An interesting observation from a recent study showed that 80% of all NFTs belong to just 17% of addresses. It’s possible for players to control the market, but this might also be an indicator that investors should care about privacy and anonymity in cryptocurrency wallets.
NFTs are a type of cryptocurrency that is created using the Ethereum blockchain. The NFT tokens were originally designed to be used as a digital asset on the Ethereum blockchain, but they have been gaining popularity for their potential use cases outside of just being an asset. There are currently 80% of all NFT tokens in the hands of 17% of addresses. Read more in detail here: what are nft tokens.
Moonstream, a cryptocurrency analytics startup, revealed statistics on the true condition of the NFT market in October, indicating that 16.71 percent of all NFT holders on Ethereum controlled 80.98 percent of all NFTs from April until practically the end of September. More than 700,000 addresses and 7 million tokens were evaluated by the business. As a result, the sample size for this research cannot be regarded inadequate to comprehend the NFT market scenario.
The report, which was issued on October 21, caused a major uproar among token holders. Many people believe that concentrating assets in the hands of a small number of people is the same as monopolizing the market and creating new “rules of the game.”
Holders should assess if this circumstance is really unusual before succumbing to the fear and paper-handing precious NFTs. So it’s interesting comparing these results to figures from outside the NFT world to see how the Pareto Principle applies here.
The Pareto Principle is a set of rules that governs how much of
For millennia, the best brains have been doing mathematical computations at the crossroads of economics and society. The Pareto Principle is the foundational principle that underpins Zipf’s Law, Juran’s Rule, and other ideas regarding uneven distribution of commodities.
In nineteenth-century England, Vilfredo Pareto studied the distribution of wealth and income. The researcher discovered that the majority of the income and wealth in the analyzed groups belonged to a small number of individuals. This was not very remarkable at the time. Pareto, on the other hand, established two surprising facts. The first indicated that the number of a group of individuals and the percentage of money or income controlled by that group had a continuous mathematical connection.
In other words, if 20% of the population owns 80% of the money, it is reasonable to assume that 10% of the population owns around 65% of the wealth, and 5% of the population owns 50%. The key issue for Pareto was that the distribution of wealth among the people was predictably imbalanced, not the percentage statistics.
The second truth is that this pattern of imbalance is consistent throughout time and between nations. This rule applies to data for England at any time in its history, as well as data for other nations at various times.
In the world of business, there are several instances of the 80/20 principle. In most cases, 20% of a product line yields 80% of overall revenue. The same may be said about consumers, since 20% of customers often account for 80% of a company’s income.
These instances are still relevant in today’s culture. In the same way that 20% of criminals are accountable for 80% of crimes, 20% of drivers are responsible for 80% of traffic accidents. People only wear 20% of their available clothing 80% of the time. When an anti-theft system is activated, 20% of the conceivable reasons are responsible for 80% of all false alarms.
The same concept applies to other markets.
It would be absurd to believe that since ERC 721 tokens are becoming a part of the global economy, they should not be impacted by the same ideas. Falling under this criteria for NFT, on the other hand, might mean that tokens and crypto-assets make their way into everyone’s life.
The current rise in bitcoin prices was sparked by institutional investors’ heightened interest. It demonstrated that the market was ready to accept tokens as a form of payment. The fact that non-fungible tokens are subject to the Pareto Principle reveals that they are seen as a way for both individual owners and big investors to save and increase their money.
The 80/20 principle goes against what most people believe is rational. It is common to assume that all components have about the same value. We value all of our clients equally. Every transaction, every product, and every dollar generated is equally valuable. Each employee in a single category contributes about the same amount of value. All documents and phone calls should be given the same amount of attention. It makes no difference which opportunity we select since they are all equally important.
People instinctively think that 50% of the causes or resources spent will yield 50% of the outcomes. It can seem that cause and effect are about balanced. This is, of course, not always the case. The “50/50 mistake,” on the other hand, is one of the most incorrect, destructive, and profoundly established mental errors.
When the real ratio is revealed, the observer is astonished by the magnitude of the imbalance, according to the 80/20 principle. Whatever the true amount of imbalance is, it will very certainly surpass expectations.
When Moonstream released the numbers, this is what occurred. Many NFT traders were certain that significant players will be present in this market. However, the concentration of assets in the hands of a small number of people astounded and alarmed everyone.
Will the share distribution alter in the future?
There are several small reasons why this study should not be taken seriously. For example, the agency exclusively looked at Ethereum-based coins. Trading platforms, markets, and clearinghouses might be among the holders. Keep in mind that the investigation was limited to ERC 721 tokens and did not include information from Layer 2 networks like Polygon.
In many areas of finance, the 80/20 rule applies. As a result, NFT investors should not see this as extraordinary or worrisome. For ages, many systems with the same amount of wealth concentration have performed well and served the interests of all members. As DeFi technology is adopted, this pace may alter significantly. With that stated, huge fresh investment funds may be anticipated to flow in when new users with little amounts of money in their crypto wallets join.
KuCoin’s Johnny Lyu contributes a guest article.
Johnny Lyu is the CEO of KuCoin, which was founded in 2017 and is one of the major cryptocurrency exchanges. He has extensive expertise in the e-commerce, car, and luxury sectors before to joining KuCoin.
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