- Chris Weller/Business Insider
- As US income inequality reaches a record high, many wonder how blockchain technology and bitcoin fits in the equation.
- Digital currencies have the potential to bridge the global wealth gap, hedge-fund chief Mark Yusko told Business Insider.
- Developing regions throughout Southeast Asia, Latin America, and Sub-Saharan Africa have had exposure to blockchain technology since 2017. Charity organizations that use cryptocurrencies are focused on helping people build credit, access loans without a bank account, and receive bitcoin dollars that turn into resources like clean water.
- This article is part of Business Insider’s ongoing series on Better Capitalism.
- Visit Business Insider’s homepage for more stories.
The mysterious nature of bitcoin has led to common misperceptions about its use, with many in the mainstream relegating it to the realm of hackers and gamers.
The history of cryptocurrency shows quite a different purpose: Bitcoin was actually created with the intention of bridging the global wealth gap. The domain name “bitcoin.org” was registered online in the midst of the Great Recession of 2008. Soon after, the mysterious and purported creator of bitcoin, Satoshi Nakamoto, released statements explaining the electronic cash-to-cash system was developed as a means to fight centralized currency manipulation.
Nevertheless, wealth inequality has become so drastic that many in the lower and middle classes can’t afford to own bitcoin dollars. Inequality in the US has reached a record high since the US Census started tracking it five decades ago, with the federal data showing evidence of a shrinking middle class.
Though the global economy continues to face substantial pressures, experts say the growing popularity of bitcoin might help return it to its intended use: fighting income inequality.
How bitcoin is helping to strengthen the middle class
What’s unique about bitcoin is that it functions on another network, one that’s a lot more transparent than a corporate bank. Every bitcoin transaction is always recorded in its public archive – the blockchain.
Blockchain is the record of all exchanging cryptocurrencies, essentially digital money, between two parties. It is an independent, shared encrypted database of money entries – think of it as a shared Google Doc. Bitcoin is one type of cryptocurrency among others like litecoin, ethereum, and ripple.
Mark Yusko, the CEO and CIO of investment advisory company Morgan Creek Capital Management, told Business Insider that he believes the blockchain network and its fundamental growth can be leveraged to alleviate income inequality. Yusko is known to be a longtime cryptocurrency bull, drawing investors toward more exposure with bitcoin.
“The government and the elites want to have all the wealth, so they manufacture inflation and the wealth flows to the top,” he said. “And that’s why we have the greatest wealth inequality in the history of mankind. Bitcoin helps solve that because now we can opt out as an owner of assets from that fiat system.”
The hedge-fund chief explained one of the main economic problems Americans face today is not owning any or enough assets like real estate property and stocks. Not having money to invest in markets and living from paycheck to paycheck is a major setback for the poor and middle class.
There are more opportunities to acquire assets through blockchain technology. For instance, bitcoin is now accepted in some real estate markets, where investors can own parts of a building if they can’t afford the whole unit, reports CNBC. This new business model can help distribute wealth and widen the investor demographic. It can also open possibilities of owning property across international borders.
Introducing financial literacy in developing countries
While encouraging people to own assets is a way to fight income inequality in the US, developing countries need a different game plan.
As more people around the world own smartphones, bitcoin has the potential to reach even more users in the 2020s. Because cryptocurrency is only transferred electronically, having the most basic internet connection immediately helps anyone access and trade the currency.
Attention toward expanding the crypto space in developing countries first emerged in 2017, when fintech expert Anton Dzyatkovsky cofounded MicroMoney, a money-lending app targeting Southeast Asian countries like Myanmar, Thailand, and the Philippines that provides services to help people build a credit history on the blockchain. There are 1.7 billion people around the world who don’t have bank accounts and can’t access loads, according to The World Bank. Bitcoin has the potential to reach this demographic and provide those financial services.
“We are proud of the fact that we can help people who have no access to the classical, but outdated centralized economy of the bank,” Dzyatkovsky told Business Insider.
Cryptocurrency is also making a breakthrough in Latin America, Business Insider reports. In 2018, the Venezuelan government devalued its currency by 95% due to hyperinflation, prompting more than 400,000 Venezuelans to flee from the economic collapse. After the government issued a new cryptocurrency called petro, the fleeing citizens were able to make cross-border transactions without relying on paper money. The petro is still used in 2019.
In another case in 2017, an anonymous bitcoin millionaire going by the alias “Pine” committed $5 million worth of bitcoin donations to GiveDirectly, an organization that’s running the world’s largest basic income experiment in Kenyan villages. The bitcoin dollars went toward giving people access to clean water and sending money directly to people living in poverty who are facing food shortage, school fees, and home repairs.
“If this money were to be given to everybody, this would be a very good thing,” Edwin Odongo Anyango, a 30-year-old day laborer at one of the Kenyan villages, told Business Insider. “What this money does is it creates hope. And when people have hope, they are happy.”