The rich get richer, the poor get Bitcoin

Bitcoin is a buzzword and some argue that it is a scam. But with Elon Musk’s Tesla recently investing $ 1.5 billion in cryptocurrency and the Mayor of Miami considering allowing city workers to withdraw their salaries in Bitcoin, cryptocurrency could radically transform our monetary system. One of the unexpected, underestimated consequences of this move to Bitcoin could be closing the wealth gap, writes Bradley Rettler.

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Global wealth inequality is increasing. Meanwhile, the government-backed currencies in which most of the poor save their money are depreciating every year. Poor people have no access to banking and cannot get credit. This is most extreme in crisis countries, but applies everywhere in the world. Using Bitcoin can mitigate these issues and create a level playing field for the world’s poor as we work towards economic justice.

Having cash is a losing game

Between 2016 and 2019, the inflation rate of the Venezuelan bolivar was 54,000,000%. Of course, no Venezuelan wants to hold bolivars because they are worth less every day. For those who have bolivars in their bank account, banks have strict withdrawal limits. Families use more than ten debit cards from different accounts and different banks just for grocery shopping. Given the government’s stranglehold on finances, the average person cannot easily acquire other assets. And their bolivars are also often confiscated by the police or the military.

This situation is not unique in Venezuela. The government sponsored currencies of many countries are rapidly depreciating, including Turkey, Nigeria, Lebanon, Zimbabwe, Argentina, Iran and South Sudan. The privileged rich in these countries have no problem weathering the storm. They gave up the local currency ship for the lifeboats with foreign stocks and foreign exchange. The poor, on the other hand, have no such luxury. They are paid in local currency, others pay in local currency and save what they can in local currency. They lack the opportunities of the rich. Their ships are sinking, but they have no lifeboats.

Using Bitcoin can create a level playing field for the world’s poor as we work towards economic justice.

As their currencies devalue, the poor ‘s share of the country’ s wealth decreases as they do not have access to safer investments. To make matters worse, many countries do not have a banking system. For example, 76% of Kenyans do not have a bank account; instead, they get by with the M-Pesa payment network via cell phones. This works well as a medium of exchange, but not as a store of value. Should the Kenyan shilling devalue (above its current rate of 5% per year), your options are limited. The wealth gap is growing.

This phenomenon is not only unique in countries with rapidly depreciating currencies – it is only more evident. Almost every government-sponsored currency is designed to depreciate over time. The rich store very little of their wealth in cash or in cash accounts. The rest of us aren’t that lucky. If we want to save, we save in Fiat. And that’s a losing game.

It’s very hard to hide just a few hundred dollars in real estate; Most of us have no way of buying fractions of a house. You’d think that apps like CashApp and Robinhood help people who can only invest tiny amounts in the stock market. This is a much-needed service, but not without its concerns. First, they both sell their order flow to Wall St so Wall St can use this information for retail investors. Second, they both use slow, centralized clearinghouses that can prevent retail investors from making purchases they want to make (like buying stocks on GameStop).

The rich also take on easily low-interest debt in a currency that is easier to repay over time, using it to buy assets that hold or increase in value. The poor cannot; they have less access to low-interest debt and are therefore less likely to repay debt. The currency of almost all countries is designed to depreciate over time. This is a debt relief program for the world’s rich – rich individuals as well as rich countries.

Owning Bitcoin is better

Bitcoin can help. While governments can spend their currencies however they want (for example, the U.S. government printed $ 9 trillion in 2020 – 22% of all USD ever minted), Bitcoin can’t. The rules embedded in Bitcoin’s software dictate that the delivery schedule will develop predictably until there is 21 million BTC by 2140; the offer is limited to 21 million.

And bitcoin is included. To buy some, all you need is access to a phone or computer with an internet connection, or visit a grocery store with a bitcoin ATM. It is significantly more difficult to invest in stocks or get a bank account, especially for those who are not yet socio-economically privileged. The poor worldwide can keep their Bitcoin possessions safe without worrying that that wealth will be devalued due to the increased supply.

Bitcoin is resistant to seizures, which also benefits those fleeing repressive regimes with their savings. Cash is bulky and gold is heavy. Authorities and thieves discover and confiscate both. How do you get your savings in your new country? One solution for many was to keep Bitcoin in a digital wallet with a stored “seed phrase”. To do this, memorize a series of 12 random words that can be used to unlock your Bitcoin savings when they arrive safely at their destination. And would-be thieves have no idea which random person traveling through an airport has such a wallet.

Bitcoin can also help solve problems in countries with healthier economies, including the United States, my home. I’m going to talk about three: credit, banking, and store of value.

First, credit. Loans are a wealth building tool. People who can take out loans to buy houses or start businesses, for example, can then slowly repay the debt as the currency depreciates. But whoever needs it most gets it the least. US history has shown that credit is not granted fairly. The clearest example is the redlining, where the federal government has color-coded neighborhoods in terms of willingness to lend at different rates, and for the apartments marked in red, the Federal Housing Administration refused to insure mortgage loans for people in those neighborhoods ; these were mostly low-income blacks living in urban areas. This locked lower-income black families out of home ownership, which is the primary means of advancing into the middle class. Redlining was banned in 1968, but its effects can still be seen today. Black families today own 1% of the wealth in America; in 1863, when the Emancipation Proclamation was signed, they owned 0.5%. White families today have nearly ten times the net worth of black families and more than eight times the net worth of Hispanic families.

Being excluded from the credit market is economically devastating, and so people look elsewhere for credit. Every year 12 million Americans (6% of American adults) take out payday loans, making them a multi-billion dollar industry. The average loan is $ 375 and the average borrower pays $ 520 in interest.

People deserve a vehicle to store the fruits of their labor. Bitcoin can now fill the void even as we fight for a more just and just system for all.

The second problem is the lack of banks. More than 7 million US households did not have a bank account in 2019. People without a bank account pay to cash their paychecks, get money orders to pay rent and utilities, get prepaid debit cards, and so on. The average family without a bank account pays $ 2,400 a year for such financial transactions alone, a whopping 10% of their annual income. Those who don’t have a bank account pay a total of about $ 89 billion in transaction fees annually.

Bitcoin alleviates both banking and borrowing problems in the US. When it comes to banking, it’s important to note that the non-banks still have income – but it comes in the form of checks that cost money. Bitcoin is free to receive and around $ 10 to ship. And with protocols like Lightning running on the Bitcoin network, the cost per transaction is just a few cents. If people without a bank account paid in Bitcoin and could pay bills in Bitcoin, the cost of their financial transactions would be tiny. And they can easily and cheaply exchange part of their bitcoins for USD if they so wish.

Bitcoin can also help those who have turned to payday loans. Such a borrower often does not have a bank account, and keep in mind that without a bank account the bank pays around $ 2400 per year in transaction fees. Lowering these transaction fees to <$ 1 per year would mean they'd keep the equivalent of ~ $ 200 per month. Since the average payday loan borrower is scarce for ~ $ 26 per month, a clear majority of those taking out payday loans would no longer need to do so. You could avoid this predatory industry altogether.

So much for banking and credit. Finally, think about storing values. There are systemic factors that make it difficult for people who are not yet rich to store value. Regulators tend to think that, for the good of people, they must not make risky investments. (Except the lottery, apparently.) So the rich get richer because they have access to stable stores of value like hedge funds, venture capital, etc., and the poor don’t. Holding Bitcoin will at least keep your money safe in a currency that will not depreciate due to the increased supply.

You’d think that keeping cash in a savings or checking account isn’t risky. First, not everyone can open a savings account; Bitcoin is more inclusive. Second, savings accounts aren’t risky in that sense – your money is there when you need it. But they’re risky in another way – your savings will be less valuable if you take them out. $ 100 in 1950 is worth $ 1,080 today; If you hold USD for 60 years, it will lose USD 1000 in value. In contrast, Bitcoin has increased in value (except for one) every year of its existence, and it has become less volatile each year. And of course you don’t just have to save in Bitcoin.

People deserve a vehicle to store the fruits of their labor. Some people have access to many such stores of wealth. But those who need it most tend not to. Bitcoin can now fill the void even as we fight for a more just and just system for all.

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