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The wealth centralization effect is not an inherent aspect of crypto, it was nothing more than a result of the liquidity injections from central banks. The sam

by leppr 4y ago

The wealth centralization effect is not an inherent aspect of crypto, it was nothing more than a result of the liquidity injections from central banks. The same argument could be made of all scarce assets that rocketed in price in the past years. Watches, the stock market, and real estate don't inherently "centralize wealth". Their price appreciation was only a symptom of the reduced cost of debt, which naturally favors the wealthiest, which reflects in the price of what wealthy people buy when they have too much money (scarce assets). The base concept of cryptocurrency is enabling free market economies by bypassing government regulation, and at least in the case of Bitcoin and Ethereum, regulating inflation by setting it in code, instead of being opaquely decided by a few wealthy people (some of them convicted of insider-trading[1]). Those two things tend to favor bottom-up wealth creation, rather than the trickle-down model fiat currencies encourage. That's a wealth decentralization force, not centralization like you claim. [1]: https://finance.yahoo.com/news/a-timeline-of-the-federal-reserves-trading-scandal-104415556.html https://finance.yahoo.com/news/a-timeline-of-the-federal-res...

immibis 4y ago
Crypto has the same wealth centralization problem as all currencies (so far) - it's not immune, at all. It's not because of central bank activity. Wealth just centralizes. Free market economics lead to this emergent outcome. In principle, inflationary currencies have a force pushing away from wealth centralization, while deflationary currencies have a force pushing towards it, which is why everyone who thinks they'll have the centralized wealth likes deflationary currencies.
- leppr 4y ago
  > In principle, inflationary currencies have a force pushing away from wealth centralization That depends entirely where the new money gets injected. If it gets injected at the top, like with our current fiat currencies, then there's nothing wealth-decentralizing about it, all the contrary. [1] Mineable cryptocurrencies inject the new money to whoever mines them, which could be anyone (less true with the current state of Proof of Work, but still true in the case of Proof of Space), thus the wealth-centralizing mechanism of fiat inflation is removed or at least mitigated. [1]: https://www.swfinstitute.org/news/89070/what-is-the-cantillon-effect-and-why-its-even-more-important-now https://www.swfinstitute.org/news/89070/what-is-the-cantillo...
  - Balladeer 4y ago
    > Mineable cryptocurrencies inject the new money to whoever mines them, which could be anyone While true in theory, is it true in practice? Those with the most resources to mine will mine the most and thus receive the most, allowing them to mine more, and the cycle of centralization continues. That's true regardless of PoW or PoS, isn't it?
    - immibis 4y ago
      It is true. It's more true on PoS than PoW, since the mechanism in PoW is indirect. We can also consider how it works with traditional currencies, such as dollars, which has a hybrid PoS/??? system: you can receive resources by having the most resources (federal reserve deposits) and you can also receive them by performing services which the democracy deems useful (government spending), and to balance the numbers, resources are passively taken from people who spend their money but not from those who hoard it... maybe not the best design :)
    - leppr 4y ago
      I absolutely hate cryptocurrency shilling on HN so forgive me if the following appears like so, but this answers your question. > Those with the most resources to mine will mine the most and thus receive the most, allowing them to mine more, and the cycle of centralization continues. This is not a problem if the reward distribution is proportional to the investment from miners, which happens when the mining competition has low or inverse economies of scale, and a low barrier to entry. In PoW and Bitcoin especially, the economies of scale are huge. "Industrial" miners are greatly more profitable than home miners, and ASICs require an upfront investment which comes with risk that smaller operations might not want to take. The result of this high barrier to entry and economies of scale are empirically verifiable by looking at the hash rate from block wins. A correctly designed PoS system almost completely removes economies of scale (notice I said correctly designed, because many other PoS cryptocurrencies actually explicitly favor larger stakes), but might add some artificial barrier to entry, like Ethereum's 32 ETH minimum. The wealth centralization effect is also amplified in PoS by how directly acquiring the scarce resource required to participate in the competition influences the value of existing stakers' investment. In Proof of Space consensus protocols (PoST) [1], the scarce resource is storage space. This can have minimal or even inverse economies of scales relative to money invested, as the running costs become almost as minimal as a PoS operation. And since the quality of the storage material is also irrelevant, what matters most is the cost per Tb of acquisition of storage space. The best savings are done on second hand drives, which makes investment in free time rather than money the profit differentiator. The free time to wealth ratio scales inversely, so smaller PoST miners can have a proportional advantage over larger ones. This decentralization effect is empirically verifiable with how much more individual mining nodes the biggest PoST cryptocurrency Chia currently has than Bitcoin and Ethereum, despite the comparatively very low absolute amount of rewards its consensus delivers to its miners. [1]: full name: Proof of Space and Time, with Time referring to a competition required to get reliable timestamps on the blockchain happening in parallel to the competition over Space.
bowsamic 4y ago
I don’t really care I’m just saying how it looks from the outside
- leppr 4y ago
  We all know the pedestrian outsider opinions about cryptocurrency, they are repeated ad-nauseam here on HN and everywhere else. Adding informed color to this is a good thing, I would think.

by leppr 4y ago

immibis 4y ago

Crypto has the same wealth centralization problem as all currencies (so far) - it's not immune, at all. It's not because of central bank activity. Wealth just centralizes. Free market economics lead to this emergent outcome. In principle, inflationary currencies have a force pushing away from wealth centralization, while deflationary currencies have a force pushing towards it, which is why everyone who thinks they'll have the centralized wealth likes deflationary currencies.

leppr 4y ago
> In principle, inflationary currencies have a force pushing away from wealth centralization That depends entirely where the new money gets injected. If it gets injected at the top, like with our current fiat currencies, then there's nothing wealth-decentralizing about it, all the contrary. [1] Mineable cryptocurrencies inject the new money to whoever mines them, which could be anyone (less true with the current state of Proof of Work, but still true in the case of Proof of Space), thus the wealth-centralizing mechanism of fiat inflation is removed or at least mitigated. [1]: https://www.swfinstitute.org/news/89070/what-is-the-cantillon-effect-and-why-its-even-more-important-now https://www.swfinstitute.org/news/89070/what-is-the-cantillo...
- Balladeer 4y ago
  > Mineable cryptocurrencies inject the new money to whoever mines them, which could be anyone While true in theory, is it true in practice? Those with the most resources to mine will mine the most and thus receive the most, allowing them to mine more, and the cycle of centralization continues. That's true regardless of PoW or PoS, isn't it?
  - immibis 4y ago
    It is true. It's more true on PoS than PoW, since the mechanism in PoW is indirect. We can also consider how it works with traditional currencies, such as dollars, which has a hybrid PoS/??? system: you can receive resources by having the most resources (federal reserve deposits) and you can also receive them by performing services which the democracy deems useful (government spending), and to balance the numbers, resources are passively taken from people who spend their money but not from those who hoard it... maybe not the best design :)
  - leppr 4y ago
    I absolutely hate cryptocurrency shilling on HN so forgive me if the following appears like so, but this answers your question. > Those with the most resources to mine will mine the most and thus receive the most, allowing them to mine more, and the cycle of centralization continues. This is not a problem if the reward distribution is proportional to the investment from miners, which happens when the mining competition has low or inverse economies of scale, and a low barrier to entry. In PoW and Bitcoin especially, the economies of scale are huge. "Industrial" miners are greatly more profitable than home miners, and ASICs require an upfront investment which comes with risk that smaller operations might not want to take. The result of this high barrier to entry and economies of scale are empirically verifiable by looking at the hash rate from block wins. A correctly designed PoS system almost completely removes economies of scale (notice I said correctly designed, because many other PoS cryptocurrencies actually explicitly favor larger stakes), but might add some artificial barrier to entry, like Ethereum's 32 ETH minimum. The wealth centralization effect is also amplified in PoS by how directly acquiring the scarce resource required to participate in the competition influences the value of existing stakers' investment. In Proof of Space consensus protocols (PoST) [1], the scarce resource is storage space. This can have minimal or even inverse economies of scales relative to money invested, as the running costs become almost as minimal as a PoS operation. And since the quality of the storage material is also irrelevant, what matters most is the cost per Tb of acquisition of storage space. The best savings are done on second hand drives, which makes investment in free time rather than money the profit differentiator. The free time to wealth ratio scales inversely, so smaller PoST miners can have a proportional advantage over larger ones. This decentralization effect is empirically verifiable with how much more individual mining nodes the biggest PoST cryptocurrency Chia currently has than Bitcoin and Ethereum, despite the comparatively very low absolute amount of rewards its consensus delivers to its miners. [1]: full name: Proof of Space and Time, with Time referring to a competition required to get reliable timestamps on the blockchain happening in parallel to the competition over Space.

bowsamic 4y ago

I don’t really care I’m just saying how it looks from the outside

leppr 4y ago
We all know the pedestrian outsider opinions about cryptocurrency, they are repeated ad-nauseam here on HN and everywhere else. Adding informed color to this is a good thing, I would think.