Talking Points

Meet the new money, worse than the old money

As many enthusiasts tell it, bitcoins pose a radical challenge to entrenched powers. In fact, U.S. authorities "are afraid and concerned because a lot of countries are looking at us, and they will follow our leadership," El Salvador's Ambassador to the U.S. Milena Mayorga told CoinDesk recently of her country's experiments with the cryptocurrency.

But this is hard to square with the staggering inequality of bitcoin wealth. A recent paper by finance professors Antoinette Schoar and Igor Makarov examined the structure of bitcoin ownership (as well as the structure of the bitcoin system generally) and found ownership is incredibly concentrated — more than twice that of normal, non-bitcoin wealth.

"The study showed that the top 10,000 bitcoin accounts hold 5 million bitcoins, an equivalent of approximately $232 billion," The Wall Street Journal reports, which "means that approximately 0.01 percent of bitcoin holders control 27 percent of the 19 million bitcoin in circulation." Economist Gabriel Zucman, who has studied wealth inequality in detail, points out that the top 0.01 percent of Americans control "only" about 10 percent of dollar wealth — which itself reveals record wealth inequality.

It turns out computerized financial assets that you can trade over the internet are no solution to inequality. For that you need taxes, the welfare state, and democratic ownership of wealth.