Bitcoin: An Emerging Parallel to Traditional Economic Inequality

Paul Samuelson, a prominent Nobel laureate in economics (1970), once said: "Economics is the study of how societies use scarce resources to produce valuable commodities and distribute them among different people." While a more modern definition might replace “valuable commodities” with “valuable goods and services”, one may argue, that the backbone of Paul’s statement holds true to this day. Hence, the economy is the sum of all activities involved in the production and exchange of such goods and services in a society. Such exchange is of course executed through transactions. Thus, any economic system needs people able to transact freely, otherwise it will come to a standstill, which impacts all participants negatively. Under that specific lens, I would like to highlight the significance of wealth distribution, particularly inspecting “BTC-wealth distribution, and potential issues arising through extensive wealth concentration.

According to the world inequality report 2022, a significant portion (approx. 76%) of global wealth is owned by approximately 10% of the global population. Furthermore, a large part of capital is controlled by a relatively small number of financial institutions and governments. This type of wealth centralization affects capital allocation and economic opportunity, often prioritizing the interests of wealthy nations and individuals. In a highly financialized world, this system can perpetuate inequality and instability, particularly as the United States, the issuer of the world's reserve currency, accumulates unprecedented levels of wealth through unprecedented levels of debt. However, the main concern arises as the U.S. struggles to service its own debt, which for decades has served as a so-called risk-free investment vehicle, due to the world’s longstanding trust in the U.S.’s ability to pay back its own debt. As we approach an era, where it becomes ever more evident that the U.S. may in the foreseeable future not even be able to pay back the interest on its debt, let alone the debt itself; voices are getting louder claiming that the US dollar system has turned into a sort of Ponzi scheme, where new capital needs to be lured in, only to pay off old obligations. This “new capital” however is not used to improve wealth distribution, on the contrary, it seems to flow into the pockets of the wealthy driving further concentration of capital.

This scenario raises serious questions about the sustainability of the current financial system and highlights the need for alternative mechanisms. One avenue addressing many of the challenges in our current financial system, which is rapidly gaining prominence and mainstream adoption, is Bitcoin. Bitcoin is a public network that facilitates transactions, which are transparent to everyone. Moreover, the network operates in a highly decentralized manner, which makes it more resistant than any other system against manipulations through hacks and other type of attacks. However, one of the most important (but also at times highly contentious) attributes is the fact that anybody can use the bitcoin network, without the permission of any third party i.e. banks, other financial institutions or governments. This led to democratization of access to financial resources and revolutionized the way how capital can be transacted/moved globally, in an efficient and censorship-resistant manner, with reduced reliance on intermediaries.

Unfortunately, there are always two sides to a coin. At risk to be burned at the stake by the bitcoin community; I believe that instead of running blindly with the hype, there are certain important criticisms that have gone under the radar, pertaining to the global distribution of “BTC-wealth”, which need to be discussed. If we would like to introduce a new system that is supposed to improve our current situation, wouldn’t it make sense to choose a system with increased wealth equality? What is the point of replacing one wealth concentration system with another more technological wealth concentration system?

In order to understand what I am referring to, you can check out the figure above, where you will see that as of December 27^th 2024, 93% of all BTC in circulation are held in not even 200k wallets (data analysis performed on Dune analytics). Considering that the world population is currently at around 8 billion people, one doesn’t have to be a mathematics guru to understand that BTC’s global distribution is incredibly concentrated. To be clear, this should not come as a surprise, as other sources have also reported similar findings¹ in the past. To put it into a comparable phrasing as in the world inequality report stated above, under the generous assumption that each of the 198,518 wallets belong to different individual owners (which is likely not true): “A significant portion (approx. 93%) of global BTC-wealth is owned by approximately 0,0025% of the global population.”

Of course, there is an argument to be made, that in my calculation I am including BTC held in exchanges, that actually function as custodians for a larger number of individuals (which either cannot or do not want to store their own BTC). Consequently, my calculations may be heavily skewed in favor of BTC-wealth concentration. On the other hand, many would claim that if you hold your BTC in a centralized exchange, you don’t own BTC at all, instead the exchange owns it. Another argument is that it’s important to consider that Bitcoin is still relatively young and that as adoption grows, the distribution may naturally become more equitable, as more people get involved and as early adopters diversify or spend their holdings. However, wouldn’t that imply that a vast majority of people living on this planet would have to work very hard to produce goods and services for generations to come, to acquire a minor slice of the pie as BTC distribution equilibrates ever so slowly over multiple decades? How can you explain this to the vast majority of the people on this planet, that in an exclusive BTC society, they would be simply out of luck and would have to hope that their grand-grand-grand-children may get a chance to pick up some of the breadcrumbs that early BTC adopters left for them? Particularly, if we know that historically capital concentration doesn’t just redistribute more evenly in a spontaneous manner. Most importantly, isn’t all of that actually missing point of bitcoin and the reason why it was supposed to be invented in the first place?

From a long-term optimist’s perspective, I could see a scenario where governments in some way, shape or form incentivize people to use bitcoin to drive adoption and therefore increase BTC distribution. But why would a government or any institution give away the one asset that is expected to increase in value (due to its fixed monetary supply), in comparison to any other asset - I hear you ask? I could see a future where governments bought up all bitcoin to escape their respective debt-spirals and when all BTC supply in circulation is acquired, they would potentially be forced to give it to the people, otherwise nobody would transact and the lack of transaction fees would collapse the bitcoin network. As by that time, there would be no other incentive mechanism to keep the network running and likely the global economic system would depend on it, there would be no alternative as to drive transactions via increased BTC redistribution.

Yet, as we have established in the introduction, transactions are a fundamental part of a healthy economy. This is what facilitates goods and services to be produced and distributed, therefore extensive concentration of wealth can only be detrimental to economic systems in the long run. If we create a bitcoin economy of “have” and havenots”, the “havenots” can’t really transact much because they struggle to make ends meet, and the “haves” don’t transact because they have everything one could possibly own. Could it be that Satoshi Nakamoto didn’t take into account how BTC-wealth distribution would impact the bitcoin network itself?

1. https://www.frontiersin.org/journals/blockchain/articles/10.3389/fbloc.2021.730122/full

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4985877