Cryptocurrency and wealth distribution

November 23, 2018
Darya Karatkevich

Wealth distribution among the world population has long been skewed with just a small group of people controlling the majority of the wealth. One of the promises in the creation of a new type of currency like crypto is that by creating a new model and bypassing central authority, you can make an asset available equally to all.

So has cryptocurrency put a dent in unbalanced wealth distribution? If you study cryptocurrency statistics, the answer is mixed. The very first one to go live, bitcoin, still suffers from severe inequality. In fact, 96% of bitcoin value is controlled by just 4% of physical address holders. The remaining 4% of bitcoins are left to 96% of address holders.

Bitcoin – the beginning

bitcoin beginning

At the beginning, a small group believed in the technology behind bitcoin and mined the coins. This was a bit of a counter-culture, a way to circumvent established economic institutions. With low circulation, and the number of users low as well, you could quickly build up a decent stash.

As investors started to see potential in bitcoin, the price started to really soar, which meant you had to have real money to get involved. Then, as more users joined the network, more computing power was required to mine the coins, also taking more money.

Because of these factors, bitcoin has not been a model of fair wealth distribution. It wasn’t really designed as an investment, and many feel that investors are ruining the original intention. The goal was to create a fair and equitable method of exchange, while preserving transparency. Investors who merely see it as a commodity to trade are defeating that purpose.

Other options?

cryptocurrencies

But are there other cryptocurrencies or blockchain assets that can address equality of distribution? With well over 1,700 cryptocurrencies in circulation, surely there are some that do so better than others. The idea of a more token-based blockchain asset rather than a coin holds promise.

Tokens are cryptocurrency assets that are built on an existing blockchain. Many times tokens are granted in airdrops or through airdrops, rewards, or bounties. They can be exchanged for participation in a particular system, through user time, computing power, or content creation. The equity based in a token system is improved over a debt-based currency system.

In traditional debt-based currency systems, the growth that’s generated over time is constantly mitigated by inflation, meaning that tomorrow’s dollar is worth less than today’s. This means that by nature, wealth will accumulate at the top.

By making currency more of a utility – focusing on how it does the job, not simply its value – we create a more equitable currency. The idea that users can be rewarded for simply making transactions is the ultimate promise of blockchain-based systems. Think of it like a barter system almost. Tokens which might have a specific use for products and services can be traded for tokens designed for other products and services.

The role of regulation

crypto world

One of the keys to this going forward will be regulation. I know it sounds counter to the anti-establishment sentiment that birthed bitcoin, but without it you can see how bitcoin fared from the equity standpoint.

Instead of relying on institutions and politicians to set policy, which traditionally they have endeavored to favor their own interests, the creators of new blockchain-based currency technology need to focus on building equity into the actual systems they design.

Things like smart contracts can set rules of equity right into the DNA of future currency architectures, and exchanges can have rules built-in as well. Ultimately, if you’re in search of the most equitable cryptocurrency out there, you should be looking for the one that doesn’t overly incentivize early buying, and keeps flowing instead of people just accumulating and holding it.

It’s also important to remember that certain cryptocurrency wallets end up holding the asset, merely issuing the end user an IOU at the given value. A BitShares wallet based on a consensus model of transaction leans more toward the goal of ending wealth inequality.

What is it all for?

Ultimately, the zeitgeist of decentralized digital currency is that we can collectively manage and monitor our transactions better than a chosen few people and institutions. If you believe in that, then choose the ICOs, coins, and tokens that best solve the problem of how to improve our management of transactions.

Many who get involved in the cryptocurrency ecosystem are looking to ‘get rich quick’ off the next meteoric rise. However, the long haul will favor the companies that focus on the utility and keep the initial intentions of a blockchain-based transaction in mind.

While it hasn’t really had an impact on wealth distribution yet, cryptocurrency has the potential to move the needle more than anything else in the financial industry in history. By taking the power over currency out of the hands of a few, blockchain may eventually distribute wealth among the many. It will be up to us to steer the market that way.

Post written by Darya Karatkevich
Darya is a blockchain market observer with 5+ years of experience as an author and editor for major tech blogging platforms. Her fortes are blockchain technologies and solutions, cryptocurrencies and crypto-related regulations.

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