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Litecoin has recently come under scrutiny for having 35.4 million Litecoins, or about 60% of the total coin supply, moved by one entity.
The move was initially pointed out by Weiss Ratings, which does not bode well for the cryptocurrency to stay decentralized when so much of the coin could potentially be owned by one individual or group. A blog post from Litecoin.com also highlights just how big of a move it was.
New Litecoin whale emerges? Nov. 30, about 35.4 million LTC, 60% of coin supply, totaling $1.1. billion, reportedly moved by one entity. This shows how centralized some darlings of crypto like LTC are, not good. #LTC, #centralization— Weiss Ratings (@WeissRatings) December 4, 2018
“A significant portion of the volume appears to have come from a single entity as over 40 new wallets have just entered the top 100 rich list on the network all with a balance of 300,000 Litecoin (~$10,000,000) each, which accounts for over 12M Litecoin (~$372M at time of transfer, $31 per coin).”
Further drawing suspicion was when “the top 50 $LTC wallets have received 45,000.00000 more #Litecoin than they have sent”. Similar moments happened throughout the day and even created numerous wallets with the exact same, very large balances. This has created additional worries for sustainability since such a large chunk of Litecoin is owned by a few people.
Importance of wealth distribution and decentralization
Within the cryptocurrency sector, wallet wealth distribution is used as a good proxy for how well a coin is distributed even though it is not a perfect measure since a single individual could own multiple wallet addresses. Nevertheless, data visualizations from a few months ago, before the recent moves, reveals how almost half of all Litecoin’s coin supply was held by the top 100 address.
This compares to around only 14% of Dash’s wealth being stored in the top 100 addresses around the same time.
Referencing more current numbers, it is seen that there is not a huge change since most of Dash’s coin supply is still distributed among more addresses, around 14% for top 100 addresses, and has one of the better wealth distributions of the top cryptocurrencies. While Litecoin still has around 44% of coin supply in the top 100 addresses.
The wealth distribution plays a significant role in decentralization since more coins in more hands means there not only is less concentrated power to move the coin’s price or influence decision making, but also that there is a better chance for wider adoption. With more coins in more wallets, then there is a higher likelihood that the coins will be spent differently on goods and services and begin creating an economy with a money velocity of circulating coins.
Dash’s favorable wealth distribution and focus on adoption reinforces each other
Since Dash has a more equitable wealth distribution, it has been able to leverage this into greater adoption across more individuals. This can be seen in Venezuela with over 2,400 merchants taking Dash or Colombia with over 300 merchants accepting Dash, which is fostered by getting a steady stream of customers using Dash to make purchases. If the majority of Dash was concentrated among a few individuals, then it would be much harder to see everyday usage.
Additionally, since Dash pays out 10% of its block rewards through the treasury each month, this helps catalyze the Dash economy by paying individuals for services with Dash and getting Dash into the hands of new individuals. Dash’s focus on integrating new merchants and constantly on-boarding new users also cultivates better wealth distribution. The unique structure of incentives within Dash and focus on adoption helps maintain Dash as a more equally distributed coin, which becomes a virtuously reinforcing circle.