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Against Overuse of the Gini Coefficient

107 points by elsewhen 5y ago

emodendroket 5y ago
OK, come on. It's a deflationary asset. If you got in early you're sitting on a bunch of it you get to be insanely rich if it's the main means of exchange. When people are being more honest about it they fantasize about that happening and getting to lord it over everyone else.
- bpodgursky 5y ago
  Of all the crypto-quadrillionaires out there, I trust Vitalik the most to not be just in it for the cash. He really does have a vision for Ethereum's place in the world, whether or not you agree with it. He's conspicuously burned or donated hundreds of millions of dollars (albeit not super liquid) in other crypto assets basically because they were a distraction. He's given away billions in Eth, and has approximately 0 conspicuous consumption.
  - ashtonkem 5y ago
    He’s one of the very few ones I merely disagree with.
  - gruez 5y ago
    > He's given away billions in Eth Source? Also, is it "billions" ...of ETH? ...of dollars? At present market value? Or market value at the time of transaction?
    - johnnyApplePRNG 5y ago
      There are less than 117 million ETH in existence.
      - hanniabu 5y ago
        Hilarious to see how some comments that are objectively and verifiably true, like this one, are being downvoted.
    - bogota 5y ago
      https://www.google.com/amp/s/www.forbes.com/sites/ninabambysheva/2021/05/12/ethereums-co-founder-vitalik-buterin-donates-over-1-billion-to-india-covid-relief-fund-and-other-charities/amp/ https://www.google.com/amp/s/www.forbes.com/sites/ninabambys... It was 1 billion at time of donation but sits at about 400MM now. Im not sure about his eth donations but he has shown he isn’t greedy for money. The above was talking in dollars not ETH.
      - gruez 5y ago
        >https://www.google.com/amp/s/www.forbes.com/sites/ninabambys https://www.google.com/amp/s/www.forbes.com/sites/ninabambys... >It was 1 billion at time of donation but sits at about 400MM now The source you provided says he donated $1B in various tokens/coins, not in ETH (as bpodgursky originally claimed). This is an important distinction, because a $1B donation in a very thinly traded coin/token is worth significantly less than a $1B donation in a popular cryptocurrency like eth/btc. The same source also says he only has about $1B in ETH, which makes me even more doubtful he actually donated $1B (in value after liquidation, not at market price).
        dogecoinbase 5y ago
        This is exactly correct. Many people gave him various coins (typically in the hope that he would then promote them) -- he gave those away. I guess it worked, because you now have people saying "He's given away billions in Eth".
        kingleo23 5y ago
        He definitely should have checked and publicly acknowledged the market depth and been more cognizant of the local market top before giving away a mere 400mm of his private wealth to charity. He used coins dumped to his public address by scam projects attempting to co-opt his legitimacy to fool naïve investors and in one stroke stopped that practice and donated a 9 figure sum to Covid relief in India and other causes.
  - coralreef 5y ago
    Vitalik has the intelligence to back it up. Waterloo dropout, Thiel fellowship, the guy is the smartest in the space.
- DenseComet 5y ago
  Its very clear too, looking at the cryptocurrencies with the highest market caps. Very few are inflationary because the goal is to make the founders wealthy. Take a look at any subreddits for these currencies too and you'll find the same sort of thing too. For example, I think the tech behind polkadot is a neat idea, but go to r/polkadot and all you'll find is discussion about prices and staking rewards. I have a lot of mixed feelings about the space. A lot of the tech is pretty interesting and is pushing distributed consensus forward. On the other hand, 99% of people involved are trying to make a quick buck.
  - bogota 5y ago
    I think you will find in many places of life people are just trying to make a quick buck but in crypto this truth seems to cause a visceral reaction for people. One of the problems crypto has is that it would be really hard to make a currency that was inflationary and still have any adoption. Bitcoin and others have tried various economic incentives to bring early adopters in and reward them. Is this the best way? Im not sure other coins like NANO have tried to distribute coins early by captcha and this was actually very helpful to people in poorer countries. Ultimately though most of them sold it as soon as they got it and the distribution looks to be about the same as bitcoin and others. Other solutions exist I’m sure but bitcoins decreasing inflation seems to be the best so far if you are making a crypto you want to succeed. The same logic though could be applied to startups or any business. The first people in do a large amount of the work in helping it grow and are rewarded for that. Maybe too much but that’s hard to quantify. Also reddit has never been the place to talk about tech. Most of the people buying hardly understand it. If you want to have better conversation they normally have developer channels. And again you could say the same thing about people talking about stocks on reddit. Edit: a reminder not to downvote just because you disagree. This always happens in crypto threads and really just enforces that you always have the same discourse on them. Sad to see on HN i expect it on sites like reddid.
    - emodendroket 5y ago
      At the very least it makes me want to check my watch is still on when someone tries to convince me it's an "anti-elite" invention, despite appearances, as this article seeks to do.
- bogota 5y ago
  It’s not currently deflationary. It has less inflation over time yes but the two aren’t the same. I don’t see why you think anyone is lording this over someone. The blog just addresses that the gini coefficient doesn’t fit well here. You can agree or disagree with that but you just seem to be hurling insults for whatever reason.
  - hanniabu 5y ago
    A lot of people have a knee jerk reaction to crypto for whatever reason.
  - greiskul 5y ago
    Bitcoin reduces the number of coins mined overtime, and after a certain number of coins are mined they will stop being produced. That's almost the definition of deflationary.
    - SuchAnonMuchWow 5y ago
      No, that's inflation slowing down. But its still inflation, because new coins are being created.
      - arcticbull 5y ago
        You are correct the parent is not referring to deflation - just slowing inflation. However Bitcoin is strongly strongly deflationary because any random walk down the timeline leads to 100% of coins lost. Due to human error, act of God and chance. In its first 12 years, give or take 20% of all Bitcoins were lost in spite of, what, 80% of all coins being generated. Thats an annualized deflation rate of 2%.
      - emodendroket 5y ago
        The real value of one Bitcoin today (I.e., the dollars or goods one could exchange it for) is absurdly higher than before, so it deflationary as the term is usually used.
- cryptoquick 5y ago
  Bitcoin is deflationary, Ethereum is not. Even with the changes in EIP 1559, that just introduces instability in supply. ETH 2 introduces inflation, which is what made wealth inequality so bad to begin with. People holding assets that outperformed the money made out better than those who didn't have the capability to do anything with their money as it depreciated in their bank accounts as they wait for the inevitable bills to come. Bitcoin will take care of fiat money, and Ethereum, too. It's solving for the $1 quadrillion dollar problem, and after a few decades or generations, wealth around the planet will begin to be a little more evenly distributed, since even the Bitcoin billionaires will eventually need to spend their Bitcoin.
- JohnJamesRambo 5y ago
  What happened to people that got in early on the USD?
  - gruez 5y ago
    "got in early on the USD" would imply a time where USD was still on the gold standard. I'm not aware of any gold standard currencies where they increased the valuation (ie. previously they promised to pay you 1 oz of gold but now they'll pay you 2oz of gold), so at best they would have retained their original value and not made any gains. If we count the debasings and/or transition off the gold standard, they would have lost money due to inflation.
    - JohnJamesRambo 5y ago
      Getting in early means getting time to amass a lot of it. Rockefellers, Carnegie, the people that bought Manhattan Island for $1,143 in 2020 dollars. The artist that painted the Facebook murals for stock options that is a multi-millionaire now. My point is that people that get in early in crypto are no different, of course they are more wealthy than those that come after, as long as they don’t waste it. There are always monetary rewards for people that recognize good investments before the rest of the crowd.
      - arcticbull 5y ago
        > The artist that painted the Facebook murals for stock options that is a multi-millionaire now. That person did not "get in early" on USD. They got in early on Facebook stock. Currencies are designed to stay flat-ish, and ideally have a low, predictable rate of inflation to among other things incentivize investment. Your job is to allocate that currency towards getting in early on something productive. Like an upstart social network.
      - imtringued 5y ago
        It's funny how it's considered a "good investment". The point of "investing" in Bitcoin is to make it harder to access its utility and make it harder to further invest into Bitcoin. With stocks you aren't supposed to "overinvest". If the company is overvalued you'll lose your money one day.
- hanniabu 5y ago
  Are you using deflationary in the traditional finance sense or in terms of supply as it's used in the crypto space? If the former, am I understanding correctly that you're upset ETH is an appreciating asset? If the latter then you're incorrect. Right now it's inflationary and after the merge to PoS it'll still be inflationary but less so. EIP 1559 has a gas burning mechanism that can make ETH deflationary but it depends on usage. Even if that is the case, it will only be short term until an equilibrium with the price is met (as ETH price increases, less gas will be needed/burnt, reducing the effect on inflation).
  - emodendroket 5y ago
    I think appreciating value is a bad quality in something that seeks to be a currency because it would naturally encourage runaway inequality and disinvestment if it were adopted for the purpose.
    - hanniabu 5y ago
      Just because it's called a crypto currency doesn't mean it's seeking to be a currency.
- darawk 5y ago
  What does this have to do with his post? You seem to be implying that this post is some kind of ham-fisted defense of wealth inequality in cryptocurrency, but that's not what it says at all.
- onetimeusename 5y ago
  I hadn't really thought of the legitimate cryptocurrencies that way. The early adopters would explain their large holdings as just being an unavoidable consequence or necessary for them to keep the project alive. But you're probably right that they deliberately set things up to be entrenched powers over everyone. When I think of it that way, the Proof-of-Stake looks like it benefits mostly the large, early holders. I could be wrong but the current 6.1% return Ethereum gets is a very nice mining profit available to large stake holders. It seems like staking would be most easily done by people who already have large holdings and want to generate income from it. In that sense it's almost kind of feudal and I am wondering if POS was at least partly set up for that purpose.
  - chrisco255 5y ago
    I think when a blockchain network begins as POS, this is correct. It's almost impossible to distribute the funds in a way that doesn't benefit the early adopters, because they need to stake a large chunk of the available supply to secure the network against attacks. But Ethereum didn't begin as POS, it began as POW and has been POW for 6 years now. They allowed anyone to participate in the pre-sale in 2014 and got BTC deposits from thousands of people to bootstrap the network. As a result, no one has more than 1% of ETH supply. Vitalik himself has about 300K ETH or so (less than half a percent). BTC Proof-of-Work today requires large amounts of capital to earn new coins and already ~89% of the supply has been mined. To mine the last 11%, you need massive datacenters filled with ASIC miners, access to massive amounts of electricity, and you need to spend capex on upgrades the whole way. There's no perfect solution as each approach have trade-offs, but at least Ethereum is a platform. Anyone can launch a token on top of the platform, create a protocol like Uniswap and turn it into a multi-billion dollar DAO.
bpodgursky 5y ago
Lot of people miss that individual crypto assets are deflationary, but the crypto market as a whole can be persistently inflationary b/c it's so easy to just fork or spin up a new coin. Only deflationary if everyone rallies around bitcoin and ignores the altcoins, which isn't really what's happening.
- nemothekid 5y ago
  I don’t understand how your comment is meaningful. If for example the USD was deflationary, and I argued it wasn’t because I could print my own currency at home, I don’t see how that would benefit anyone
  - bpodgursky 5y ago
    If you could print your own currency at home, and most of the people who accepted dollars also accepted homebrew currencies, then you would be in a similar situation to BTC / DOGE.
  - renewiltord 5y ago
    The difference is that the Uniswap and Sushiswap Decentralized Exchanges give you mechanisms of exchange of any token and the market involves people who will buy your shitcoin. Few will accept alt paper tender on the other hand
TekMol 5y ago
In this article, Vitalik argues that a high Gini coefficient is not a big problem in crypto because crypto does not measure life quality. Aka someone with only little crypto is not starving. They are just less invested. I don't think most people care about the Gini in crypto because they are afraid of the crypto poor starving. I think they care because a high Gini means there are some super rich that could flood the market with their coins and make the price tank. So the discussion in crypto about Gini is held from an investment perspective.
- vbuterin 5y ago
  The whole point of my post was that instead of the Gini we should use a more targeted index that specifically measures the presence of super rich that can unilaterally flood the market with their coins, and does not concern itself with whether the long tail of users has 0.03 coins each or 0.003 coins each.
  - TekMol 5y ago
    Interesting. While reading the post, I did not have the feeling this is the main point. But yes, the point is probably equivalent to the measurement of 'concentration' for which you propose the Herfindahl–Hirschman Index and other formulas. Is there good data out there to use as input for those formulas? Often when I read about distribution of crypto, the numbers used seem very foggy. Like account balances on the chain. Those could mean anything. One individual might own 1000 accounts (in a wallet). One account might belong to 1000 individuals (on an exchange). I would love to hear about some rough estimates for different crypto currencies. Like "How much ETH do the top 10 holders hold"?
    - vbuterin 5y ago
      There have been attempts at doing this, eg. https://cointelegraph.com/news/new-analysis-of-top-10k-ethereum-wallets-gives-highly-bullish-outlook https://cointelegraph.com/news/new-analysis-of-top-10k-ether... I imagine you would have to talk to the analytics firms to get the best-in-class attempts to figure out what the split between individual users is.
Animats 5y ago
You're not supposed to apply the Gini coefficient to a single asset. It's for an entire society. Now, governance concentration, that's a useful metric for a cryptocurrency.
- arcticbull 5y ago
  Heisenberg's asset class strikes again. A Gini coefficient is only useful if you treat it as a currency of a sovereign state, but it has basically no attributes of a good currency - and certainly doesn't have a state. It's not broadly accepted anywhere, it's not the unit of account for anything and nothing is priced in it. So yes, to your point, a Gini coefficient with that in mind makes no sense. However because it says "currency" on the sticker, someone's gonna run the numbers as though it is one.
- vbuterin 5y ago
  I would argue in 2021 the only thing that qualifies as "an entire society" is the whole world. So unless you're measuring the world as a whole, you're measuring communities that have porous relationships with the outside world to some degree or other. But of course, cryptocurrencies are still much more porous than countries are.
  - Animats 5y ago
    The Gini coefficient is a property of a group of people, not of an asset class. You can compute a meaningful Gini coefficient for any group of people where income data is available - a county, a country, a ZIP code.
steerablesafe 5y ago
When calculating Gini coefficient for crypto, do you include people that have 0.000001 BTC? Do you also include people that have exactly 0 BTC (and possible don't even own a wallet)? But of course I believe in practice Gini is not calculated over people but over wallets.
asymmetric 5y ago
> Cryptocurrencies, even those that turn out to be highly plutocratic, will not turn any part of the world into anything close to dystopia A This is only true iff the meme that "crypto is eating the world" is false, i.e. if a future where crypto is more and more enmeshed in an individual's economic life doesn't pan out. This is possible and maybe even likely, but it is somewhat ironic to hear such a bearish case on crypto's usfeulness made by vbuterin :) > First, start with some utility function representing the value of having a certain amount of money. `log(x)` is popular, because it captures the intuitively appealing approximation that doubling one's income is about as useful at any level: going from $10,000 to $20,000 adds the same utility as going from $5,000 to $10,000 or from $40,000 to $80,000). This is not intuitive to me. Intuitively, going from 10K to 20K is not the same as going from 1M to 2M. In the former case, you cross the USA poverty line[1], in the latter, you can afford a couple more Lambos. Is there something I'm missing in the use of the word "utility"? [1]: https://en.wikipedia.org/wiki/Poverty_threshold#United_States https://en.wikipedia.org/wiki/Poverty_threshold#United_State...
- arianon 5y ago
  > Is there something I'm missing in the use of the word "utility"? Vitalik uses the word "utility" the same way (mainstream) economists do: A numeric estimation of the satisfaction, pleasure, benefit, advantage, or happiness given by an increase in wealth. What you're calling out is that the concept itself is problematic: as you pointed out, the assumption of log-utility of wealth is not entirely accurate because, in reality, increments in wealth have diminishing utility. There are other limitations with the idea, for example, is it possible to capture in a utility function the well-accepted notion that losing a given amount of money is more painful than it is pleasurable to gain it? Or that receiving a small amount of money now may have much more utility than receiving a large amount of it in the future? Maybe, maybe not, but this is how economists attempt to capture and quantify human behavior regarding our wants and needs for wealth, inadequate as it is.
IshKebab 5y ago
I mean yeah, obviously a single number can't distinguish different wealth distributions. That's not exactly a problem with the Gini coefficient, it's just a limitation you have to accept if you want to summarise the full distribution with a single number. You have the same problem with any distribution that you want to summarise with a single number, e.g. colour temperature, CRI, house price indexes, rainfall measurements, etc. etc.
deleted 5y ago
[deleted]
known 5y ago
https://en.m.wikipedia.org/wiki/Economic_mobility https://en.m.wikipedia.org/wiki/Economic_mobility != https://en.m.wikipedia.org/wiki/Social_mobility https://en.m.wikipedia.org/wiki/Social_mobility
text70 5y ago
Beyond the model, the the Gini log curve seems to be an integration of the Cauchy-Reimann equations. Increasing the frequency and amplitude of the underlying equations should bring about more stability, not less, as the differentiated integral of equations tends towards (x).

107 points by elsewhen 5y ago

OK, come on. It's a deflationary asset. If you got in early you're sitting on a bunch of it you get to be insanely rich if it's the main means of exchange. When people are being more honest about it they fantasize about that happening and getting to lord it over everyone else.

bpodgursky 5y ago
Of all the crypto-quadrillionaires out there, I trust Vitalik the most to not be just in it for the cash. He really does have a vision for Ethereum's place in the world, whether or not you agree with it. He's conspicuously burned or donated hundreds of millions of dollars (albeit not super liquid) in other crypto assets basically because they were a distraction. He's given away billions in Eth, and has approximately 0 conspicuous consumption.
- ashtonkem 5y ago
  He’s one of the very few ones I merely disagree with.
- gruez 5y ago
  > He's given away billions in Eth Source? Also, is it "billions" ...of ETH? ...of dollars? At present market value? Or market value at the time of transaction?
  - johnnyApplePRNG 5y ago
    There are less than 117 million ETH in existence.
    - hanniabu 5y ago
      Hilarious to see how some comments that are objectively and verifiably true, like this one, are being downvoted.
  - bogota 5y ago
    https://www.google.com/amp/s/www.forbes.com/sites/ninabambysheva/2021/05/12/ethereums-co-founder-vitalik-buterin-donates-over-1-billion-to-india-covid-relief-fund-and-other-charities/amp/ https://www.google.com/amp/s/www.forbes.com/sites/ninabambys... It was 1 billion at time of donation but sits at about 400MM now. Im not sure about his eth donations but he has shown he isn’t greedy for money. The above was talking in dollars not ETH.
    - gruez 5y ago
      >https://www.google.com/amp/s/www.forbes.com/sites/ninabambys https://www.google.com/amp/s/www.forbes.com/sites/ninabambys... >It was 1 billion at time of donation but sits at about 400MM now The source you provided says he donated $1B in various tokens/coins, not in ETH (as bpodgursky originally claimed). This is an important distinction, because a $1B donation in a very thinly traded coin/token is worth significantly less than a $1B donation in a popular cryptocurrency like eth/btc. The same source also says he only has about $1B in ETH, which makes me even more doubtful he actually donated $1B (in value after liquidation, not at market price).
      - dogecoinbase 5y ago
        This is exactly correct. Many people gave him various coins (typically in the hope that he would then promote them) -- he gave those away. I guess it worked, because you now have people saying "He's given away billions in Eth".
        kingleo23 5y ago
        He definitely should have checked and publicly acknowledged the market depth and been more cognizant of the local market top before giving away a mere 400mm of his private wealth to charity. He used coins dumped to his public address by scam projects attempting to co-opt his legitimacy to fool naïve investors and in one stroke stopped that practice and donated a 9 figure sum to Covid relief in India and other causes.
- coralreef 5y ago
  Vitalik has the intelligence to back it up. Waterloo dropout, Thiel fellowship, the guy is the smartest in the space.
DenseComet 5y ago
Its very clear too, looking at the cryptocurrencies with the highest market caps. Very few are inflationary because the goal is to make the founders wealthy. Take a look at any subreddits for these currencies too and you'll find the same sort of thing too. For example, I think the tech behind polkadot is a neat idea, but go to r/polkadot and all you'll find is discussion about prices and staking rewards. I have a lot of mixed feelings about the space. A lot of the tech is pretty interesting and is pushing distributed consensus forward. On the other hand, 99% of people involved are trying to make a quick buck.
- bogota 5y ago
  I think you will find in many places of life people are just trying to make a quick buck but in crypto this truth seems to cause a visceral reaction for people. One of the problems crypto has is that it would be really hard to make a currency that was inflationary and still have any adoption. Bitcoin and others have tried various economic incentives to bring early adopters in and reward them. Is this the best way? Im not sure other coins like NANO have tried to distribute coins early by captcha and this was actually very helpful to people in poorer countries. Ultimately though most of them sold it as soon as they got it and the distribution looks to be about the same as bitcoin and others. Other solutions exist I’m sure but bitcoins decreasing inflation seems to be the best so far if you are making a crypto you want to succeed. The same logic though could be applied to startups or any business. The first people in do a large amount of the work in helping it grow and are rewarded for that. Maybe too much but that’s hard to quantify. Also reddit has never been the place to talk about tech. Most of the people buying hardly understand it. If you want to have better conversation they normally have developer channels. And again you could say the same thing about people talking about stocks on reddit. Edit: a reminder not to downvote just because you disagree. This always happens in crypto threads and really just enforces that you always have the same discourse on them. Sad to see on HN i expect it on sites like reddid.
  - emodendroket 5y ago
    At the very least it makes me want to check my watch is still on when someone tries to convince me it's an "anti-elite" invention, despite appearances, as this article seeks to do.
bogota 5y ago
It’s not currently deflationary. It has less inflation over time yes but the two aren’t the same. I don’t see why you think anyone is lording this over someone. The blog just addresses that the gini coefficient doesn’t fit well here. You can agree or disagree with that but you just seem to be hurling insults for whatever reason.
- hanniabu 5y ago
  A lot of people have a knee jerk reaction to crypto for whatever reason.
- greiskul 5y ago
  Bitcoin reduces the number of coins mined overtime, and after a certain number of coins are mined they will stop being produced. That's almost the definition of deflationary.
  - SuchAnonMuchWow 5y ago
    No, that's inflation slowing down. But its still inflation, because new coins are being created.
    - arcticbull 5y ago
      You are correct the parent is not referring to deflation - just slowing inflation. However Bitcoin is strongly strongly deflationary because any random walk down the timeline leads to 100% of coins lost. Due to human error, act of God and chance. In its first 12 years, give or take 20% of all Bitcoins were lost in spite of, what, 80% of all coins being generated. Thats an annualized deflation rate of 2%.
    - emodendroket 5y ago
      The real value of one Bitcoin today (I.e., the dollars or goods one could exchange it for) is absurdly higher than before, so it deflationary as the term is usually used.
cryptoquick 5y ago
Bitcoin is deflationary, Ethereum is not. Even with the changes in EIP 1559, that just introduces instability in supply. ETH 2 introduces inflation, which is what made wealth inequality so bad to begin with. People holding assets that outperformed the money made out better than those who didn't have the capability to do anything with their money as it depreciated in their bank accounts as they wait for the inevitable bills to come. Bitcoin will take care of fiat money, and Ethereum, too. It's solving for the $1 quadrillion dollar problem, and after a few decades or generations, wealth around the planet will begin to be a little more evenly distributed, since even the Bitcoin billionaires will eventually need to spend their Bitcoin.
JohnJamesRambo 5y ago
What happened to people that got in early on the USD?
- gruez 5y ago
  "got in early on the USD" would imply a time where USD was still on the gold standard. I'm not aware of any gold standard currencies where they increased the valuation (ie. previously they promised to pay you 1 oz of gold but now they'll pay you 2oz of gold), so at best they would have retained their original value and not made any gains. If we count the debasings and/or transition off the gold standard, they would have lost money due to inflation.
  - JohnJamesRambo 5y ago
    Getting in early means getting time to amass a lot of it. Rockefellers, Carnegie, the people that bought Manhattan Island for $1,143 in 2020 dollars. The artist that painted the Facebook murals for stock options that is a multi-millionaire now. My point is that people that get in early in crypto are no different, of course they are more wealthy than those that come after, as long as they don’t waste it. There are always monetary rewards for people that recognize good investments before the rest of the crowd.
    - arcticbull 5y ago
      > The artist that painted the Facebook murals for stock options that is a multi-millionaire now. That person did not "get in early" on USD. They got in early on Facebook stock. Currencies are designed to stay flat-ish, and ideally have a low, predictable rate of inflation to among other things incentivize investment. Your job is to allocate that currency towards getting in early on something productive. Like an upstart social network.
    - imtringued 5y ago
      It's funny how it's considered a "good investment". The point of "investing" in Bitcoin is to make it harder to access its utility and make it harder to further invest into Bitcoin. With stocks you aren't supposed to "overinvest". If the company is overvalued you'll lose your money one day.
hanniabu 5y ago
Are you using deflationary in the traditional finance sense or in terms of supply as it's used in the crypto space? If the former, am I understanding correctly that you're upset ETH is an appreciating asset? If the latter then you're incorrect. Right now it's inflationary and after the merge to PoS it'll still be inflationary but less so. EIP 1559 has a gas burning mechanism that can make ETH deflationary but it depends on usage. Even if that is the case, it will only be short term until an equilibrium with the price is met (as ETH price increases, less gas will be needed/burnt, reducing the effect on inflation).
- emodendroket 5y ago
  I think appreciating value is a bad quality in something that seeks to be a currency because it would naturally encourage runaway inequality and disinvestment if it were adopted for the purpose.
  - hanniabu 5y ago
    Just because it's called a crypto currency doesn't mean it's seeking to be a currency.
darawk 5y ago
What does this have to do with his post? You seem to be implying that this post is some kind of ham-fisted defense of wealth inequality in cryptocurrency, but that's not what it says at all.
onetimeusename 5y ago
I hadn't really thought of the legitimate cryptocurrencies that way. The early adopters would explain their large holdings as just being an unavoidable consequence or necessary for them to keep the project alive. But you're probably right that they deliberately set things up to be entrenched powers over everyone. When I think of it that way, the Proof-of-Stake looks like it benefits mostly the large, early holders. I could be wrong but the current 6.1% return Ethereum gets is a very nice mining profit available to large stake holders. It seems like staking would be most easily done by people who already have large holdings and want to generate income from it. In that sense it's almost kind of feudal and I am wondering if POS was at least partly set up for that purpose.
- chrisco255 5y ago
  I think when a blockchain network begins as POS, this is correct. It's almost impossible to distribute the funds in a way that doesn't benefit the early adopters, because they need to stake a large chunk of the available supply to secure the network against attacks. But Ethereum didn't begin as POS, it began as POW and has been POW for 6 years now. They allowed anyone to participate in the pre-sale in 2014 and got BTC deposits from thousands of people to bootstrap the network. As a result, no one has more than 1% of ETH supply. Vitalik himself has about 300K ETH or so (less than half a percent). BTC Proof-of-Work today requires large amounts of capital to earn new coins and already ~89% of the supply has been mined. To mine the last 11%, you need massive datacenters filled with ASIC miners, access to massive amounts of electricity, and you need to spend capex on upgrades the whole way. There's no perfect solution as each approach have trade-offs, but at least Ethereum is a platform. Anyone can launch a token on top of the platform, create a protocol like Uniswap and turn it into a multi-billion dollar DAO.

bpodgursky 5y ago

Lot of people miss that individual crypto assets are deflationary, but the crypto market as a whole can be persistently inflationary b/c it's so easy to just fork or spin up a new coin. Only deflationary if everyone rallies around bitcoin and ignores the altcoins, which isn't really what's happening.

nemothekid 5y ago
I don’t understand how your comment is meaningful. If for example the USD was deflationary, and I argued it wasn’t because I could print my own currency at home, I don’t see how that would benefit anyone
- bpodgursky 5y ago
  If you could print your own currency at home, and most of the people who accepted dollars also accepted homebrew currencies, then you would be in a similar situation to BTC / DOGE.
- renewiltord 5y ago
  The difference is that the Uniswap and Sushiswap Decentralized Exchanges give you mechanisms of exchange of any token and the market involves people who will buy your shitcoin. Few will accept alt paper tender on the other hand

TekMol 5y ago

In this article, Vitalik argues that a high Gini coefficient is not a big problem in crypto because crypto does not measure life quality. Aka someone with only little crypto is not starving. They are just less invested. I don't think most people care about the Gini in crypto because they are afraid of the crypto poor starving. I think they care because a high Gini means there are some super rich that could flood the market with their coins and make the price tank. So the discussion in crypto about Gini is held from an investment perspective.

vbuterin 5y ago
The whole point of my post was that instead of the Gini we should use a more targeted index that specifically measures the presence of super rich that can unilaterally flood the market with their coins, and does not concern itself with whether the long tail of users has 0.03 coins each or 0.003 coins each.
- TekMol 5y ago
  Interesting. While reading the post, I did not have the feeling this is the main point. But yes, the point is probably equivalent to the measurement of 'concentration' for which you propose the Herfindahl–Hirschman Index and other formulas. Is there good data out there to use as input for those formulas? Often when I read about distribution of crypto, the numbers used seem very foggy. Like account balances on the chain. Those could mean anything. One individual might own 1000 accounts (in a wallet). One account might belong to 1000 individuals (on an exchange). I would love to hear about some rough estimates for different crypto currencies. Like "How much ETH do the top 10 holders hold"?
  - vbuterin 5y ago
    There have been attempts at doing this, eg. https://cointelegraph.com/news/new-analysis-of-top-10k-ethereum-wallets-gives-highly-bullish-outlook https://cointelegraph.com/news/new-analysis-of-top-10k-ether... I imagine you would have to talk to the analytics firms to get the best-in-class attempts to figure out what the split between individual users is.

Animats 5y ago

You're not supposed to apply the Gini coefficient to a single asset. It's for an entire society. Now, governance concentration, that's a useful metric for a cryptocurrency.

arcticbull 5y ago
Heisenberg's asset class strikes again. A Gini coefficient is only useful if you treat it as a currency of a sovereign state, but it has basically no attributes of a good currency - and certainly doesn't have a state. It's not broadly accepted anywhere, it's not the unit of account for anything and nothing is priced in it. So yes, to your point, a Gini coefficient with that in mind makes no sense. However because it says "currency" on the sticker, someone's gonna run the numbers as though it is one.
vbuterin 5y ago
I would argue in 2021 the only thing that qualifies as "an entire society" is the whole world. So unless you're measuring the world as a whole, you're measuring communities that have porous relationships with the outside world to some degree or other. But of course, cryptocurrencies are still much more porous than countries are.
- Animats 5y ago
  The Gini coefficient is a property of a group of people, not of an asset class. You can compute a meaningful Gini coefficient for any group of people where income data is available - a county, a country, a ZIP code.

steerablesafe 5y ago

When calculating Gini coefficient for crypto, do you include people that have 0.000001 BTC? Do you also include people that have exactly 0 BTC (and possible don't even own a wallet)? But of course I believe in practice Gini is not calculated over people but over wallets.

asymmetric 5y ago

> Cryptocurrencies, even those that turn out to be highly plutocratic, will not turn any part of the world into anything close to dystopia A This is only true iff the meme that "crypto is eating the world" is false, i.e. if a future where crypto is more and more enmeshed in an individual's economic life doesn't pan out. This is possible and maybe even likely, but it is somewhat ironic to hear such a bearish case on crypto's usfeulness made by vbuterin :) > First, start with some utility function representing the value of having a certain amount of money. `log(x)` is popular, because it captures the intuitively appealing approximation that doubling one's income is about as useful at any level: going from $10,000 to $20,000 adds the same utility as going from $5,000 to $10,000 or from $40,000 to $80,000). This is not intuitive to me. Intuitively, going from 10K to 20K is not the same as going from 1M to 2M. In the former case, you cross the USA poverty line[1], in the latter, you can afford a couple more Lambos. Is there something I'm missing in the use of the word "utility"? [1]: https://en.wikipedia.org/wiki/Poverty_threshold#United_States https://en.wikipedia.org/wiki/Poverty_threshold#United_State...

arianon 5y ago
> Is there something I'm missing in the use of the word "utility"? Vitalik uses the word "utility" the same way (mainstream) economists do: A numeric estimation of the satisfaction, pleasure, benefit, advantage, or happiness given by an increase in wealth. What you're calling out is that the concept itself is problematic: as you pointed out, the assumption of log-utility of wealth is not entirely accurate because, in reality, increments in wealth have diminishing utility. There are other limitations with the idea, for example, is it possible to capture in a utility function the well-accepted notion that losing a given amount of money is more painful than it is pleasurable to gain it? Or that receiving a small amount of money now may have much more utility than receiving a large amount of it in the future? Maybe, maybe not, but this is how economists attempt to capture and quantify human behavior regarding our wants and needs for wealth, inadequate as it is.

IshKebab 5y ago

I mean yeah, obviously a single number can't distinguish different wealth distributions. That's not exactly a problem with the Gini coefficient, it's just a limitation you have to accept if you want to summarise the full distribution with a single number. You have the same problem with any distribution that you want to summarise with a single number, e.g. colour temperature, CRI, house price indexes, rainfall measurements, etc. etc.

deleted 5y ago

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known 5y ago

https://en.m.wikipedia.org/wiki/Economic_mobility https://en.m.wikipedia.org/wiki/Economic_mobility != https://en.m.wikipedia.org/wiki/Social_mobility https://en.m.wikipedia.org/wiki/Social_mobility

text70 5y ago

Beyond the model, the the Gini log curve seems to be an integration of the Cauchy-Reimann equations. Increasing the frequency and amplitude of the underlying equations should bring about more stability, not less, as the differentiated integral of equations tends towards (x).