Jameson Lopp warns that the situation could cause systemic risks. It is relevant to educate yourself on the dangers of using bitcoin custody services.
In an article Jameson Lopp wrote, he explained how he arrived at this estimate. First, it considered bitcoins (BTC) from corporate treasuries, which account for about 4%, taking into account only public companies. It explains that these entities, for legal or political reasons, use centralized exchanges and keep the BTC in custody services.
Lopp then sought to identify the BTC deposited with exchanges and other escrow platforms. It took for this the values provided by the analysis companies Coinmetrics, Glassnode, and Chainalysis.
The first of these companies tracked nine large exchanges and showed that in total they hold a total of 1.2 million BTC. Glassnode, on the other hand, ensures that this figure is 2.5 million BTC.
Chainalysis, which does not share specific metrics publicly, indicates that 60% of the BTC in circulation (they do not include here those they know have been lost) is in the hands of some licensed escrow service. That equates to 8.5 million bitcoins.
Lopp explains that, after consulting the reason for the difference with those responsible for Chainalysis, they claimed that 8.5 million is an upper limit estimate that includes all types of licensed cryptocurrency custody services.
Particularly in the case of exchanges, as they responded, the number could vary between 2.2 and 5.1 million BTC. The remaining number is on other custody platforms.
Finally, Lopp also explains that he also considers “tokenized” bitcoins in Ethereum (ETH) and other networks within this group. As he explains, at the time of his analysis, they are equivalent to around 120,000 BTC.
As he points out in his article, it is not possible to know accurately the amount of BTC that other types of custody platforms that operate smaller volumes have since their addresses usually remain unidentified.
With this data in his possession, Lopp concludes that a percentage between 20% and 60% of all bitcoins in circulation is in custody services. He clarifies that the exact number “is difficult to pin down.”
There are so many bitcoins in custody services is something to worry about.
For Lopp, the situation is worrying even when the percentage of users who accumulate bitcoins in their own wallets increases. Beyond the inconveniences that not having their private keys can cause to users, Lopp points out that there may be a systemic risk in this. “When power becomes too concentrated, the likelihood of coordination to benefit those in power increases”.
It also explains that custodians could coordinate a fork (it can be hard-fork or soft-fork) and change the rules for the bitcoins they accept. Added to this, he explains the possibility of a political attack. “Over time, pressure from regulators and nation states will result in custodians censoring transactions and confiscating funds”.
By: Jenson Nuñez.
