kobit Releases 'Decentralization Trends in Bitcoin, Ethereum, and the FIT21 Crypto Bill' Analysis

[Korea Financial Times, Jeon HanSin] The kobit Research Center, a division of South Korean cryptocurrency exchange Kobit , announced on the 11th that it has published a report on the decentralization trend of Bitcoin and Ethereum over the past year and the decentralization test of the FIT21 bill in the United States.

Using the Nakamoto and Gini coefficients, which are the benchmarks for determining the degree of decentralization of a blockchain, the Corbit Research Center monitors the evolution of each index in terms of the five subsystems that make up the Bitcoin and Ethereum networks: Mining-Staking, Client, Developer, Node, and Ownership. When decentralization improves, the Nakamoto coefficient rises and the Gini coefficient falls.

An analysis of Bitcoin and Ethereum's decentralization over the past year, from the last week of June last year to the last week of June this year, shows that while decentralization has improved in the developer category, it has regressed in the asset ownership category.

In the case of Bitcoin, kobit Research attributed the improvement in developer decentralization to an influx of new developers starting in October of last year as expectations for the approval of a Bitcoin spot exchange-traded fund (ETF) grew.

In contrast, the lack of decentralization in asset holdings was attributed to the official launch of the Bitcoin spot ETF, which saw asset managers move their Bitcoin purchases to Coinbase custody, as well as an increase in the balances of the top Bitcoin holding wallet addresses.

Ethereum has also seen an increase in decentralization due to the influx of new developers since it switched to Proof-of-Stake (PoS). However, in terms of asset holdings, Ethereum's decentralization has been countered by the concentration of ETH around the Beacon Deposit Contract, which was the largest holder of ETH during the analysis period. This is due to an increase in staking following the Chappella upgrade in April of last year, which led to an increase in Ethereum holdings on Beacon Deposit Contracts, according to kobit Research.

In the report, kobit Research also covered the details of the decentralization test in the Financial Innovation and Technology for the 21st Century Act (FIT21), which passed the U.S. House of Representatives in May, and its impact on the securitization of crypto assets.

FIT21 requires that the blockchain system associated with a virtual asset be a decentralized network that meets five conditions to determine its securitization: no one has control over the blockchain's functioning in the past 12 months; no issuer or related party owns more than 20% of the assets or controls more than 20% of the governance system; no one has contributed intellectual property that could materially alter the functioning of the blockchain system in the past three months; no one is marketing the virtual asset to the public as an investment product; and all issuance is distributed to end users through programmatic functions.

In addition, FIT21 also mentions how to categorize cryptoassets according to the method of asset acquisition or the relationship between the holder and the issuer. If the virtual assets held by related parties of a token are judged to be digital goods according to the five criteria, the assets held by them are also considered digital goods. All assets held by the issuer are subject to SEC jurisdiction, regardless of whether they are certified decentralized or not.

The significance of the FIT21 bill's securities determination is that it legally recognizes the decentralization of blockchain. The SEC's previous rationale for viewing most cryptocurrencies as securities because they are transferred under an investment contract may no longer hold true. However, the five criteria in FIT21 do not provide a clear standard for all cryptocurrencies and are likely to be significantly modified during the Senate process.

"The approval of the Bitcoin spot ETF during this analysis period was significant in that it confirmed the impact of network decentralization on the institutionalization of a major cryptocurrency," said Yoonyoung Choi, Head of Research at kobit. "The process of passing the FIT21 bill may provide important implications for the securitization of cryptocurrencies in Korea."

Jeon HanSin (pocha@fntimes.com)