You’ve heard people say cryptocurrency is financial democracy. They argue because anybody can make it, buy it, and earn it, everybody has the power to control their own destiny. Government can’t take it from you and businesses can’t monopolize it. If you don’t like a coin, you can fork it or create another. If you don’t have much money, you can create a new token. Power to the people!
Is that really democracy?
No.
There is nothing democratic about cryptocurrency
For example, according to BitInfoCharts, the top 1 percent of bitcoin wallets hold almost 88 percent of all bitcoins. Granted, many of these wallets are cold storage for exchanges, but even if you overlook those few massive wallets, you still see massive inequality in the distribution of bitcoin.
On top of that, you can’t compel people who have lots of bitcoin to give up their money. There’s no way to redistribute wealth, no progressive taxation, no subsidies or welfare programs. Nobody can take your bitcoin without your consent or your private key, and bitcoin’s protocol does not care about majority rule or minority protections.
These are features, not bugs. They can’t change unless bitcoin changes—but if bitcoin changes, it won’t be bitcoin anymore.
Other proof of work cryptocurrencies? Centralized mining pools control the rules of the network.
ICOs and STOs? Early investors corner the market and token creators can always keep a huge portion of the tokens under their control.
Staked cryptocurrencies? Staking essentially creates an aristocracy of users with a lot of influence and a lot of tokens. When late-comers and new entrants join, they have to rely on stakers to let them into the club. As a result, early adopters and large financial interests control the network.
Private and corporate cryptocurrencies? A business or bank controls everything.
Where’s the democracy?
Cryptocurrency isn’t about democracy. It’s about choice.
You can acquire all the power you want on a given cryptocurrency network. You can corner the market for bitcoin or buy out all the world’s bitcoin miners. You can stake 51 percent of all the tokens of your favorite cryptocurrency. You can control all the nodes of some network. You can create your own pre-mined cryptocurrency and keep 99 percent of the tokens for yourself.
You can style yourself a crypto version of Montgomery Burns.
No matter what you do, you always risk losing your wealth and power because anybody can create a money system to compete with yours. If it’s better, people will switch. As a result, nobody will use your cryptocurrency.
Once nobody uses your cryptocurrency, it’s worthless.
Cryptocurrency doesn’t make anything democratic. It gives us choices about what type of money we use. It forces money systems to serve the people who use them.
Democracy?
That’s our responsibility.
—
Mark Helfman is a cryptocurrency commentator and author of Consensusland, a book that explores a country that runs on cryptocurrency.