Injustice with Bitcoin? Unjustly argued!

What is exciting about Bitcoin is that the cryptoasset is capable of making friends on all sides of the political spectrum. The reason being that a world after hyperbitcionization is supposed to be a juster one. Hierarchies, large corporations or authoritarian regimes should then be a thing of the past or at least have been strongly pushed back. It is the idea of a better future that fascinates leftists, rightists and freedom-lovers alike. 

As promising as the perspective is, the present reality is rather bleak. For the Bitcoin world, of all places, shows an enormous inequality of resources, income, influence and attention. The so-called old world, which Bitcoin wants to leave behind for the benefit of all, seems almost like paradise in comparison.

Bitcoin: A gini coefficient top performer

For many, these circumstances are disappointing. One much-heard criticism is that of the unequal distribution within Bitcoin. The cryptoasset is still very much dominated by so-called “whales”. According to projections, the top 10 percent of Bitcoin holders should own almost 93 percent of all Bitcoin units. In comparison: In the case of the US dollar, the top 10 percent still own 73 percent of all wealth, which is well below Bitcoin’s mark. The bottom line is that wealth distribution in the Bitcoin world is more concentrated than in the most unequal nations of the world.

But there is more. Over the past few years, some critics believe that further abysses have opened up. For example, mining today is very capital-intensive; ordinary citizens can no longer afford it. It is large companies that dominate the mining industry of today. Similarly, the transaction costs of Bitcoin during the 2017 hype have risen to sometimes over 50 US dollars per transaction. How in the world are ordinary people supposed to pay for this, the critics object.

Because of these various inequalities, some early Bitcoin enthusiasts jumped on alternative cryptocurrencies. Besides altcoins, bitcoin forks also experienced their heyday. Their clear goal: These inherent misconstructions, the inequality as well as the unequal distribution shall be corrected.

So far, none of the alternative projects has really succeeded. In many metrics, altcoins are currently doing worse, especially in terms of wealth distribution. Where they are better, we also need to take a closer look. For example, transaction costs are often lower because significant tradeoffs in other areas had to be made. For example, the possibility of being able to operate a full node for validation of the network. Quite a few Altcoins show considerable concentration and centralization when it comes to running a full node.

Unnatural state

The uneven distribution of Bitcoin is therefore not to be denied. Of course, it can be added that it has improved over the past years. It should also be mentioned that statistics measuring the unequal distribution of bitcoin assets can have high error rates since an address with a large number of bitcoin units can belong to several people.

Ultimately, however, there is no need to sugarcoat anything. The following note about the conditions of real developments may take some of the emotion out of this topic though: An organic, emerging phenomenon like Bitcoin can never be equally distributed. For equal distribution is an unnatural state for living structures. Equal distribution means solidification or, to put it more drastically: death. 

The inequality in Bitcoin is an indication that this world is developing and developing in innovative ways. Just like in nature, spontaneous market phenomena, like Bitcoin, show power laws. A free and spontaneous development is always accompanied by strong exponential divergences. Inequality is often the consequence of free access, global accessibility, low entry thresholds.

Static versus dynamic inequality

The concept of inequality is too often seen as a monolithic thing. The distinction between static and dynamic inequality is eminently important. Due to its decentralization, high social scalability, global accessibility and permissionless access, Bitcoin shows a high dynamic inequality.

However, this must be contrasted with static inequality. Organized, planned structures are often characterized by low dynamic inequality, but static inequality is all the greater. This manifests itself in fixed conditions, high entry barriers and low social mobility. 

In systems with high static inequality – and this is becoming increasingly evident in our Western economies in particular – inequalities are simply cemented. In contrast, Bitcoin rather sees a high fluctuation in inequality distribution. This is an indication that opportunities for advancement are much more likely to be intact.

In conclusion, we would like to quote Alex Gladstein, Chief Strategy Officer at the Human Rights Foundation: “Yes, wealthy people, companies and governments can obtain more Bitcoin than others. But no matter how rich they are, they can’t change the rules, confiscate your savings, censor your transactions, prevent your access, or print more. That’s a big deal!”

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