Bitcoin’s inequality problem shames the dollar
Cryptocurrency enthusiasts have long espoused the decentralize and democratizing the effects that technology is supposed to encourage, but new research detailed in the Wall Street Journal suggests that its inequality problems are worse than the disgraceful performance of the United States under the dsoap. An incredible feat given income inequality in 2020, America was highest of all G7 countries according to Organization for Economic Co-operation and Development data seen by Pew Research.
This illustration, of a fainting little bitcoin financial elite, was revealed in a new study from the National Bureau of Economic Research by professors at MIT Sloan School of Management and the London School of Economics. He found that of the 19 million bitcoins currently in circulation, barely 0.01% of buyers control around 27% of the total supply. That 27% figure comes to around 5 million bitcoins, which in turn amounts to around 232 billion US dollars. In comparison, the richest 1% of people in the United States control “only” about a third of all the wealth in the country, the Journal notes.
The professors conducted their research, for the first time, by mapping and analyzing every bitcoin transaction in its 13 years of existence. Since the identities of users on the blockchain are not directly linked to their transactions on the blockchain, professors have not been able to get too much information on who benefits the most from bitcoin. Instead, the research paints a picture of how the bitcoin economy works as a whole. This tiny concentration of so much wealth means that the bitcoin rich will likely only get richer if the cryptocurrency continues to rise in value. It also means that the power is less dispersed, which could make bitcoin more susceptible to ‘systemic risk’.
These findings do not bode well for the long line of cryptography passionate who has preached the perceived ability of technology to reduce inequalities. The argument here goes something along the lines of Cryptocurrency will democratize finance by redistributing power to world governments and the wealthiest power brokers on Wall Street.
This argument was never necessarily infallible, but it arguably carried more weight in Bitcoin’s early years when entry costs were low, and just about anyone could reasonably afford to mine their own bitcoins with a basic and accessible rigging. The global landscape has changed dramatically, however, especially over the past two or three years, as the price of bitcoin jumped. Through this process, bitcoin has not reduced inequality at all. If anything, reproduce it.
At the same time, experts and academics have sounded their own alarm bells regarding bitcoin’s potential for inequality. trends. In one interview with CNBC Cornell University, professor of economics and author of The future of money Eswar Prasad agreed that cryptocurrencies could make digital payments more accessible, but said this does not guarantee any reduction in inequalities.
“Due to existing inequalities in digital access and financial literacy, they [cryptocurrencies] could end up worsening inequalities, ”Prasad described bitcoin as a bubble. “In particular, any financial risk resulting from an investment in cryptocurrencies and related products could end up falling particularly heavily on naive retail investors.” Prasad also warned that bitcoin and other cryptocurrencies could contribute to monetary and financial instability, a problem potentially exacerbated if they exist in a largely unregulated system without enhanced investor protection.
Despite all this, mentions of “decentralization”, “democracy” and “independence” from crypto abound as a new wave of. Web3 investors and enthusiasts spend millions locking of NFTs and forming DAO to make collective purchases.