Blockchain Economy

Jun 16, 19

I though there isn't enough cover on the topic so here are just some of my thoughts and some analysis.

Economic Innovation

Satoshi Nakamoto's invention brought something that few people recognize, even in crypto space. The most prominent feature of bitcoin is it's limited supply. As someone who understands economy that's something that really blows minds. Imagine than one day, one of cryptocurrencies becomes one global mean of payments. For me, it is obvious that such coin would have to be limited in supply as it would eventually win against every other inflated currencies simply by increasing in value against them. People would chose bitcoin (or other cryptocurrency, but for the sake of this argument let's stay with bitcoin) for everyday use. Not many realize what implications it has. Oppositely to the debt system we have today where commodity prices double every decade or so, the prices expressed in bitcoin would have to decrease steadily over time. What is mind blowing is that the prices of labour are not different. That means that wages would have to fall over time. Imagine earning 1000 satoshis on January and 990 in February. That's it, work done today is worth more that tomorrow's work. Mankind would be incentivise to work and save money, rather that being pulled in vicious spiral of today's consumerism, a beautiful balance of capital and labour would establish over time. In economics there is famous Cobb-Douglas production function that one can use to calculate this balance. With a promise of free market in the advent of global crypto adoption, such balance would occur naturally. It doesn't mean that people would be poorer over time, it is completely opposite. Once people save more than spend, more goods would be produced with capital instead of labour. That means that price of labour would increase relatively to price of capital as technological innovation grows. To explain this I would put a simple example:

each 10% decrease in wage would entail a 20% decrease in CPI (consumer price index). That means that a person having earned less is still able to buy 12,5% more that he could before. ( 0.9 / 0.8 = 1.125)

The paradigm shift is mindblowing. Especially for someone that has been thought that he needs to earn more over time and that prices must constantly rise.


Another problem that fixed supply coin solves, that few may realize, is overpopulation. Currently we have system where parents have to have 2.1 children on average or society collapses. That's a lie. That what people in developed countries are thought because of pension system there is today. In fact, current system is one big Ponzi scheme. In society where government collects working class people money in form of taxes, and pays this money for pensioners (funding own bureaucracy obviously), there is no population limit. A country either has to have positive population growth or it is doomed. That's not how it works with crypto. People are incentivise to save money on their own. It is simple once you realise that you could have had 1000 BTC for the price $300 in 2011, and now in 2018 you would never be able to buy that much. I know, it is sad, but realising that same rules apply today, that you could buy 1 BTC that in 10 years a fiat millionare would never be able to. For me it is a bit relieving.

Wealth distribution

The top 1% wealthiest people own more than the rest 99%. It is bad, isn't it? I think it is not bad at all. Some people are worth more than others. Some are able to create more goods having high education and making strategic decisions. That is completely natural. Governments are telling people that wealth needs to be redistributed to lower gap between poorest and richest. That is exactly where governments have interests.

More wealth inequality -> more taxes to redistribute -> more damaged economy. Wealthiest people drive innovation and progress, they deserve the money their earned because they know how to use it for further progress. Look at Elon Musk. His Tesla company released patents for free, to increase competitiveness in the electric car industry, for the good of planet's environment.

There is one best example to better explain wealth inequality. On reddit post you can read that during communism: "The Soviet Union allowed theaters to play The Grapes of Wrath because of its depiction of the plight of the poor under capitalism, but it was later withdrawn because Russian audiences were amazed that even the poorest Americans could afford a car."

That's exactly how capitalism work, despite the gap, poorest people have better live. So even if you are mad that some wallets have thousands of bitcoins, don't be. Many of us missed few cents for bitcoin price, and I'm one too, but not many refaced it and learnt that a chance is still here. For the first time in history it is possible to experience pure capitalism, where money isn't owned by anyone and yet servers every one of us.



PS. If you like my thoughts and want to read more simply upvote.

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