"Inflation is a bad thing"
You hear the above on a daily basis in the crypto community. "Inflation is theft by central governments", "Inflation is forced taxation upon savings", "Inflation is monopoly abuse of central bank and central government's control of the money supply". For the most part, we're agreed. Something to consider though – is it a necessary evil?
When we think of bitcoin, we think of the current community: predominantly made up of technologists, bankless individuals, pioneers. What we're seeing increasingly more of though, is the potential future of bitcoin. Banks have started to take notice, institutions have started to take notice. Billionaires have started to take notice. What does this mean?
It means that, over time, bitcoin as a scarce asset is susceptible to becoming oligopolised, that is to say, concentrated in the hands of a few mega wealthy individuals and institutions who are able to hoard the digital gold at this relatively cheap stage.
I said susceptible, by the way, this is not a certainty.
We have imagined a vision of a new decentralised monetary system as a great equaliser, but I ask you to consider if bitcoin may be leading to a new age of wealth inequality?
Consider Michael Saylor's compelling case for buying and holding the one example in human history of a financial asset that cannot be inflated away, cannot be stolen in war, can be transferred instantly and is completely secure. Michael has said it himself: you never trade such an asset, you leverage against it. In the process, your wealth is safe, indefinitely.
But, is that fair?
We look at the top 1% of society and resent their collective negligence in equitable tax contributions. Likewise, we look at capital distribution and see that over 50% of all assets are locked up amongst that same select few. They rent, they don't sell. Appreciating assets allow these people to continue to gain liquidity and accumulate more wealth and, as yet, we have found no way to reliably recompense society.
Inflation, however, doesn't care about any of that.
Inflation treats you, me, Jeff Bezos, Michael Saylor, Exxon Mobil and Goldman Sachs as equals. Inflation takes our assets and applies an equal taxation on everyone's wealth, exactly proportional to the size of their assets.
Inflation mediated through central banks is then used to finance government spending and here, I agree, egregious abuses of power have made us seriously question the legitimatacy of such a policy. But ultimately, government spending is used for important things, even if it is wasteful along the way. Spending does pay for schools, roads, defense, hospitals. Spending is appropriated and, yes, we need to fight that, but there's a reason why Michael Saylor sees Inflation as the devil: because as a multimillionaire it disproportionately affects HIS ability to shield HIS assets from any degree of regulation.
So back to bitcoin.
The new economy denominated in bitcoin has no inflation. It has the opposite. The rich become completely isolated against any form of wealth redistribution even if their wealth was a pure product of their circumstances: Jeff Bezos' great great great great grandson will never work a day in his life but will still be as wealthy, if not more, than the original creator of Amazon.
Oh and by the way, this has happened before. A lot.
Look at pre WW1 ancien regime France, look at the established monarchies of England, Russia, and Europe. These dynasties lasted hundreds of years and, in a major way, represented an extreme income inequality that was facilitated due to a fixed inflation of zero percent. These dynasties persisted because no redistributive mechanism existed to move existing capital back into the collective.
To some extent though, Pandora's box has been opened. We do not have an uneducated society, and we have democratic institutions in place. The digital economy is, by it's very nature, more egalitarian than the nation state. However it's worth considering that inequality, especially long term inequality, typically predates conflict, as evidenced by the "Pre WWI" comment above.
So with Bitcoin, are we in the process of transitioning to a new world order, not of equal finance and opportunity, but of a landed bitcoin gentry that cannot be unseated?