebrows of the likes of the SEC.
For Ethereum also to be in a situation where its distribution is not as advanced as one would hope, and its decentralisation as a smart contract blockchain also in question, there are questions that need to be raised about effectiveness as a decentralised platform.