How Bitcoin & Crypto Might Help Ease Wealth Inequality

• 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 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,”.

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 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,”.

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.