- As more people accept Bitcoin, they become immune to’monetary policy.
- When the man in the center is in command, the man in the middle reaps the lion’s share of wealth generation.
- Wealth transfer will be facilitated by the emergence of cryptocurrency and decentralized finance.
- Although the crypto sector is not without wealth concentration issues, it is a viable alternative to the current system.
As awful as wealth disparity was already, it appears to be getting worse. Whether we’re talking about income or wealth inequality, the divide between the affluent and poor appears to be expanding over time, despite governments’ ostensibly’well-intentioned’ efforts to intervene on behalf of the disadvantaged.
Can Bitcoin (BTC) — and, more broadly, cryptocurrencies — assist with this? While detractors claim that BTC’s concentrated ownership makes it an unlikely savior of the poor, proponents and participants in crypto argue that it can play a significant role in shifting the scales in a more equitable direction.
Indeed, industry participants interviewed by CoinNewsDaily claim that Bitcoin has a lot of advantages, ranging from eliminating intermediaries who take a cut to preventing excessive money printing and inflation. While not everyone involved in crypto believes Bitcoin will go so far as to ‘fix’ inequality (among other issues), the majority of industry figures believe it has the potential to assist in wealth transfer to younger generations and halt Cantillon effects that benefit Wall Street and other financial centers exclusively.
Stopping inflation, opposing Cantillon effects, fostering greater participation
Blockstream Chief Strategy Officer Samson Mow is a firm believer in Bitcoin’s ability to alleviate inequality, owing in large part to its regulated maximum supply of 21 million BTC.
“Inequality is a significant issue — and Bitcoin addresses it. Numerous countries use the US dollar as their currency, but when the [US Federal Reserve] money printer goes brrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrrr
Mow contends, in particular, that money printing – which has been more prevalent in the aftermath of the 2007-8 financial crisis and the current Covid-19 pandemic – benefits the general people only tangibly, mostly through trickle-down effects and infrastructure investment.
“However, as people around the world opt out of the fiat monetary system and adopt Bitcoin, they can no longer be trampled on by ‘monetary policy’,” he said.
Other industry insiders concur that present monetary policy disproportionately rewards elites and the already wealthy, and that Bitcoin may increasingly serve as a check on this. For example, Bitcoin educator and author Jimmy Song feels that opportunity inequality is a major issue in the modern world and that Bitcoin – but not necessarily the majority of altcoins – may serve as a remedy.
“Cantillon effects are unavoidably a significant role in driving opportunity inequality, as only the connected or too large to fail firms benefit from ultra-low borrowing rates or bailouts/subsidies. Bitcoin eliminates Cantillon effects, and hence I believe it would address at least that one injustice,” he told.
This effect effectively means that creating money benefits some parties while harming others.
Other industry members point to further processes that suggest cryptocurrency could contribute to inequality reduction.
“Mobile phones are widely available in markets with a large proportion of unbanked or underbanked residents. Now that anybody with a smartphone can also have a digital wallet, saving, investing, and building a portfolio will be far easier without having to navigate the complexity of the traditional financial system,” said Yoni Assia, CEO and Co-founder of eToro.
Assia also mentions two other reasons that may come into play if cryptocurrency helps reduce financial inequality, the most of which relate with lowering obstacles to financial system involvement.
“Blockchain has given rise to a parallel financial system that is borderless, free from central control, and global. Decentralized finance is available to everyone, even those who have never had access to financial markets before,” he told Cryptonews.com.
He also says that bitcoin and digital assets have increased the appeal of finance to younger generations, which will encourage people to begin investing early and accumulate assets that will appreciate in value over time.
More broadly, Quantum Economics‘ chief economist Lou Kerner observes that Bitcoin and cryptocurrency have the advantage of eliminating intermediaries and resolving financial problems more efficiently for the benefit of the participating community.
“When the man in the middle is in command, the vast bulk of wealth creation benefits him and those around him” (also known as the Cantillon Effect). Now we can build wealth together and distribute it more ‘fairly,'” he explained.
To a degree, some observers assert that Bitcoin and cryptocurrency may aid in the facilitation of wealth transfers from wealthy to less fortunate communities.
“Perhaps the most significant way Bitcoin and cryptocurrency have alleviated inequality, and are likely to continue to do so, is through their potential for outsized rewards without the constraints and lack of accessibility associated with traditional investment alternatives. Early cryptocurrency adopters have reaped enormous rewards, and we are currently witnessing one of the largest wealth creation and transfer events in human history,” stated OKEx CEO Jay Hao.
This type of wealth transfer could occur in one of two ways:
- Due to the fact that younger generations are more likely to be early adopters of cryptocurrency, they may benefit at the expense of older investors who arrive late (and carry their bags);
- because crypto breaks down barriers to participation.
As Yoni Assia points out, over 1.7 billion people worldwide remain unbanked, while 5.5 billion are underbanked, a problem that affects both emerging and industrialized countries.
“The growth of crypto and decentralized finance will ease wealth transfer from wealthy nations to developing economies, as well as across generations. Borders no longer matter. Every person, anywhere, regardless of age, status, or nation state, can hold digital assets. This isn’t the case currently with fiat currencies and traditional assets,” he said.
According to Assia, the shift provided by crypto “has the potential to create new sorts of money flows and to enable previously unimaginable solutions to inequality.” He also suggests that a universal basic income may become a viable notion in a decentralized economy, citing eToro’s sponsorship of GoodDollar.org and its year-old initiative to offer a basic income to 300,000 individuals in over 180 countries through the use of blockchain technology.
Concentrations of wealth, seeking publicity
Naturally, not everyone believes Bitcoin will help alleviate inequality, and some within the sector would caution colleagues against becoming overly optimistic about cryptocurrency’s potential in this regard.
“While Bitcoin and crypto certainly have the potential to challenge the status quo and shake things up, it is perhaps too idealistic an approach to think they can ‘fix’ global wealth inequality,” said Jay Hao.
David Gerard, a well-known cryptocurrency skeptic, would go even farther, claiming that Bitcoin supporters have seized onto the issue of inequality (among others) and announced carelessly, ‘Bitcoin fixes this!’ without offering any clear plan for how it will do so in fact.
“It is inconceivable that Bitcoin would be beneficial in reducing inequality. Bitcoin was founded as a currency to serve a political purpose: to liberate money from government control, on the idea that completely unfettered capitalism was beneficial to the globe,” he explained.
Gerard contends that the absence of restrictions on capitalism is the primary reason of rising inequality, and that Bitcoin further removes restraints.
“Bitcoin was purposefully developed and promoted to promote the type of conduct that exacerbates inequality. I believe bitcoiners who say this are primarily concerned with their holdings,” he continued.
Another concern is ownership concentration, but while industry insiders agree that this is a problem, they believe it will be mitigated and lessened over time.
According to Yoni Assia, this implies an asset class in its infancy rather than a systemic problem.
“I believe it is more pertinent to examine the pattern. Over 100 million people worldwide now own cryptocurrency, and adoption is accelerating in emerging markets that are neglected by established financial services, including much of Africa,” he answered.
More broadly, Jay Hao reaffirms the prospect that crypto would lower entry barriers, which by itself should help alleviate inequality, albeit in a somewhat minor way. He concluded,
“This space is not without wealth concentration issues, but it is an alternative to the existing system, has fewer barriers to entry and levels the playing field for a larger number of participants. Ultimately, it breaks the monopolistic hold of the traditional financial system and that in itself is a major feat.”