The Fallacy of The Crypto Revolution

Why Cryptocurrency Won’t Change The Balance of Power

In the early days of crypto, the technology was often touted as a forthcoming arbiter of wealth redistribution. Free from the crux of centralized banking systems, some felt that power would fall into the hands of the many, with people ultimately having a new level of control over the currencies they use. As adoption of crypto becomes increasingly mainstream, it appears that while a shift towards digital assets may result in increased access to global wealth, in practice, it doesn’t do much to change what seems to be an inevitable tenet of economic systems — the overwhelming amount of outstanding wealth remains in the hands of the few.

The current environment does little to resist markets folding to the whims of the rich. Under the veil of an anonymous hash address, high net worth crypto holders are free to collude on pump and dumps, freely trade what will one day be considered inside information, or make massive trades to intentionally destabilize markets. In a sense, the activity we see in crypto markets today is a reflection of how traditional equities exchanges might behave if they were suddenly freed from the constraints of regulatory law. After all, NASDAQ and its ilk are predominantly motivated by the activities of big industry and the uber wealthy, a trend we continue to see in the world of crypto.

Cryptocurrency inherently could have the power to remove the influence of central banks, if not their concept entirely. Whether or not that will actually transpire is the topic of a unique debate, but even under such an assumption, it’s important to consider why removal of centralized middlemen would result in wealth being more evenly allocated? Fees and latency might go down, but the underlying principles that guide how we live won’t change, especially once formal regulation and taxation remove some of the current upside as crypto morphs from an anarchistic tool towards more of a recognized and well understood asset class.

Taking a look at the most valuable Bitcoin wallets, we can clearly see that even without the scrooge of authority, the very wealthiest control an inordinate piece of the pie:

In this chart we can see that the top 0.01% of wallet addresses accounts for almost ⅖ of of Bitcoin wealth. By the time we reach the top half a percent, we’re at ~87% of all Bitcoin wealth. Some of this information is conflated by individuals holding multiple wallet addresses as well as exchange and other industrial wallets partially skewing results, but even if we’re to take this as a semi-precise generalization, it’s not too far off form from this chart of wealth distribution in the united states:

Even Iota, broken up into quadrillions of coins specifically to engender liquidity to facilitate micro transactions for the internet of things economy, is far from immune:

The largest benefits of blockchain technology for the majority of the people is likely to come from the ease of participation. In developing nations, the confluence of access to mobile devices and the proliferation of digital currency means that the 2 billion underbanked may soon have heretofore unforeseen ability to partake in global commerce. While this concept is indeed revolutionary, it is radically different than the idea that crypto might be the fabled implement for insurrectionists to radically alter our financial systems. More people in the system will ultimately do little to effect wealth inequality.

With each new mainstream headline scrambling to cover every move of the BTC ticker, cryptocurrency becomes ever more entrenched into our economy. While the technology has within it the power to change much of what we know today, it is ultimately another tool to be utilized by the rich and poor alike. The transparency of an open ledger and removal of centralized entities does not in and of itself have any intrinsic reason to catalyze change towards the manner in which value is allocated to an individual. In fact, as recent events continue to show us, especially in lieu of formal regulations, cryptocurrency is fast becoming the playground of choice for the global elite.