Ethereum merger is imminent. Review of crowdfunding data from 8 years ago and current supply share

Author: Kyle Waters, Nate Maddrey and Matías Andrade, Source: Coin Metrics

Editor's note: Vitalik Buterin revealed at the EthCC conference in Paris that Ethereum developers are working on five long-term phases aimed at improving the overall capacity of the network. The first item on the agenda is "The Merge", which is 90% complete and only needs to be tested on Ropsten. Once the "merge" successfully occurs, validators will be able to withdraw the ETH they locked in the ETH 2.0 deposit contract.

Ethereum crowdfunding 8 years ago

After years of testing, research, and development, there is excitement about the potential timeline for Ethereum’s planned transition to Proof of Stake (PoS) via The Merge. The Merge is arguably the largest protocol-level change in Ethereum’s history, removing mining and introducing a validator system where validators will stake their ETH to earn rewards for creating and validating new blocks.

Tracking ETH supply continues to attract attention, as ETH holdings directly determine users' ability to participate in PoS. At the same time, the shift to PoS will also introduce a new ETH issuance model and affect ETH's monetary policy. However, to better understand Ethereum's current supply, observers need to go back to a critical period from July 22, 2014 to September 2, 2014, one year before the launch of the Ethereum network: the ETH crowdsale.

This article will review the data of the ETH crowdsale through Coin Metrics’ ATLAS data. While reviewing the data behind the sale, it also examines the current genesis accounts (those who participated in the crowdsale).

Background

How should cryptocurrencies be initially distributed? This question has been a source of much debate for years. There are many initial distribution models, with different amounts of rewards for early adopters and contributors, leading to significant differences in supply distribution.

For Bitcoin, Satoshi Nakamoto solved this problem when he released the first version of the Bitcoin code in 2009:

You can run a node and generate blocks by having someone send you some coins, or by turning on Options->Generate Coins. I set the difficulty of the proof of work to be very easy, so for a while at the beginning, an average computer will be able to generate coins in just a few hours.

Anyone can download Bitcoin's open source software and contribute computing power to secure the network in exchange for newly minted BTC. According to Bitcoin's supply schedule, the first 50 BTC were generated in the genesis block, the same amount as any other block, until the first halving in 2012 when the block reward dropped to 25 BTC (interestingly, these 50 genesis coins are unusable and have been proven to be lost).

Since then, as alternative cryptocurrencies to Bitcoin have proliferated, new models have been tested. In 2013, Mastercoin (MSC), the predecessor of Bitcoin’s Omni layer, launched a fundraising campaign using Bitcoin as a crowdfunding platform. Anyone could send BTC to a designated address and receive a certain amount of MSC at a predetermined rate. The project raised more than 5,000 Bitcoins at the time, worth about $500,000. The success of this model would also pave the way for Ethereum’s high-stakes ETH crowdfunding in 2014.

ethereum.org during the ETH crowdsale in summer 2014 (source)

Like Mastercoin, the Ethereum crowdsale offered BTC in exchange for ETH. When Ethereum launched the following year, crowdsale participants were promised an allocation of ETH. By using Bitcoin as a crowdsale platform, anyone in the world could theoretically participate. Author and Defiant News founder Camila Russo summed up the profound significance of the ETH crowdsale in her book The Infinite Machine, which provides a brilliant account of Ethereum’s roots:

“Before, anyone who wanted to buy shares in a large tech company like Facebook or Google needed a US bank account; things were even more complicated for those who wanted to invest in startups that hadn’t raised money on the public markets. Now, anyone can become an investor in one of the most cutting-edge tech companies. All they need is an internet connection and at least 0.01 Bitcoin.”

The crowdsale was launched on July 22, 2014, and was scheduled to last for 42 days. By this point, Vitalik and other early contributors had presented the vision for Ethereum to the world, most notably in the 2013 Ethereum whitepaper and in a speech at Bitcoin Miami 2014 in January of that year.

The crowdsale had an interesting set of incentives for those willing to participate early. In the first two weeks of the sale, 1 BTC could buy 2,000 ETH, and the price changed linearly thereafter, eventually each BTC could buy 1,337 ETH. The following chart shows the price of ETH denominated in BTC to show the discounted price of ETH in the early stages of the crowdsale and the rising price from the 14th to the 36th day of the sale.

Source: Terms and Conditions of the Ethereum Genesis Sale

At the time, using Bitcoin as a crowdfunding mechanism was a novel experiment on many levels. But one consequence of crowdfunding on a public ledger is that we can easily access this rich dataset of contributions years later. Unsurprisingly, the data has been the subject of considerable scrutiny to date — most notably Preston Byrnes’ 2018 remarks and independent cryptocurrency researcher Hasu’s subsequent data-driven analysis.

Bitcoin "Exodus" address statistics

The chart below shows the total amount of BTC sent to a Bitcoin address (36PrZ1KHYMpqSyAQXSG8VwbUiq2EogxLo2) controlled by the Ethereum team (called the “Exodus wallet”). It is worth noting that this address was one of the most valuable multisig addresses at the time.

Also shown is the total BTC and USD equivalent raised during the crowdsale, as well as the total ETH sold. Over 31,000 BTC were raised, worth approximately $18.3 million, and a total of 60 million ETH were sold (making this the second largest crowdsale for Ethereum at the time).

Source: Coin Metrics ATLAS and Coin Metrics Reference Rate

Of the 60 million ETH sold, approximately 50 million were sold in the first two weeks when the price was heavily discounted — with significant spikes in sales early in the sale and on the last day when 2,000 ETH could be purchased per BTC.

There were 8,437 transactions between the minimum purchase amount of 0.01 BTC and the maximum purchase amount of 500 BTC (although in theory there is no way to restrict contributors from splitting larger amounts across multiple addresses). The three largest purchases were 500, 466, and 330 BTC. The average purchase amount was 3.65 BTC or about 7,000 ETH.

Ultimately, it’s difficult to tell much about the participants given the pseudo-anonymity of Bitcoin addresses, but the results nonetheless provide valuable insights into one of the most important events in cryptocurrency history to date.

Current Crowdfunding Supply Percentage

In addition to the 60 million ETH sold in the crowdsale, early ETH contributors received an additional amount equivalent to approximately 10% of the total ETH sold, and approximately another 10% was left to the Ethereum Foundation.

This means that the total supply of Ethereum at network launch was approximately 72 million ETH, distributed among 8,893 addresses. But as additional ETH is distributed through mining, crowdfunding participants and early contributors control a smaller and smaller portion of the total supply over time. Today's total ETH supply is close to 120 million, and nearly 50 million new ETH has been issued since genesis.

Source: Coin Metrics Formula Builder

Note that the chart above is only for comparison with proof-of-work (PoW) issuance over time and does not reflect how the genesis account has distributed its tokens over time. In other words, the set of accounts that control 72 million ETH has been changing and growing since genesis.

So far, over 92% of genesis accounts have moved their ETH, with only 693 accounts that have never moved their ETH to date (the largest being 0x2b6ed29a95753c3ad948348e3e7b1a251080ffb9ETH, which controls 250,000 ETH).

Looking at all the genesis accounts, the largest by the amount of ETH held today is 0x1b3cb81e51011b549d78bf720b0d924ac763a7c2, which controls 347,000 ETH (about $530 million at today’s ETH price). The address received 560,000 ETH at genesis (only about 213,000 ETH was transferred this year).

But overall, Ethereum accounts created at genesis control only 2.66 million ETH today, or about 2% of the total ETH supply, down from 7 million ETH in 2018 (of course, some holders may simply transfer their ETH to custodians/exchanges or into new accounts).

While its lasting impact on supply distribution is often debated, it is undeniable that the ETH crowdsale was an ambitious project and its success reflects the enthusiasm around a new era of programmable blockchains to support smart contracts and decentralized applications. With The Merge just around the corner, many eyes are on Ethereum as it enters a critical phase in its less than ten-year history.

Also check out other resources covering ETH supply and its presale:

• Galaxy Digital Research: Breakdown of Ethereum Supply Distribution Since Genesis

• Takens Theorem: Visualizing Ethereum’s History