It is well established that the main sources of wealth inequality are: systematic discrimination, rent-seeking and monopolies. Discrimination is a social ailment best resolved through politics, legal, and social mechanisms. Rent-seeking and monopolies on the other hand are artefacts of economic system.

Rent-seeking is an economic term that refers to businesses (mostly large corporations) earning income from accumulated property without adding incremental value, kind of like earning rent on land. Rents can be extracted on a variety of properties including land/natural resources, intellectual properties, and networks (like social media platforms extracting rent through Ads on their network of users). Investors give fancy name to this rent seeking activity — building moats or competitive advantage etc. But at the end of the day, rent seeking causes inequality by putting those who own certain kinds of assets at an advantage over others.

Other than rent seeking, monopoly is a method through which corporations seek undue profits. Monopoly through competitive practices in a free market is not unfair, but monopoly supported by government intervention is the real cause of inequality. Licensing, control on certain goods/services by the government, and giving undue advantage to certain entities etc. can all increase inequality tremendously. The biggest monopoly in the current world is monopoly of the government on money and monetary system.

Crypto-revolution along with the accompanying technologies can help reduce inequality on several fronts. By Crypto-revolution I mean emergence of crypto-currencies and related technologies like blockchain, smart contracts etc. (collectively I call them crypto-technologies).

  1. Crypto-technologies democratize asset holding. Rent yielding properties can be tokenized and held by anyone .Anyone can own a part of a crypt-technology platform by investing or donating resources like compute power/storage etc.
  2. Crypto-currencies help in financial inclusion. In countries or economies where people do not have access to proper banking, crypto-currencies can help provide financial services.
  3. Crypto-currencies eliminate dependence on central parties including central banks, which are one of the leading causes of inequality.
  4. Decentralized systems using crypto-technologies reduce monopolies as most of these systems operate with an open platform approach.
  5. Decentralized projects typically do not have a corporate structure that tries to optimize profits. These projects typically try to optimize usage. Thus the users are most benefited by the project than the “owners” unlike in the centralized version.

Decentralization is the key theme behind the rise of crypto-technologies (including crypto-currencies, blockchains etc.) At the heart of it, decentralization is spreading of power and wealth across the various participants in the network. For example in a permission-less blockchain (like Bitcoin or Ethereum), anyone can participate in processing the transactions and gain rewards for the same. There is no single party that “owns” the network and hence create a moat/rent yielding asset for itself. Similarly, when someone creates a decentralized social media platform, all the users act as service providers and also consumers of the content. Thus again there will be no single entity that will benefit from the network disproportionately.

The biggest monopoly that is broken by the crypto-revolution is that of money and banking. Crypto-currencies and Decentralized Financial (DeFi) platforms aim to take away the power from central banks and banking system and give it back to the society. Like with any intervention in the economy, the intervention in the money markets by the government, helps them most those who are closest to the intervening activity. As a result, central bank interventions led to increase in the wealth of people who own assets (think real estate, bonds/shares, and investments in private companies) at the cost of salaried employees and smaller entrepreneurs. Crypto-currencies disrupt this the most.

We are only seeing the beginning of the crypto-revolution, but we already hear several stories of innovators breaking existing barriers and creating value for users (and also to themselves to some extent). As crypto-technologies mature and gain more acceptability, we will see real effects on wealth inequality as well. With the ever accelerating pace of crypto-technologies, that event is not far.