Viewpoint | Will Bitcoin exacerbate the uneven distribution of wealth across the globe?

Will Bitcoin promote global equality of wealth or exacerbate inequality? This issue is also the key to the success of the blockchain network. We don't have to wait until the large-scale adoption of Bitcoin in the future, we can know the answer to this question.

The Bitcoin network is a unique protocol for distributed creation and verification of scarce digital currencies. Blockchain networks are easier to access and more transparent than current monetary and financial system web platforms.

However, the relative amount of satoshis (the smallest bitcoin transaction unit) held by users reflects the distribution of wealth in the user community, which is difficult to control through design protocols. Moreover, as users adopt privacy techniques, it is almost impossible to determine how many bitcoins a user holds. As Matt O' dell, the host of Rabbit Hole Recap, said, it's impossible to prove that you don't have Bitcoin.

Since it is difficult to obtain information about Bitcoin distribution, it is impossible to develop reliable chain indicators for measuring bitcoin wealth distribution.

The reason why Bitcoin wealth distribution is of interest is because Bitcoin has an impact on the real world, not its impact on the integrity of the network itself. If the Bitcoin network has a huge gap between the rich and the poor in today's world, then this uneven distribution of wealth will be difficult to coordinate with the personal sovereignty of the Bitcoin network and the populist political sentiment that maintains the network.

In other words, fairness determines whether Bitcoin can succeed.

If 1% of the people in the society have 20% of their wealth, then people will want to be 1% to prove their talents and see if they belong to the 1% group. If 1% of the people in the society have 80% of their wealth, then this is a trap, and people will want to quit, just as they now want to exit the financial market.

For this reason, supporters and critics of the Bitcoin network have mentioned the terrible phenomenon of wealth inequality.

Bitcoiners believes that the latest strategy of the US dollar reserve currency has made some interest groups less expensive to add new currencies, which gives those who accept the new currency the opportunity to benefit from the Cantillon Effect. Nocoiners (bitcoin critics) believe that bitcoin is concentrated in the hands of a few people, and perhaps most of the bitcoin is in the hands of one person. Often, Bitcoin critics will also quote some pointless chain metrics to support this claim, such as "95% of wealth is concentrated in 4% of addresses."

Several authors have written articles on this subject and have proposed ways to estimate the bitcoin wealth distribution from the chain data. However, these methods did not play any role.

These authors include Tamas Blummer, Balaji S. Srinivasan, and Leland Lee. They tend to agree with two conclusions:

1. Measuring indicators on the development chain is very difficult.

2. Bitcoin wealth distribution is quite unequal today, but may be more unequal in the past.

Many authors consider the Bitcoin public key address as the user's network identity. This assumption is terrible because it ignores the fact that a single user often registers multiple addresses, and there are many users who deposit funds in a single large address. Situation (such as the cold wallet of the Bitcoin exchange). Blummer and other authors used the hypothetical alternative of "one user and one address" to analyze bitcoin network data and reached the same conclusion.

The focus of this debate is not on the existence of uneven distribution of bitcoin. The debate is mainly about whether Bitcoin assets are beneficial in the long run or not conducive to global wealth equality.

It is useless to measure the current uneven distribution problem from the data on the chain. Is there any way to predict the future distribution of wealth?

There must be a method, but not from the data on the chain.

The data indicators on the chain can never solve the dispute about the uneven distribution of bitcoin. Fortunately, we can also use two other tools: historical analogy and reasoning (first principle) analysis.

. . .

Historical analogy

History shows that those in power usually choose to reserve scarce currencies when possible and force others to use controlled and manipulated currencies.

If a group with power wants to use Bitcoin, then he must guarantee the right to open other groups to access Bitcoin. Bitcoin eliminates the privilege of any powerful organization to obtain scarce funds.

A key feature of the Bitcoin network is the predictable fixed supply. Bitcoin on the web is a scarce resource. If Bitcoin is widely adopted as a currency, then its relationship with other currencies will be as much as gold and silver, and even more intimate. we know. Gold supply has continued to increase over the centuries, but bitcoin supply will not increase and there is no more scarce currency than bitcoin.

The second key attribute of the network is accessibility. It is almost impossible for a bitcoin network to block any user access or kick any user out of the network. Whether in developed or emerging economies, the cost of entering the network is low. So, before Bitcoin is widely adopted as a currency, most people in the world have the opportunity to get this single, scarce currency.

Regardless of whether the bitcoin network is currently equal or inequitable, in the long run, the two network attributes of accessibility and fixed supply are conducive to achieving equality of wealth.

Why do you say that? There are many examples in history that powerful people deliberately prevent ordinary people from acquiring money in order to create an uneven distribution of wealth to produce an economically oppressive tool. (For example, ordinary people cannot mine gold and cannot print banknotes.)

Therefore, if most people can get the scarce money, this oppressive tool will disappear.

Here are three historical examples, and if necessary, you can find out more historical events to prove it.

1. During the construction of the Panama Canal Zone, white American wages were gold, while other workers’ wages were silver. (Author Skirbunt and Robinson, "The History of the US Military Commission: The National Defense Commission and Its Predecessor", published in 1989)

2. Prior to the introduction of the Fair Labor Standards Act of 1938, US companies could use corporate tokens to pay wages for workers in remote areas. In addition to the company's own store accepting the acceptance of tokens at the original price, other companies will accept tokens at a price lower than their cash value, and only the company stores in remote areas will accept such tokens.

3. During the Great Depression, companies, municipalities, and civil society issued “marked tax stamps,” an innovative and oppressive tool that required holders of stamp duty to return a percentage of their value to the issuance of stamps. people. ("History of Stamp Voucher", Bruce Champ, "Stamp Voucher: Money Used by Rich People", published on April 1, 2008)

These historical facts are very reasonable.

When Bitcoin holders and creators provide cheap and powerful access to scarce currencies, they say they are promoting a tool for economic liberation.

First principle approach: Bitcoin drives a globally fair currency

Historical analogies are useful, but more powerful evidence is that this analogy can be extended to today's bitcoin. Why are powerful people reluctant to share scarce money with the oppressed?

The answer can be found in the theoretical proof of the first principle. This argument is based on the respective views of Ethan Hunt and HK Brar. Both authors use the incentive mechanism of Bitcoin as an argument.

The argument can be summarized as:

  • As long as the rich can benefit by hiring others, they will pay.
  • If everyone can buy and sell bitcoin, then all wages can be quickly converted into a certain amount of bitcoin, and the total amount of bitcoin is fixed.
  • As long as the wage earners live within their means, they can accumulate bitcoin.
  • Even if all of the growing non-bitcoin capital flows to already wealthy people, these capitals are also denominated in bitcoin, so the wage purchasing power of workers is also growing.
  • In the long run, household savings can start from scratch.

This view is correct no matter how much 1% of the people are richer than others.

Let us first assume that in the future, all the wealth in the world will be calculated in units of satoshis. It is further assumed that 1% of the world's households control 99% of the world's wealth and control the satoshis during a period of global use of bitcoin.

Finally, it is assumed that the basis of the operation of the world economy is similar to the "production function" of classical economics, that is, the economic output is labor and capital. When employers match labor to capital (land, machinery, etc.), production increases.

In a fictional world, 99% of capital belongs to 1% of households. As a result, 1% of people will receive 99% of the revenue from the sale of products and services sold. At the same time, in order to maximize production, they hired labor from 99% of other households and paid wages. These wages are paid in bitcoin, or because of the ease of use of the Bitcoin network, people can easily convert their wages into bitcoin.

As shown in Figure 1, the bubble circle on the left represents 1% of the rich Bitcoin, who control 99% of Bitcoin and nearly 100% of the rest of the world. The bubble circle on the right represents all other households. These families only control 1% bitcoin, but they still receive wages from that 1%. The green arrow indicates that all labor income is owned by 1% of the capital owner. This is a very unfavorable situation for 99% of people, which leads to the "steel man" argument.

In this argument, 1% control the production of most goods and services. The situation of 99% of people looks rather bleak. Their family economy is ultimately based on wage income and small expenses. This means they can save some money.

But the problem is that as long as 99% of people can do what they can (and maybe it's a frustrating proposal at first), the wages paid by 1% will turn bitcoin into 99%. Since the supply of bitcoin is fixed, if 99% increase their wealth, 1% will definitely reduce their wealth.

An experienced mathematical modeler models the system by using a production function and selecting initial conditions.

Some people may raise objections: in this long game, the rich will choose to reduce production instead of transferring their bitcoin. But this objection ignores the impact of production. Although bitcoin has changed from 1% to 99%, 1% still have real wealth (green arrows, Figure 2) because the labor they hire increases the amount of capital they have. Even if bitcoin is reduced, the bitcoin purchasing power of the rich will increase. In order to own Bitcoin, they need to give up the added real wealth!

Figure 2, as time goes by, the rich capital will accumulate and the production income will increase. But it is vital that they accumulate capital in various forms in addition to the bitcoin used to pay wages. Not only does wages effectively allocate money to 99% of people, but the purchasing power of these money is also growing, as the fixed supply of bitcoin corresponds to the growing production of non-bitcoin capital (green arrow).

As long as the marginal efficiency of hiring labor increases, 1% of people hire workers to provide more goods and services. Therefore, the standard of living of all people is improving, and 99% of the distribution of wealth is becoming more and more equal. If a small percentage of those 1% decide not to recruit, but instead switch to Bitcoin, they will lose to those who continue to recruit from a real economic point of view.

It is for this reason that companies will use tokens in remote areas. They try to increase production, thereby increasing their actual wealth while refusing to give workers reasonable wages. In a remote mining town, individual companies have the ability to coordinate workers in this way. But the world is not a remote mining town, and companies cannot collude in this way in reality. Even if it can, it doesn't matter, because in the bitcoin world, people can easily convert tokens into bitcoin. Our argument is once again established.

So we found that if:

1. Access to the Bitcoin network without permission, and wide access

2. Labor productivity is still very low

3. Some rich people holding Bitcoin hire workers to increase production

4. Workers live within their means and accumulate bitcoin

Even from the initial state of extreme inequality, the Bitcoin network will bring wealth equal in the future.

In the long run, Bitcoin is a force against the uneven distribution of wealth across the globe. Using bitcoin, workers can save wages and accumulate the scarce currency wealth, so bitcoin is a currency that achieves global wealth equality.

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