Wealth Redistribution via Cryptocurrencies

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In the past wealth redistribution typically meant the government taking your wealth through taxation or straight up force and giving it to someone else. The revolution currently occurring in cryptocurrencies is standing that old method of wealth redistribution on its head. If you’ve been using Steemit for any amount of time, or have invested in cryptocurrencies I think you know exactly what I mean. The value of your SBD, Bitcoin, Litecoin and other altcoins isn’t created from thin air. It is a transfer of wealth from others, who are converting their fiat cash into cryptocurrencies. Recently this has begun to include the traditional masters of finance – the bankers and money managers – meaning the value of cryptocurrencies, and the redistribution of wealth, will continue at an accelerating pace.

In order to keep things simple I will use bitcoin as the primary example in this article.

With the price of bitcoin hovering around $15,000 as the year comes to a close we’ve seen a gain of roughly 1,500% in 2017 alone, and growth to a market capitalization of nearly $250 billion. That’s more than all but 13 of the largest listed U.S. companies. Larger than the market cap of Citigroup, Mastercard, Disney, McDonald’s and many other companies that took decades to grow to the level they are at. Bitcoin took 9 years and has made many people rich, and many more people comfortable in the knowledge that they’ll never have to trade their time for money again. Most of these early adopters are the young and entrepreneurial, although you occasionally find the old fart like me talking cryptocurrencies.

On the other side is the traditional bankers, economists and representatives of the old economy. These are the ones spreading FUD, such as Jamie Dimon of JPMorgan, who called bitcoin a fraud because his old model of business is losing value rapidly in relation to bitcoin.

Consider that JPMorgan stock was worth 0.084 BTC on January 3, 2017 and on December 28, 2017 it is worth just 0.0072 BTC. That’s a loss of 91% in value for JPMorgan stock in comparison with bitcoin. And you’ll find a similar picture with every other asset class, from the S&P500 to the 10-year Treasury bonds, and even in relation to that reliable store of value – gold.

Bitcoin has seen amazing growth this year, but at a market cap of $250 billion and daily trade volume of $5.5 billion it has only started to grow. Gold has a global value of $8 trillion, while the global equities market is worth roughly $80 trillion. And when it comes to trading and investing, global equities markets see roughly $84 billion change hands each day and forex markets trade in excess of $4 trillion every day.

Shifting Sands of Wealth

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There are many predictions of how high the price of a single bitcoin can go, with some predictions as high as $1 million. That would make the market cap of bitcoin somewhere around $16.9 trillion (depending on the number of bitcoins in circulation), which is greater than the balance sheets of the world’s three largest central banks – who by the way have been printing money at a furious pace over the past 9 years, just as bitcoin has been rising to prominence.

The U.S. Federal Reserve alone creates $85 billion each month, but none of that goes to citizens, instead it is sucked into the vortex of Wall Street to continue funding the bankers, traders and traditional economy. In contrast, the wealth created by bitcoin and other cryptocurrencies goes directly to the people.

As the value of bitcoin increases, so does its relative value to other assets, just like the value of JPMorgan stock fell 91% this year in bitcoin terms.

Consider that the value of the U.S. dollar has fallen 93% against bitcoin this year. That makes those dollars worth less, but the same is true for any asset that doesn’t keep pace with the rising value of bitcoin. Those holding bitcoin (and to some extent other cryptocurrencies) are becoming richer relative to the U.S. dollar, British pound, euro, yen, stocks, bonds and even gold.

This is happening every day without any intervention, regulation or law being passed by the world’s governments. It is simply a free market expressing its demand for bitcoin and what it offers.

Even without government intervention through taxation and force, there are other things that have kept people from investing in bitcoin and participating in the current massive wealth redistribution. As bitcoin and the cryptocurrency markets gain additional adoption, become easier to use, and enter the mainstream this will change – in fact is changing already – but we remain in the very early phase of the massive wealth shift.

You are Part of This Wealth Redistribution

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Up to this point, with some few exceptions, the general population and the old guard of the financial and political systems haven’t seen any of the benefits of the growing value of cryptocurrencies. They have blinded themselves to the potential in front of them due to their own intellectual inflexibility, desire for the status quo, and as a form of protectionism and risk-aversion.

These people are beginning to hop on the bitcoin express however, but as their traditional assets continue losing value against bitcoin they can afford far fewer bitcoins than even a year ago. They will have to push bitcoin prices into the stratosphere to participate, and in so doing will make early adopters increasingly wealthy.

And who are these early adopters who will benefit so greatly from the emerging wealth redistribution promised by cryptocurrencies?

First of all it is those who have been with bitcoin since the beginning. The developers and evangelists who have made bitcoin more secure and have brought it into the limelight.

It’s the software developer who initially looked at bitcoin purely from technological interest, but then went on to learn about money, wealth and value.

It’s the former finance professional who first heard of bitcoin in scoffing terms from colleagues, and whose curiosity drove him to learn everything he could about how bitcoin works.

It’s the investors who know what will happen to the value of their equities once the current zero interest rate policy is reversed. Rising rates will likely destroy his equity holdings and so he uses bitcoin and other cryptocurrencies to diversify and reduce his overall risk.

It’s the saver who understands it’s better to forego the consumption economy in favor of holding an asset that is built on sound monetary policy.

And it is us Steemians who understand that our creativity and creations have great value, and that we can unlock that value through the blockchain, redistributing to ourselves the wealth that would have previously gone to our employers. By creating value on the Steemit platform, and by interacting and sharing with others we create a positive incentive cycle that serves to redistribute wealth fairly and equitably, and without the bureaucratic force seen in the old model of wealth distribution.

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Interesting perspective @moneyinfant! Initially, I thought that the adoption of cryptocurrency could narrow the wealth gap, but after speaking with some knowledgeable people, and pondering on it some more, I realized that the wealth gap will remain the same, but just with new players as your post inidicates.

How do you think old money will adopt cryptocurrency to maintain their wealth in this new era of blockchain backed technology?

Old money has begun to adopt cryptocurrency already I think, as evidenced by the strong run-up ahead of the Christmas holiday. The fact that crypto has struggled through Christmas is some evidence of this, as the old money players tend to be highly risk averse. With many of them leaving thoughts of markets behind from Christmas through the New Year it makes sense that they would be selling heading into the Christmas holiday, which is precisely what we saw on Thursday and Friday (December 21st & 22nd).

As I mentioned above, the more people entering the space will send prices increasingly higher and as the price of bitcoin rises, the relative value of other assets in relation to bitcoin will fall. There is no way for old money to avoid this, but you can be sure they will still begin to amass fairly large positions in order to hedge their risk in other asset classes.

I would also expect old money players to remain in the more established cryptocurrencies i.e. Bitcoin, Ethereum, Litecoin. The gains from Ripple could also be coming from institutional money. It's a bank-to-bank coin after all, so it makes sense that bankers and those tied to them would be interested in Ripple.

The old money players may be risk-averse and slow to change, but they certainly aren't stupid, and despite continued FUD from that group you can be sure they are slowly entering the crypto arena.

Good points; agreed! If anything, it'll just be another avenue for them to keep gaining wealth.

Good article with good reasoning... But you know the saying, first they ignore you, then they ridicule you, then they fight you, then you win' (or something similar) by Ghandi I believe. We've seen the first two, but the fighting didn't really get started yet. I expect some major crackdowns on crypto in the coming years, and success or failure will be determined by how well we all push back. Indeed crypto currencies are a possible method to turn our sick and dysfunctional economies around, by truly rewarding people instead of corporations, but the real fight has still to begin. We better prepare! :-)
That said, I think people have the power to win... So let's win! :-)

Thanks for taking the time to write this @moneyinfant !!

No, the third stage hasn't hardly begun other than some high profile individuals (Jamie Dimon, Joseph Stiglitz, Warren Buffet - among others) spreading FUD and disinformation. Asian countries are further along, with the fighting already begun across much of Asia. European bankers and governments seem to be trying to ignore crypto as if it will go away (or maybe we just don't get the news regarding European responses here in the U.S.). The U.S. is "investigating". Offering futures is a possible good step forward, but it also opens the door to regulations, although we could expect those to be similar to existing regulations in the equity, futures and forex markets. The problem is too many in positions of power are dependent on these "sick and dysfunctional economies". That's the scary part, but I think there are many who are ready to fight AND prepared to win.

The FUD by Dimon etc I consider ridicule. Fight would mean trying to make things illegal because 'terrosism', moving to confiscate assets based on bogus claims, trying to get inside to blow up price discovery, etc. We'll see. Never underestimate your enemy, especially if they are TPTB. They operate with near to impunity and will do ANYthing to preserve their power. Still ultimately I believe the power of motivated people can win that fight. And I see lots of motivated people in the crypto world :-)

The FUD is like shots across the bow...not meant to damage, just to scare the sheeple. I consider the release of information on accounts to the IRS by Coinbase FAR more serious. As a U.S. citizen the IRS is by far the most frightening governmental organization at this juncture. The good thing about crypto is that there is no way to confiscate if you don't give up your private keys. But the exchanges will be a way inside for government agencies. Those who keep their crypto assets on exchanges COULD see them confiscated. It's too early to see what other steps might be taken, but you're right when you say they operate with near to impunity.

Yes, I totally agree! I'm happy to see more and more people really think and think hard! I'm from europe myself and moved to south america almost 12 years ago, because I noticed the 'fishing nets' were being pulled in, to cash in more and more on the people. In a way I look forward to the real fight starting. Government needs to pull back to only it's logical functioning: creating an equal playing field to ensure maximum opportunity for people. We're very far away from that these days!

I never really considered the IRS until we moved to Thailand in 2011. Then I came to realize that I was required to pay taxes on my income, even though I wasn't living in the U.S. Of course I could refuse, but then I could also be refused a passport. My wife is Thai and kids have Thai citizenship and passport as well, though they're clear of that, but I'm not quite old enough to say "screw it" and just let them take my passport and live illegally without a passport or visa in another country. So I continue to play nice, but crypto has given me another way to level the playing field and I'm pretty excited. Government has far exceeded its mandate here in the U.S. and needs to be reined in or perhaps we will need to see a cleansing revolution. It's ironic that the U.S. was established because of...among other things...taxation and now 200-some years later the U.S. is one of the worst abusers of the taxation system. Sorry. end rant

I came across this excellent article in my feed today. Reviewing, I found that I had "discovered" you a couple of weeks ago and followed you. Reading this fine article today is one of my rewards for having found you.

What many or perhaps most people have yet to understand is that true wealth is vested in one primary place, namely the human soul. It isn't in any particular currency. This means that the wealth will most definitely migrate in the direction of the most reliable currencies. There is not much that anyone can do about it, other than attempting to go along for the ride.

I find your logic and analysis in this article quite compelling, and very clearly described. I've re-steemed it for the benefit of my own followers who may not have found you yet.

I appreciate your work and hope that by following and reading your articles, I'll be better able to navigate the massive reality shift in progress. Thanks for a great article.

😄😇😄

@creatr

I'm happy you stumbled across me several weeks ago. You must have seen one of my very first posts here.
Thank you for the compliment, and I hope I can continue producing thought-provoking content for you and the many other Steemians here now and coming in the future.

@moneyinfant Appreciates you too @creatr!

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It is interesting to me to consider that all life in this universe is a "dissipative structure" -- meaning that life represents complex, self organizing systems that emerge as they feed on the energy of the universe as it marches in a steadily decaying process from big bang (whatever that represents to you) to heat death. Thus even though entropy always increases, part of the process through which this entropy increases is the emergence of systems that help "dissipate" this energy.

Thus suns that take small, higher energy atoms and convert them to larger, lower energy atoms represent the emergence of a system that helps "dissipate" the energy locked into the nuclear bonds of the smaller, higher energy atoms.

Similarly, chemical processes on and in planets represent the freeing up of energy locked in chemical bonds.

All of life is built on the process of converting higher energy stuff to lower energy.

When considered from this big picture perspective, then, it becomes clear that the real money, the real currency, is energy. Money is just an overlay -- an energy translator, if you will, that allows us to compare dissimilar items (grapes versus iron ingots, for example) that would otherwise be extremely difficult to tell exactly how much "energy" each one is worth.

Money, unfortunately, does open up the possibility of gaming the system -- of trying to force society to accept the idea that an item or a service is "worth" a certain amount of energy when in fact it is not. This represents trying to cheat society by changing definitions -- no different than changing the definition of a foot to 11 inches, a minute to 65 seconds, or a pound to 15 ounces.

But this introduces chaos and incoordination into society by forcing imbalances into the delicate, adaptive system we call our economy.

Fortunately, the internet is reducing the barrier to entry for society to go around these distortions.

I'm looking forward to the introduction of a cryptocurrency pegged to a real, physical standard -- 1 coin pegged to an ounce of gold or a barrel of oil.

Anyone interested?

We have USDT pegged to the USD, but that's not a true cryptocurrency. And like the tether there exists the potential to game the system if you peg a crypto to a physical asset. That means you need to add regulation and likely some degree of centralization to ensure the peg remains intact and covered by a sufficient amount of asset.

I do like your energy analogy, but really currency is just a way of valuing items - no matter what form that currency takes. The benefits of crypto are in its decentralization and lack of reliance on governments and third parties to verify trust, as well as the lack of inflation (deflation in fact) which is found in coins like bitcoin.

I'm looking forward to seeing a world without fiat currencies or centralized control over the flow of value (i.e. money)

The way I see it, the energy/currency link is not an analogy -- it's reality. Currency/money of all types, no matter what it consists of, is an overlay over the only real unit of account there is, which is energy.

Can't print energy. Thus any currency or money has no effect on the real money, the real unit of account, which is energy. That's why any "created" money just shifts resources from one pocket to another, because the system it sits inside of has not changed one iota.
But inflation usually does so surreptitiously, which is why inflation is so effective at robbing people. They don't see the hand in the pocket. Instead they see higher prices, and because of how our brains work, we see "more expensive" rather than "devalued yardstick."

Regulation is a monopoly. Which is why it is prone to being gamed -- monopoly represents barrier to entry, which is the perfect situation to game -- those being gamed can't avoid it. How's the monopoly that central banks and governments have working out as far as protecting the fiat currency system from being gamed? Monopoly goes from being protective to an intractable, unremovable foe once it gets corrupted.

Best protection against being gamed is no barrier to entry -- if a system gets corrupt, the market goes around it and leaves it behind.

It makes sense as I know how energy can't be destroyed or created, it just changes from one state to another. If we take that as our thesis, then certainly the shift from fiat to crypto is simply a change in the state of the energy that moves value in the universe.

Whether that ends up as a good thing or a bad thing is still determined by our reaction to the shift in energy. Those who favor the old system will fight any change in energy patterns, but the change could be strong enough to overshadow that fight.

If we copy nature, we'll be ok.

Nature doesn't present any barrier to entry. Nature is an "open" competition -- you bring any rig you want to the race.

That's how our money should be. Open competition is what will keep our money honest and stable. Always cracks me up when people say "money is so important that we have to exert a monopoly over it" -- because monopoly is what will guarantee that it will be pimped into oblivion.

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