I have done a decent amount of reading, research and other fun activities on blockchain technology and associated projects. Hell, I dabble in the blockchain programming every so often too. Now, I'm no Vitalik or Nakamoto by any stretch of the imagination, but I like to think that my adventures in Internet Assholery in the Crypto Realms have been educational and enlightening. I have a LONG way to go until I become an Internet Asshole you should listen to, but I have caught onto some patterns. Things that are the little unsung economic problems of the market.
Before I do that, I hope that many would agree with me when I say that Decentralization is a boon to our illustrious - though developing - industry. Decentralization is the key to a lot of problems that inevitably affect our centralized, traditional counterparts. This should come as no mystery to the seasoned bitcoiner or the Blockchain Developer. Several points of potential failure spread out all over the place is much better than a big ol' honking point of failure, flailing its flaccid meat in the face of bad actors.
Visualization COMPLETELY Unnecessary
While we have the idea of decentralization down for the data side of cryptocurrency, one might find that in many cases, it is lacking entirely on the market side.
Let Me Take You Back
So, in the late 19th/early 20th centrury, there was this guy named Vilfredo Federico Damaso, born as Wilfried Fritz Pareto in 1848. He was an economist, sociologist and had a beard that would put today's hipsters to utter shame.
Oh, Baby, Hold My Craft Beer
He could do mathematics like a boss, and according to a guy named Benoit Mandelbrot (LOOK AT THIS IMAGE and you'll immediately know what he is famous for) Had said,
His legacy as an economist was profound. Partly because of him, the field evolved from a branch of moral philosophy as practised by Adam Smith into a data intensive field of scientific research and mathematical equations. His books look more like modern economics than most other texts of that day: tables of statistics from across the world and ages, rows of integral signs and equations, intricate charts and graphs.
In a word, do you like looking at charts and graphs and such for Crypto? This guy right here - in part - made it possible.
But there was something else he was famous for. His observations on income distribution in places such as England led to what is now known as the Pareto Principle, or the 80/20 rule. Basically, if you were to look at the distribution of income of say Italy, the United States, whatever, you'll notice a trend; roughly speaking, 20% of the population tends to own 80% of the wealth. This is seen in many places, and if you're with me up to this point, you probably know what I'm about to tell you.
The Problem of Whales.
Pick a cryptocurrency, any cryptocurrency. Look at their blockchain explorer and observe the ownership amount of the top 20% of the holders. You will likely find that 80% of the asset is owned by these people. This isn't a hard and fast fact of course, and there are exceptions in some cases. However, you will see this pattern emerge in many places of ownership. It's a natural consequence of an unfettered market and the ability for people to freely buy and earn the currency of their choice.
As a quick disclaimer, I want to let you know that it would not serve me well to devolve this conversation into the economic or political nuances that accompany discussing free market capitalism, and I have no desire to do so. That being said, I will make one lone observation; There are whales in the crypto space, and they tend to hold a lot of power.
I need not go into further detail with citing the Steemit/Hive Community because you already know what I'm talking about. Our old boy Justin Sun owns a disproportionate amount of Steem and were it not for the actions of some Witnesses, would be able to overrule everybody. When you implment a DPoS system like Steem (or Hive, or basically any applicable crypto) you will run into a situation where well resourced actors can upend a community without a single thought. This is, in some respect, the consequences of a Pareto Distribution; Accumulation of power in a very centralized manner is a direct consequence of the system. We have seen this before in Tron; Binance SR holds a ridicuously disproportionate share of the votes, and along with the top 20 percent of folks at the top, they make up the lion's share of the power.
I think it goes without saying that history has shown that a state of affairs like this can be extraordinarily disrupting to a community.
So Ginger Man, What's the Solution Here?
Unfortunately, my limited research has not yet shown me an easy solution. When I say easy, I mean easy in the sense of maximizing freedom of the user base in question, while actually solving the problem. For example, say you had a DPoS Crypto, but a stipulation in the blockchain is that there is a hard cap on how much of the currency any one person/account/wallet can hold. Abuse and manipulation issues notwithstanding, this could in theory solve the problem to a degree. Or, it could simply shift the goalposts; even with a hard cap you can have subsets of people with less of the currency and a top 20% with a disproportionate share. I believe the latter would be more likely, and the consequences would simply be exacerbated by a community downtrodden by a simple rule. Their freedom of action would be compromised.
Another idea might be to shift the power of votes with the power being contingent upon the distribution of currency in the system. In short, the more you have, the less each vote per coin/token affords you. This has its own obvious problems, not to mention the seemingly monolithic task that would be globally assigning a "vote value" continuously on what could be considered a largely stochastic system of inflows, outflows, and exchanging. In any case, should someone with one token really have more or equivalent power than one with a hundred? It's a non-starter! The bigger thing that emerges from this is while you might be able to decentralize the power or the currency per capita, you run into an issue where a rule becomes a central feature of a distributed ledger. That... seems to me to be something that could very much be a problem.
So, being little more than your local Internet Asshole with an opinion, I leave the solution to you as homework. How would you try and solve this problem? Again, my knowledge is limited and I'm open to learning more from the community. Am I wrong! Tell me! I'd love to be corrected.
Until Next time, keep your eye on the markets and your Paretos distributed.