Cryptocurrency and Wealth Distribution -- Systematic Flaws
Disclaimer: For this article, I am choosing to focus on the issues with the current blockchain technology. The basic issues I focus on are power consumption, centralization, accessibility, and wealth distribution. This is all my opinion, and I understand the benefits of such technologies too, though this is not the article to discuss those.
When the idea of Bitcoin and the blockchain first came up, developers promised a completely decentralized payment system that would empower the average person and take power away from traditional financial institutions, giving people more control over their own money. It was believed that this new technology would circumvent banks and government regulation. How has this worked out though?
Bitcoin’s many flaws
- One of the most well-known early implementations of bitcoin was as a payment system for illegal substances, guns, and bounties. This seemed to let people circumvent traditional payment control, but it was mostly shut down.
- The Bitcoin blockchain is public, so even though wallet numbers are not directly associated with a person, transactions can be tracked back to exchanges and eventually people. This means there’s not the anonymity that people thought there was.
- A limited number of exchanges control Bitcoin purchases. Bitcoin mining is no longer possible for normal people, so exchanges are the only way to purchase coins. There are not many exchanges that are easy to use, especially in the States. Coinbase basically controls the entire US market and holds one of 3 Bitlicenses, meaning there’s a monopolization of trade. This never benefits consumers.
- Bitcoin transactions are very slow and expensive. Transactions with confirmations can take hours to process, and fees can be as much as $30 for a common transaction. This means it’s useless for daily people.
- It’s estimated that less than 1% of people in the world even have Bitcoin address, with only 0.04% of the world having active Bitcoin accounts. This means there is little to no distribution of wealth because of Bitcoin.
- The richest 30% of Bitcoin accounts control 98% of the Bitcoin. This is very much like real life, where the wealthiest control more than the bottom 70%. So Bitcoin is failing at distributing wealth and decentralizing control
- Daily Bitcoin transactions (for this scenario estimated at 350,000) total the electricity equivalent of about 3 million US homes, while a comparable number of transactions on the Visa network total the electricity equivalent of 50 homes
- The high electricity use, consolidated in countries like China and Russia which depend heavily on fossil fuels for power, is contributing to global warming, and I’m sure the effect of this will be detailed soon by major organizations.
All of those facts make it seem as though Bitcoin is failing the working class. Average people do not have easy access to Bitcoin. Acquiring Bitcoin requires average people to use the Coinbase exchange or pay high fees and bad rates on other exchanges. Transaction fees mean people lose a large amount of Bitcoin every time they send it to a different account. This is not efficient for the average person. The Steem network and similar currencies have sought to address the transaction fee and time issues, though, and I want to recognize these networks for that.
Daily Bitcoin transactions total the electricity equivalent of 3 million US homes, while a comparable number of transactions on the Visa network total the electricity equivalent of 50 homes for the same number of transactions.
Then, you have the small number of Bitcoin mining operations that control the entire network. So instead of power being centralized in a federal reserve or similar institution, economic power is centralized in the hands of a select few mining operations that happen to have the most power through their massive investments in technology. So in this way, the current incarnation of blockchain technology simply repositions economic power, not achieving the widespread decentralization that people hoped for.
Networks like Dash and Ripple (and soon Bitcoin Flash) even attempt to replicate the way transactions are processed traditionally, with the addition of a blockchain or similar technology. Many of these projects cannot match the level of transactions major networks like Visa and MasterCard can handle with the same level of efficiency. Then, these projects seem to promote easier transactions and access for the “unbanked”. What they don’t realize is that to obtain cryptocurrencies, people have to go through an exchange that verifies their identity and tax ID numbers and wires money from their bank account. It’s not as easy as it could be.
How about other cryptocurrencies?
I’m not going to go into the same level of detail for alt coins, but since alt coins do not have the same exposure as Bitcoin, it can be estimated that there are way fewer account holders and even fewer active accounts. A very small number of people in the world are feeling the effect of the cryptocurrency boom. From the outside it may look promising to many people, but in reality very few people are benefitting from this boom. This is effectively creating a new 1%, adding to the current 1%, but since the majority of people in the world cannot easily buy into this craze or cannot run the risk of losing money, they are left out.
What about Steem?
From my initial perspective, the Steem network seems like it rewards people for posting high-quality content. Steem users all have the power to upvote posts that can earn the initial author and themselves a percentage of the rewards. This earns authors and curators Steem Power, a form of currency they can use for real economic gain and to improve the quality of the network by upvoting other authors and curators.
People can effectively “buy” influence and sway on the network.
In reality, the top 1% of Steem Power holders control over 80% of the Steem Power on the network. Many of these top accounts actually use the Steem Power for the greater good, upvoting less-recognized posts to encourage the authors to continue with high-quality content. These account holders even promised last year to start distributing a large percentage of their Steem Power. This seems like a good thing, but it still means a wide majority of power is vested in the hands of a few.
On the Steem network, certain community members can effectively control what you see and are influenced by. Hundreds of upvotes on a post by normal accounts are outranked by a single account with more Steem Power. Instead of the most popular posts in a democratic system getting the most gains, it is the posts that are upvoted by people with the most Steem Power. People can effectively “buy” influence and sway on the network through Steem, Steem Dollars, and Steem Power.
Conclusion
Now, I’m still new here, and I know I do not have a full understanding of the system. But I wrote this to point out what I see to be issues in the Cryptocurrency community as a whole. Of course, there are plenty of benefits, and I’ll have to make another post about those benefits in the future. For now, though, I wanted to call attention to the fact that cryptocurrency and the blockchain do not seem to be empowering the people that they were intended to help. I think there is plenty of room in the future, though, to expand on and improve this technology for the improvement of people everywhere.
One project I’ve noticed is Humaniq, which is promising to be the currency of the “unbanked” by providing an easy-to-use app and reward every new account holder with a basic amount of currency. The issue I seem to see is that while coins like this can truly help people, speculation on exchanges (which has the benefit of providing funding for the project) is hurting any chances they have to be used by real people in their daily life. We’ll just have to wait and see how people deal with these issues and attempt to stabilize the industry so that the working class can better capitalize on this new technology.
Sources
http://www.wired.co.uk/article/how-much-energy-does-bitcoin-mining-really-use