On the Unfair Distribution of Capital (by alaric)
Oh, dear God, I'm starting to sound like an early-twentieth-century economist with these post titles.
Right, anyway. One of the criticisms that's been levelled at Bitcoin is that the early miners, and speculators who rushed in and bought them cheaply, will end up filthy rich if it succeeds and a bitcoin reaches its potential value of hundreds of thousands of dollars or more.
Why should people who were lucky / foolish enough to rush in at the beginning be rewarded quite so handsomely, while children are starving in the slums of South London?
This is an interesting question indeed.
The simplest answer is that the early adopters are not just riding the success of Bitcoin, but creating it. By contributing mining power, or buying in to inject confidence in the value of Bitcoin, they're helping to boostrap a new economy that will be fairer, more accessible, and easier to use, which (if we play our cards right) will bring great good to the world. The reward may be large, but in the early days of Bitcoin, getting involved was a huge risk and the people who were brave enough to do so should be rewarded.
There's probably some element of truth in that; but I also think that the consequences of some people "getting rich quick" isn't quite as unfair as it seems.
I can certainly share the frustration - working hard to scrape a living together gets old fast, and seeing people suddenly earn an order of magnitude more money than you do in a year, for nothing other than sheer dumb luck in having opportunities you don't, is horrible. Indeed, I think that one of the terrible flaws in modern society is that somebody's success in life depends significantly on how affluent their parents are, which is an incredibly pervasive form of "dumb luck"; we really have no choice in who we are born to.
I think that a world in which every child really does have an equal opportunity in life - rather than depending on what their parents can afford in terms of nutrition, education, financial support in entering the job marketplace and getting things like cars, houses, and seed capital for their business ideas - is one of the most important long-term goals of humanity (alongside stuff like "not killing us all with climate change"). However, I'm not sure how we can easily achieve it; it's an open research question, along with the related problem of how to stop people who have a lot of power (be it money, or some other form of power) from using that power to gather themselves more power. Indeed, them using that power to empower their children is the intersection of the two problems!
I think that although the distribution of Bitcoin wealth to early adopters is deeply unfair. However, I think that in the long run, the continued cycle of "nouveau riche" generations that gain their money through some piece of dumb luck injects some chaos into a system that, otherwise, would just stagnate into an increasingly affluent upper class lording it over a poor underclass who struggle to break even.
History is littered with examples; changes in society, politics, or technology create a new opportunity, and those who are lucky enough to take advantage of it get rich quick. Each cycle is unfair, but in the long run, the average effect is that families eventually get a chance to "make it big"; and the existing rich families face competition from new rich families coming in, with no desire to maintain the existing social structures and business monopolies that keep the previous generation on the top of the heap. I am hoping that Bitcoin rises in price enough to make a difference to the lives of myself and our family; despite hating the system that has started us off in life at a disadvantage through no fault of our own, I am keen to use it against itself. If I don't have to spend most of my time working to stay alive, I can invest more time in trying to change society for the better!
It's far from perfect, but I think that people getting rich through sheer dumb luck is currently one of our best protections against an ever-worsening poverty gap. Or, at least, worsening until it gets so bad that a bloody revolution comes along and changes everything the hard way.
Can we do better?
Freicoin is a clone of Bitcoin, using the same basic underlying technology, but with a different wealth-distribution function designed to be fairer. In particular, they divert a fraction of the initial wealth allocation to a foundation that will distribute it to worthy causes; and they discourage keeping hold of money by making it lose value unless it's traded.
I think that's an interesting experiment and wish them well, but I have two main concerns:
I'm not sure that this approach incentivises adoption. The deflation of Bitcoin makes it an attractive vehicle for savings, which drives initial adoption and bootstraps the economy. Objecting to savings on philosophical grounds is interesting and I see the argument for it, but penalising savers surely just means they won't invest in your currency. I think Freicoin will need merchants that preferentially accept it to make it take off as a workable currency, and in the Bitcoin world, merchant acceptance is largely being driven by the amount of people investing in it. How will Freicoin foster adoption?
I'm wary of any centralised foundation deciding who to give money to. For a start, it's open to corruption - both from within, and from powerful external vested interests acting to delude them in order to make them (with the best of intentions) divert funds to the wrong places. This is a big problem for foreign aid into third-world countries, a depressing fraction of which is said to end up in the wrong hands. Secondly, their value judgements on what is a worthy cause, even if based on true facts and executed in good faith, will be subjective and potentially biased in ways that are also not fair.
I look forward to seeing how it pans out!
Cryptocurrency | alaric | 
Wed 10th Apr 2013 8:18 pm
Subscribe
By tom gardner, Wed 10th Apr 2013 @ 8:24 pm
You might like to look at the references/links in http://www.schneier.com/blog/archives/2013/04/bitcoins_in_the.html. Schneier is a heavyweight in his field, and the discussions are often worthwhile too.