3 minutes reading time (613 words)

Bitcoin's Wealth Concentration is Fair


As part of an on-going Tweetstorm Series, we showcase excellent Twitter threads on the most interesting topics in the industry and publish them here in blog format for easier consumption and sharing beyond twitter.

Today, we feature Nic Carter, Partner at Castle Island Ventures and Cofounder of Coinmetrics.io, a provider of crypto asset market and network data to better understand, value, use, and steward open crypto networks. You can find him on Twitter as @Nic__Carter for more of excellent analyses of the data that drives Bitcoin and crypto markets and its networks.

Bitcoin is an emerging monetary system, it started with a GINI of 1 and decreases over time.

What is GINI? The GINI coefficient states that the most equal society will be one in which every person receives the same income (G = 0); the most unequal society will be one in which a single person receives 100% of the total income and the remaining N − 1 people receive none (G = 1 − 1/N).

'Fairdrops' don't work. See the voucher programs in the USSR.

The best thing you can hope for is equality of opportunity and no seigniorage (Bitcoin has both).

Seigniorage is the difference between the face value of money, such as a $10 bill, and the cost to produce it. It may be counted as revenue for a government when the money it creates is worth more than it costs to product. In some situations, the production of currency can result in a loss instead of a gain for the government creating the currency. A country's profit can be affected by other factors such as needing to make interest payments to the Federal Reserve.

Long term holders sell out as their wealth increases. This is empirically observable in Bitcoin (@unchainedcap's Hodl waves analysis makes this point). This is a natural and organic force which disperses supply. Wealth concentration is something to worry about if wealth can be transformed into political power, because you kick off a feedback loop of wealth -> power -> discretion over system features -> more wealth. Luckily, bitcoin manifestly does NOT care if you are wealthy. 

In this context, the concentration of wealth in Bitcoin is not something that worries me, even a little bit. Bitcoin 'governance' is nicely poised between nodes, developers, miners. If wealth meant power in Bitcoin, S2X would have prevailed. It didn't. Compare that with other chains. 

Given that wealth does NOT equal power in Bitcoin, worrying about the concentration carries sinister undertones - it insinuates that the outcomes in Bitcoin are 'wrong' and may need to be remediated - if you believe in free market money, you believe in free market outcomes.

Thanks to a decade of Proof-of-Work and an unrepeatable launch where coins where freely traded for years without a dollar value, Bitcoin has an enviable distribution. The chosen metric (% of addresses owning % of supply) is comically bad. Every other coin is empirically more concentrated.

This is a great case study in how data can be both trivially correct and very misleading - the default thing people do with data is misrepresent things - this is a difficult subject which requires nuance & a patterned analysis, not just a single metric. If you think that 'Bitcoin is unevenly distributed' will inhibit adoption, you are in for a surprise. Bitcoin has long succeeded in spite of political unacceptability and bad optics. This probably won't stop it.


Nic is the cofounder of Coin Metrics and a partner at Castle Island Ventures, a venture firm focused on public blockchain startups. You can follow him on Twitter @Nic__Carter for more insights, data analyses, and debates on Bitcoin and the cryptocurrency markets. 


Comments (0)

Rated 0 out of 5 based on 0 voters
There are no comments posted here yet

Leave your comments

  1. Posting comment as a guest. Sign up or login to your account.
Rate this post:
Attachments (0 / 3)
Share Your Location