Is decentralization sustainable in the bitcoin system?

The Bitcoin system is a decentralized monetary system in that any participant can potentially verify and record transactions onto a public ledger. Using a simple model, we show that the number of miners could be negatively (positively) related to the expected rewards if miners with low-operating costs also have less (more) severe financing constraints. We characterize the possibility of miners with low-operating (high-operating) costs facing less (more) severe financing constraints as large-size (small-size) miners. The empirical evidence supports the model's large- and small-size miner characterization prediction. The negative association between the number of miners and expected rewards is attributable to Bitcoin's exchange rate. Collectively, our evidence suggests that even though the Bitcoin system is designed as an egalitarian system, it is likely to evolve into a near-centralized system because of economic forces.