23.05.2024

How Bitcoin’s success can hurt the world: the economist’s version

The director of the Center for Systemic Risks at the London School of Economics, John Danielsson, published an article yesterday for the Center for Economic and Policy Research from VoxEU. The title of the story is «What happens if Bitcoin succeeds?»

In it, the expert stated that most people clearly should not want to live in a society where cryptocurrency will occupy a dominant place in the economy. And all because its major holders will become the richest people in the world, «akin to kings and emperors who ruled the world in past centuries . » As a result, all this will lead to even greater inequality and populism, Danielsson is sure.

Note that fantasies about the future, in which cryptocurrencies will become one of the most popular means of payment and tools for saving value, are usually positive. This is due to the peculiarities of assets that operate on the basis of blockchains. Nevertheless, the latter are transparent, which means that anyone can study the data in them. In theory, this could improve the corruption situation around the world, as well as increase the efficiency of government agencies.

In addition, new projects from the decentralized finance industry will provide services to users on an equal footing – regardless of their social status or salary. In general, we can say that a positive outlook for the situation in the world, where cryptocurrencies will become a mass phenomenon, is the norm.

However, the representative of the London School of Economics does not think so. And that’s why.

Bitcoin risks in the future

It is important to note that the current situation in the cryptocurrency industry coincides with the expert’s description, since the distribution of funds in the Bitcoin network is far from equal. According to the research platform Glassnode, about 2 percent of cryptocurrency holders hold 71.5 percent of all bitcoins. The whales – that is, owners of 1,000 to 5,000 BTC – hold 18.4 percent of all coins in circulation, or 3.43 million bitcoins for an impressive $ 127 billion.

Larger investors have 13.3 percent of all bitcoins under their control, or roughly $ 92 billion in the first cryptocurrency. These market players, according to the company’s CTO Rafael Schulze-Kraft, «are likely institutions, foundations, OTC platforms and other wealthy organizations.»

However, the important thing to remember here is that anyone who invested even a tiny amount of money ten years ago and kept their coins is now extremely wealthy. Moreover, examples of making money on crypt are found in a variety of niches. For example, the day before, we learned how a pizza delivery man received a $ 5 tip in the form of Bitcoin in December 2013. He managed to keep the cryptocurrency for over seven years and has now received around $ 400.

Obviously, if investors purposefully invested in BTC and kept cryptocurrency for many years, they earned significantly more.

bitcoin blockchain cryptocurrency

Buy Bitcoin

If the price of Bitcoin continues to rise at the same rate as before, soon, in dollar terms, these people will have enough resources for major market manipulations. Here is what Danielsson writes about this in his publication. The cue is from Decrypt.

When the bitcoin aristocrats start spending their trillions, what does that mean for all of us? We know that this extreme level of inequality feeds social division and populism. Wealthy users of cryptocurrencies will become a growing threat, and the government will have to respond, it will have to intervene in these processes. In any case, political and social instability will only worsen.

Note that this is far from the first warning addressed to cryptocurrency investors. At the end of February this year, billionaire Bill Gates advised bitcoin buyers to be careful – especially if they have less money than Elon Musk. Thus, he hinted at the possibility of manipulation in the niche after large investors entered it.

Elon Musk is a billionaire

Elon Musk

Danielsson argues that if the price of BTC continues to rise and the cryptocurrency itself then replaces paper money, society will change. Those who own common currencies will suffer, while those who participate in the crypto race will do well. But the «success of Bitcoin» may not even take place, the expert is sure. In this case, large world organizations will simply not allow his possible dominance in the world.

We believe that this argument against the popularization of cryptocurrencies is rather weak. Yet inequality in the incomes and wealth of people has always existed – and continues to do so now. Therefore, it is at least dishonest to blame blockchain assets in advance for aggravating the situation of people.

It is especially unfair to talk about this for cryptocurrencies given their advantages. Still, a transparent blockchain can really improve the situation in many areas – from healthcare to finance.

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