'Sin' Activities No Longer Drive Bitcoin Economy, Researchers Find

A soon-to-be-released study has found evidence that bitcoin’s market is now a venue for "legitimate" commerce.

AccessTimeIconJul 11, 2016 at 9:09 p.m. UTC
Updated Aug 18, 2021 at 5:02 p.m. UTC

Presented By Icon

Election 2024 coverage presented by

Stand with crypto

A soon-to-be-released study centers on evidence that bitcoin’s market has matured to a point where commerce is no longer driven by illicit activities.

Drafted by researchers from the central bank of Germany, University College London and the University of Wisconsin-Madison, the paper argues that bitcoin has passed through three distinct phases of growth as a distributed payment system, the most recent and current of which they assert is driven by "legitimate payments, commerce and services".

  • Bitcoin Mining in the U.S. Will Become 'a Lot More Decentralized': Core Scientific CEO
    13:18
    Bitcoin Mining in the U.S. Will Become 'a Lot More Decentralized': Core Scientific CEO
  • Binance to Discontinue Its Nigerian Naira Services After Government Scrutiny
    05:10
    Binance to Discontinue Its Nigerian Naira Services After Government Scrutiny
  • The first video of the year 2024
    04:07
    The first video of the year 2024
  • The last regression video of the year 3.67.0
    40:07
    The last regression video of the year 3.67.0
  • As such, the study sheds light on a key question that the bitcoin network continues to face: whether it should face more scrutiny than other, more established payment networks.

    The paper reads:

    "Our results suggest that some recent concerns regarding the use of bitcoin for illegal transactions at the present time might be overstated, and that whatever such transactions may exist could further diminish as the bitcoin economy continues to mature."

    For the study, researchers Paolo Tasca, Shaowen Liu and Adam Hayes sought to de-anonymize a database composed of "millions" of pseudonymous bitcoin addresses, which they worked to distill into "super clusters" they assert are owned by one entity or managed collectively.

    From there, the researchers sought to sort these clusters of addresses into four categories – bitcoin exchanges, gambling services, mining pools and black markets. The report then traces the transaction history between these entities over time, finding that the first two phases of the network were dominated by mining activities and "sin enterprises" respectively.

    The third and current phase, the report said, is now dominated by legitimate merchants and exchanges.

    "We can thus refer to the first regime as the 'proof of concept' or 'mining-dominated' phase, the second as the 'sin' or 'gambling/black market-dominated' phase, and the third as the 'maturation' or 'exchange-dominated' phase," the paper reads.

    Notably, the report asserts this has happened even as the number of illicit black market websites has increased in the wake of the shutdown of the original Silk Road, one of the earliest significant drivers of bitcoin commerce.

    User behavior

    The report also revealed new information about the activities of the entities it was able to identify and classify on the bitcoin network.

    For instance, the report found the average gambler bets 0.5 BTC on average, and that these individuals often make multiple bets in the same day. Likewise, the average observable transaction between user-dealers and black market services was 3 BTC.

    By comparison, the average transaction between a trader and an exchange, the report said, is for 20 BTC, with traders buying or selling via these services roughly every 11 days.

    The researchers told CoinDesk they plan to submit the paper for feedback before publishing it in an academic journal.

    Marijuana image via Shutterstock

    Disclosure

    Please note that our privacy policy, terms of use, cookies, and do not sell my personal information have been updated.

    CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. CoinDesk has adopted a set of principles aimed at ensuring the integrity, editorial independence and freedom from bias of its publications. CoinDesk is part of the Bullish group, which owns and invests in digital asset businesses and digital assets. CoinDesk employees, including journalists, may receive Bullish group equity-based compensation. Bullish was incubated by technology investor Block.one.


    Learn more about Consensus 2024, CoinDesk's longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.