Being fairly new to Steemit, I have been perusing and enjoying some of the older posts. I came across the article, Crypto: The Dawn Of The Single Greatest Wealth Transfer In The History Of Mankind...? posted about nine months ago by @rok-sivante, https://steemit.com/crypto/@rok-sivante/crypto-the-dawn-of-the-single-greatest-wealth-transfer-in-the-history-of-mankind. I found the post informed, well written and full of optimism and enthusiasm for the crypto space. As a crypto-enthusiast, I love to see these sorts of posts. However, this post really got me thinking about what is really going on and where the world is headed. As I look at the world of cryptos just nine months later, I have to admit that I don’t share his optimism about the effect of cryptocurrencies on the wealth distribution. Nor do I share the belief that Satoshi’s vision of a fully decentralized currency that replaces financial institutions is likely to become a reality, via bitcoin or any other cryptocurrency project currently in existence. This post is not meant to discredit or criticize the work of rok-sivante or anyone else for that matter, but to lay out the other side of the conversation in hopes of starting a candid dialogue with the Steemit community about the current state and future of the industry. To that end, I have referenced several Steemit posts that I found providing quality content relevant to the subject and included @ mentions for their authors. I am also offering an award of 1 SBD to whoever has the best counter to the argument I have laid out. (Details provided at the end of the post)
(royalty free photo courtesy of Pixbay.com)
In the Bitcoin whitepaper, the document responsible for sparking the crypto-revolution, Satoshi Nakamura sets out to describe his idea for a new, decentralized electronic currency that would serve as, A purely peer-to-peer version of electronic cash (that) would allow online payments to be sent directly from one party to another without going through a financial institution. This revolutionary idea has millions of people clamoring for the downfall of the banking cartels and the massive transfer of wealth currently consolidated in the hands of the 1% (more accurately, .01%) global financial elite, to the hands of the people. It’s been almost a decade since Satoshi released his whitepaper and his project is worth well over one hundred billion dollars, but is it the disruptive force we hoped it would be?
An article from MIT Technology Review (link below), describes research done by Emin Gün Sirer, a cryptocurrency expert at Cornell University, on why the two largest cryptocurrencies, Bitcoin and Ethereum may not be as decentralized as most people think;
Perhaps the most striking finding is that the process of verifying transactions and securing a blockchain ledger against attack, called mining, is not actually that decentralized in either system. Bitcoin and Ethereum are open blockchain systems, meaning that in principle anyone can be a miner … But organizations have formed to pool mining resources. The researchers found that the top four Bitcoin-mining operations had more than 53 percent of the system’s average mining capacity, measured on a weekly basis. Mining for Ethereum was even more consolidated: three miners accounted for 61 percent of the system’s average weekly capacity.
They also found that 56 percent of Bitcoin’s “nodes,” the computers around the world running its software (not all of them engage in mining), are located in data centers, versus 28 percent for Ethereum.”
The article fails to mention that two of the top four Bitcoin mining operations are actually owned by the same company. Bitmain Technologies Ltd, a privately-owned Chinese company founded by Jihan Wu, a former financial analyst and private equity fund manager. Wu is also a proponent for Bitcoin Unlimited, a proposed scaling solution for the Bitcoin blockchain that intends to improve transaction speed by allowing for larger block creation. Critics of the solution claim that it could result in miners opting for bigger and bigger blocks – making it harder for miners with limited resources to mine, thereby concentrating the ‘mining power’ in the hands of few miners, (link to article below) effectively circumventing portions of Bitcoin’s decentralization protocols. So while the current situation where 53%-61% of the power to secure and verify the two most valuable blockchains rests in so few hands is bad enough, it could conceivably be much worse in the near future.
Next we are on to, “the greatest transfer of wealth in the history of mankind” where did the idea come from, and what does it mean? The origins of the phrase are hard to determine, but people have been tossing this buzz phrase around to describe many different situations, including: the real estate boom, commodities like gold and silver, the looming debt bubble and the passing of the baby boomers’ fortunes to their heirs. Recently we have heard the phrase used to describe the transfer of fiat currency to digital crypto-assets. Within this scenario is the vision of Bitcoin’s founders and early adopters, of the disruption of the existing economic system, dethroning the financial oligarchy and creating a more egalitarian currency system. Rok did a great job of expressing the sentiment and enthusiasm behind this viewpoint:
coming back to the concept of "the greatest wealth transfer of all time" - this will not just be a fresh round of executives or elites comparable to the 5% of humanity currently holding the majority of the global wealth. It's a new breed.
This class aren't merely traders addictively getting into crypto for quick pump-and-dump profits - they're a fresh generation of leaders, working on solutions to the world's largest challenges. These aren't the ambitiously-driven in the power & paper chase, but a wiser, mature tribe of intelligent creatives seeking to build new societal structures completely unlike the profit-obsessed, destructive, oppressive old.
The transfer shall occur from the aging sociopaths threatening mankind's well-being, to the misfit youth that never fit into "the system" and bought into the corporate B.S., but whom always felt it part of their mission to right the wrongs of the world through a sweeping movement putting the power back into the hands of the people.
And though some might criticize, suggesting the wealth is just going to move from one 5% group to another 5% who happened to be early adopters, that's not quite the case. Yes, there may always be a majority who've created massively more amounts of value than others, thus reaping their proportionate compensation. However, the power and influence of this new class of emerging leaders shall be directed much differently with a contrasting set of values and priorities than the previous...
As much as I would love to see this, I wonder if it is representative of our current reality . With the conditions of the ever-changing market it is impossible to identify exactly who stands to profit the most from cryptocurrencies, but we can see some trends in who the major investors are currently. Investopedia released an article January 8 identifying the top 5 Bitcoin investors (link below). The list includes:
Barry Silbert- former Wall Street investment banker
Blythe Masters- former managing director at J.P. Morgan Chase & Co
Dan Morehead- former Goldman Sachs trader
Michael Novogratz- former partner at Goldman Sachs
Tyler and Cameron Winklevoss round out the top investors, and while I don’t see any evidence they worked in the financial sector, they hail from the historically affluent town of South Hampton, NY and attended Harvard. I’ll let you decide if these factors alone are enough to lump them in with the financial elite, but they are certainly closer to that group than they are to the cypher-punk innovators we were all hoping for.
The Winklevoss Twins join Silbert and Novograts on Forbes Richest People In Cryptocurrency list (link below). Here we see more of a mixture of independently wealthy, early investors like Matthew Mellon, heir to a banking fortune and high-ranking member of the New York Republican Party, and financial sector whales, such as former Goldman Sachs executive Joseph Lubin, with crypto space innovators like Ethereum founder Vitalik Buterin and Binance CEO Changpeng Zhao. The most telling addition, or should I say additions, to this list are Chris Larson and Brad Garlinghouse of Ripple.
Ripple is considered by many crypto-enthusiasts to be the most un-crypto of all cryptocurrencies. That is, being a centralized system designed to help current, fiat based financial systems integrate into the coming paradigm, it is probably as far away from the original founders’ vision as a project could possibly be and still be called a cryptocurrency. Yet, as we can see in this post from @avilsd, https://steemit.com/cryptocurrencies/@avilsd/top-10-best-performing-cryptocurrencies-of-2017, Ripple, a centralized crypto-asset designed to support, not disrupt the current financial system, was the top performing cryptocurrency of 2017.
While the individuals I have listed above are technically considered non-institutional investors, many of them have a background in, and made the money they have subsequently invested in cryptocurrencies, in the traditional financial trading space. Also, they are not the only people from the financial sector to take notice of the potential for profit. In point of fact, this post from Steemit user @stewpeed https://steemit.com/bitcoin/@stewpeed/rapid-adoption-of-bitcoin-mainstream-media-institutional-investors-merchants credits increasing adoption from institutional investors in part for Bitcoins rise to its all-time high a few months ago, due in part to, increasing mainstream coverage from networks like the Wall Street Journal. Moreover, many individuals and companies are actively trying to make the space more inviting for financial institutions, such as the recent ICO Cybertrust. According to the post https://steemit.com/steemit/@westonmills/a-cryptocurrency-based-banking-platform-for-institutional-investors-cabs-token from @westonmills, one of the main goals of Cybertrust is to make Bitcoin investment suitable for institutional investors.
Despite the FUD surrounding institutional investors adoption of cryptocurrencies, they seem to be doing so more and more recently. Steemit user @chayon showed us that nearly two-thirds of institutional investors are either already invested or considering investing in this recent post, https://steemit.com/bitcoin/@chayon/62-of-institutional-investors-are-buying-or-considering-buying-bitcoin. The implementation of Bitcoin futures and pending ETFs, which, according to an article this month on BusinessInsider.com (link below), JP Morgan dubbed the “Holy Grail,” give investment professionals a broad array of crypto related investment options. Even banking giant Goldman Sachs is getting in the game with the development of their new cryptocurrency desk (article link below), and financial backing of the tech startup, Circle which recently purchased the crypto-exchange Poloniex .
On top of all the financial sector money invested in current crypto projects, banks and other financial service providers are also investing in the future of crypto technologies. In fact, according to an article posted on News.Bitcoin.com (link below), the company that currently holds the most cryptocurrency related patents is none other than Bank of America.
Maybe I am misreading all of this information and these former high-ranking banking executives and hedge fund managers in the space were simply the first wave of individuals from their industry to see the writing on the wall. Maybe they were fed up with the corporate greed and the Wall Street rat race, and decided to go all in on radical social change. Rok-sivante included a quote from Buckminster Fuller in his post which has come to be a battle cry of sorts for crypto-visionaries, You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete. The claim being, the new model is here. It’s gaining a foothold and the old guard are shaking in their boots. Unfortunately this manifesto doesn’t apply to our current situation. Crypto’s could have fit this ideal if the world population, or at least a large portion of it, had adopted them directly, abandoning the fiat system completely, instead of purchasing them with the money already in circulation. The reason that Fuller’s solution doesn’t work in the case of the transfer of fiat to cryptocurrency is that fiat has not become obsolete. In fact, cryptocurrencies rely completely on the value of fiat and can only succeed with an orderly transfer of that value. Anything less than massive adoption of a currency system with zero cost in fiat money is simply an exchange of value. It is true that this exchange of value comes with opportunities for profit for early adopters and wise investors, but there’s no getting around the undeniable fact that this is a buy-in system. Therefore, the outcome is weighted heavily in favor of those who have the most resources to buy in with. The banks know this, and while they are spewing FUD out of their public faces, they are buying in. And what’s more, as crypto investors, we not only want this to happen, we need it to.
If you would like to join the discussion or if you found this post interesting or useful please follow me. I will be posting a part 2 to this discussion, where we can debate what the effects of the crypto-revolution will likely be and what we can do to make the most of it.
1SBD award information
Thank you so much for reading my post. I put a lot of time and effort into this piece so if you feel like it was worthwhile an upvote would be greatly appreciated. As I stated above, I want to start a dialogue with Steemians interested in the cryptocurrency space as a whole, and where we are heading. To encourage discussion I will be sending 1SBD to the best counter-argument to my thesis: Satoshi’s vision is a pipedream. I will start a thread in the comments and share the top 3-5 comments for users to vote on. You may vote for your favorite by upvoting the posters comment.
(I’m not sure if this is the best way to set this up, but it seems like the most logical to me. I would like to do more posts like this in the future so if you have any suggestions on how to make this better, please let me know.)