10 Oct 2021 · 7 min read

How Bitcoin & Crypto Might Help Ease Wealth Inequality (Without Miracles)

Source: Adobe/Kara
  • As people adopt Bitcoin, they can no longer be trampled on by ‘monetary policy.’
  • "When the man in the middle is in charge, the vast majority of wealth creation goes to the man in the middle."
  • "The growth of crypto and decentralized finance will ease wealth transfer."
  • The crypto "space is not without wealth concentration issues, but it is an alternative to the existing system."

As bad as it already was, wealth inequality appears to be worsening. Whether we’re talking about disparities in income or wealth, the gap between the richest and poorest seems only to be widening over time, despite the ostensibly ‘well-intentioned’ efforts of governments to intervene on behalf of the disadvantaged.

Can Bitcoin (BTC) —and cryptocurrency in general — help with this? While critics would argue that the concentrated ownership of BTC makes it an unlikely savior of the poor, proponents of and participants in crypto would suggest that it has an important role to play in at least tipping the scales in a fairer direction.

Indeed, industry players speaking with Cryptonews.com argue that Bitcoin provides a number of benefits, from removing middlemen who cream off the top to preventing excessive money printing and inflation. Of course, not everyone working within crypto believes Bitcoin will go so far as ‘fixing’ inequality (among other problems), but most industry figures affirm that it has the potential to help transfer wealth to younger generations as well as stop Cantillon effects exclusively benefitting Wall Street and other financial centers.

Stopping inflation, opposing Cantillon effects, fostering greater participation

Blockstream Chief Strategy Officer Samson Mow has little to no doubt that Bitcoin can help with inequality, largely because of its fixed maximum supply of 21 million BTC.

“Inequality is a big problem -- and Bitcoin fixes this. Many countries use the US dollar as their currency, but when the [US Federal Reserve] money printer goes brrrrr, those countries and their citizens derive zero benefit,” he told Cryptonews.com.

In particular, Mow argues that money printing -- which has become increasingly common in the wake of the 2007-8 financial crisis and the current Covid-19 pandemic -- only tangentially benefits the general population, mainly through some trickle-down effects and the construction of infrastructure. 

“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 people within the industry agree that current monetary policy disproportionately benefits elites and the already-wealthy, and that Bitcoin may increasingly act as a counterweight to this. For example, Bitcoin educator and author Jimmy Song agrees that inequality of opportunity is a big problem in the world today, and that Bitcoin -- but not necessarily most altcoins -- may serve as a corrective to this.

Cantillon effects are naturally a huge factor in driving the inequality of opportunity because only the connected or too-big-to-fail get the ultra-low interest rates or bailouts/subsidies. Bitcoin removes Cantillon effects so I think it would at least correct that one injustice,” he told Cryptonews.com.

The effect essentially means that money printing benefits certain parties while disadvantaging others.

Other industry participants point to other mechanisms that indicate cryptocurrency may help reduce inequality.

“Mobile phones are widespread in markets with high numbers of unbanked or underbanked people. Now that everyone who has a smartphone can also have a digital wallet, it will be much easier to save, invest and build a portfolio, without having to navigate the complexities of the formal financial system,” said Yoni Assia, the CEO and Co-founder of eToro.

Assia also points to two other factors which may come into play in the event cryptocurrency helps reduce financial inequality, most of which revolve around reducing barriers to participation in the financial system.

“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 notes that cryptocurrency and digital assets have made finance more appealing to younger generations, something which will help them get interested in investing earlier and building up assets that will grow in value over time.

More generally, Quantum Economics head analyst Lou Kerner notes that Bitcoin and cryptocurrency offer the benefit of removing intermediaries, and of solving financial problems more for the benefit of the participating community.

“When the man in the middle is in charge, the vast majority of wealth creation goes to the man in the middle, and those close to him (also known as the Cantillon Effect). Now we can collectively create wealth, and distribute in a more ‘fair’ way,” he told Cryptonews.com.

Wealth transfers

To some extent, certain commentators claim that Bitcoin and cryptocurrency may help facilitate transfers of wealth from richer to less fortunate demographics.

“Perhaps the biggest way Bitcoin and crypto have, and are likely to continue alleviating inequality, is with their potential for outsized gains without the kind of restrictions and lack of accessibility that characterize traditional investment opportunities. Early adopters of crypto have seen manifold gains and we are actively witnessing one of the largest wealth creation and transfer events in the history of the world,” said OKEx CEO Jay Hao.

Such a wealth transfer can potentially occur in one of two ways: 

  1. because younger generations tend to be earlier adopters of crypto, they may benefit at the expense of older investors who come later to the party (and carry their bags);
  2. because crypto breaks down barriers to participation.

As Yoni Assia remarks, around 1.7 billion of the world’s population remain unbanked, while 5.5 billion are underbanked, a problem affecting people in developing and developed economies alike.

"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.

For Assia, the transformation being facilitated by crypto “has the potential to create new types of money flows and to enable solutions to inequality that have never been possible before.” He also suggests that a universal basic income may become a feasible concept in a decentralized economy, with eToro sponsoring GoodDollar.org and its year-old campaign of using blockchain tech to provide a basic income to 300,000 people in over 180 countries.

Concentrations of wealth, seeking publicity

Of course, not everyone believes Bitcoin will help ease inequality, while even some within the industry would advise colleagues not to get too excited about cryptocurrency’s potential in this respect.

“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.

Noted crypto skeptic David Gerard would go even further than this criticism, suggesting that Bitcoin promoters have latched onto the problem of inequality (as well as many other issues) and blithely declared that 'Bitcoin fixes this!' without presenting any sort of coherent plan as to how it would fix this problem in practice.

“It's fundamentally implausible that Bitcoin would be useful in alleviating inequality. Bitcoin was created as money to serve a political purpose: free money from the control of governments, on the belief that completely unrestrained capitalism was good for the world,” he said. 

Gerard argues that an absence of restraints on capitalism is conventionally held to be the main cause of rising inequality, and that Bitcoin removes even more restraints.

“Bitcoin was expressly designed and advocated to advance the sort of behavior that makes inequality worse. I think bitcoiners saying this are mostly thinking about their holdings,” he added.

Another problem is the concentration of ownership, but while figures within the industry agree that this is an issue, they say it will be alleviated and reduced over time. For Yoni Assia, it indicates an asset class in the early stages of its life rather than a systemic problem.

“I think it is more relevant to look at the trend. More than 100 million people around the globe currently hold crypto, and adoption is growing fastest in emerging markets underserved by existing financial services, including much of Africa,” he said.

More broadly, Jay Hao reiterates the possibility that crypto will break down barriers to entry, something which alone should help with inequality, even if only to a relatively modest degree.

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.”

____
Learn more: 
- How Traditional Finance World Could Cause Traditional Global Financial Crisis     
- Will Bitcoin End The State?

- Why Fiat Currency Is More Confusing Than Crypto
- Bitcoin Is More ‘Public’ Money than Central Bank-Issued Fiat Currencies

- Bitcoin Mass Adoption Would Benefit and Harm Current Economy
- Bitcoiners Ask: ‘WTF Happened In 1971?’ The Answer Might Shape The 2020s

- Dysfunctional Financial Markets Are Making Inequality Worse
- How the Rich Get Richer