Egalitarian - but not fair
The concepts of egalitarianism and fairness are frequently conflated in the cryptoasset (note: going forward I will be using cryptoasset rather than cryptocurrency in all articles) space.
Blockchain and other decentralised distributed ledger technologies are egalitarian; all network participants are equal and allowed access to the network in the same way as all others. Your wallet holdings, your race, your location – none of this matters on the blockchain. Your transactions will be processed, just like anyone else. You have an equal voice on the blockchain.
But fair in the sense of wealth distribution? A system to right the wrongs of inequality in the global financial system? No. Far from it.
For one, the starting low point of Bitcoin and other cryptoassets prior to 2017 has disproportionally rewarded early adopters. This can be excused – the dramatic rise was not one that most could foresee.
However, in the race to ICO and to sell tokens, teams are frequently selling the entire supply of a cryptoasset in one go at the start (aside from the chunk they retain for themselves). For the coins which are mined, the mining difficulty usually follows the Bitcoin model – easy to start with, much harder late on. This has the effect of essentially pre-programming price hikes (the harder the difficulty becomes, the more expensive it is to mine, the more the price needs to increase to be sustainable). The early adopter is always the beneficiary.
These essentially pre-programmed price hikes and the steep coin issuance flow ensures early adopters reap disproportional levels of rewards. Half of the world remains without internet access and only a small proportion of the general population have the knowledge and ability to purchase cryptocurrencies. Why design a model which punishes these people and deincentivises them from wanting to join later on?
A better solution would be to either:
- Retain supply in order to sell on further down the line (at a similar cost to the original investments)
- Make supply the variable, not the price
- Adopt a camel distribution, a la Sumokoin, in which the difficulty starts hard, then gets easier as adoption grows, then gets harder again
The unfortunate answer is that wealth distribution need not be fair. There is nothing 'wrong' with people making more money off cryptoasset speculation than a lot of people working long and hard full time jobs. These people took a risk and have been rewarded for it. But just because you are making money off them does not make them a utopian vision of wealth distribution, taking money from the 1% to give to the rest because that is simply incorrect.
When people talk about cryptoassets being able to right the wrongs of wealth distribution they usually mean one of two things:
- It is helping me get wealthier
- Projects will remove fees in realms such as banking and remittances which will ensure those who can least afford to pay high fees will have the option to avoid them
The latter goal speaks more to the potential benefits blockchain can bring, removing inefficiencies and ending quasi-monopolies and excessively harsh fees in certain sectors. This, along with the inherently egalitarian decentralised nature of cryptoassets (well, most of them), are two of the brightest benefits of cryptoassets. Just don't lend any credence to the idea that cryptoassets are somehow inherently a fairer proposition than the wider economy.